Huge Power Profits Hitting Business Consumers Heavily
The problems with the ill-fated Renewable Heat Initiative have dominated headlines pre-Christmas and since the New Year. With a potential cost overrun of some £490m over 20 years, it rightly gained the focus of the public and politicians concerned about the impact these costs may have on public services and the need to take action to pull costs into line.
During the 'heat' of the RHI debate, energy regulators in Northern Ireland and the Republic published a report on how well the electricity generators on the island are doing. The 'Generator Financial Performance in the Single Electricity Market (SEM)' report crept out on December 20 to little fanfare. It contains some startling reading for hard-pressed electricity consumers - both business and domestic.
Electricity generation, sold in what's known as the all-island SEM wholesale market, usually makes up around half of a typical electricity bill.
It is the largest single item followed by the costs to run and invest in the network, money to operate the markets and its systems, and increasingly government policy charges to support renewables, energy efficiency and other areas. What's left is a margin for the suppliers, the people who send customers the bill collecting the money for all the other parts of the sector as well as the government taxes and levies.
So, as the largest part of the bill, if our wholesale market operates efficiently and if the profitability enjoyed by generators is fair, then bills are reduced and we can provide competitive electricity prices for all consumers.
What the Generator Performance report does show, however, is huge margins and massive profits at the expense of the consumer. In 2015, some €906m (£782m) was made in operating profit across all the generators, a margin of some 34%. And, after one-off impairment charges are excluded, there was a net profit of some €355 (£306m), a margin of 15%. These are record numbers since these reports have begun to be published and margins only dreamt about in manufacturing and other parts of our economy. It's also 30 times more than what RHI will cost this year.
The 'body politic' is rightly concerned about any RHI squander. But so too should it be concerned about excessive profits in our electricity generators.
It may not be tax money to be spent on schools, roads or hospitals, but this is money domestic consumers spend on heating their homes and feeding their families and money which business would much rather spend on buying equipment, winning new orders and employing more people.
As Michelin said when they sadly chose to close Ballymena rather than another factory, "our energy bill in Northern Ireland last year was £9m - it has been an Achilles heel for us".
Sadly, the new 'Economy 2030' plan launched for consultation last month offers little hope that this 'Achilles heel' will be addressed.
All that is offered is the promise of another plan, an energy plan whose indicator of success is simply to measure if there's enough power being generated. Any new Executive must set a target for affordable competitive energy prices for consumers.
This will provide the direction for regulators and market operators to take action, and finally provide fair prices for consumers and not just large profits for the generators.
This article was written by Stephen Kelly, CEO, Manufacturing NI, and appeared on the Belfast Telegraph on February 7th, 2017