merrion street

Good morning, ladies and gentlemen. I want to thank the IBEC-CBI Joint Business Council for hosting this timely event during the Irish Presidency of the European Union. It gives me great pleasure to address this morning’s session with Minister Arlene Foster.

I want to frame today’s discussion in the context of our experience in implementing the Internal Energy Market and our experience on these islands with energy cooperation to date. The Third Energy Package was agreed in 2009 to give legislative effect to this goal, with the aim of contributing to economic growth and jobs and to achieving secure, sustainable energy at affordable prices.

The European Council has set a goal of 2014 for the completion of the internal energy market. And we can expect the Heads of State and Government to return to this topic at their next meeting, on the 22nd May.

There is no doubt but that our gradual movement towards enhanced energy market integration and cooperation in these islands over the last five years has had, and will continue to have, many benefits.

However, while considerable progress has been made towards a fully functioning internal energy market across the Union, the Commission acknowledges that obstacles remain. Their Internal Energy Market Communication, published in November 2012, reflects on how the Internal Energy Market can fulfil its considerable potential and deliver real benefits for all energy consumers, including households, industry and business. It contains an assessment of the progress made so far in completing the internal energy market, as well as identifying the remaining obstacles to completion.

The Communication proposes a detailed set of practical actions whose full implementation would enable Member States to achieve a well-functioning and effective internal energy market. The identified actions are not new. They reflect the need for all actors – governments, regulators, the energy industry and the EU Commission among them – to ramp up the pace of their work to ensure successful implementation of the internal market.

The Irish Presidency is shaping the detailed discussions that will bring about agreed Council Conclusions on the Communication. At the February Energy Council in Brussels, we had a very positive discussion on the matter. The Conclusions will reflect the opinions of the Member States and will aim to support the Commission in our shared objective of completing the internal market. I am confident we will secure approval of these Conclusions at the 7th June Energy Council.

The Single Electricity Market, or SEM, has been referred to by Minister Foster in her address and rightly so. It represents one of the first markets of its kind in Europe, creating a single market for the trading of wholesale electricity on the island of Ireland and joining two hitherto separate electricity markets, in two EU Member States. At the launch of the SEM in 2007 the then Energy Commissioner said that this market significantly contributed to the completion of the internal energy market. He added that such a regional initiative should be widely copied.

The market has worked well since November 2007 and it continues to deliver benefits to consumers and industry, through the use of efficient generation plant to meet demand across the whole island. The SEM model of setting prices in a transparent and cost reflective manner assists in promoting competition and attracting new investment. It has also resulted in improved availability of generation plants.

The ESRI has described its implementation as one of the key successes of Irish energy policy in recent years, on the grounds that the SEM has ensured a secure supply of electricity and provided sufficient certainty for investors to ensure adequate investment.

This brings me to the matter of the interaction of the Single Electricity Market with our neighbouring markets and how that can be aligned with the Third Package-driven electricity Target model. As many of you are aware, the regulators have been grappling with the challenge of how to do this since 2011.

The specific question is how to develop the SEM to make it compatible with the Target model for trade on cross border electricity interconnection.

While the European Council have set a goal for Internal Energy Market completion by 2014, the SEM has until the end of 2016 to become fully compliant. This extension was granted in recognition of the peripheral, central dispatch nature of the electricity market on this island.

Even with this extension, this is an extremely demanding timescale within which to redesign the SEM. I was pleased to see the SEM Committee’s Decision Paper in February on the next steps. Published alongside this document on the All Island Energy Project website, is the governance framework for the project. This has been developed by my Department and the Department of Enterprise, Trade & Investment in Northern Ireland.

Transparent and meaningful stakeholder engagement has been a hallmark of the process thus far. I know that such engagement is an integral part of the next phase of the project. I commend the work of the Project Team to date. I encourage all stakeholders to continue their productive engagement with the project.

For my part, I will continue to monitor this process closely. My Department, along with DETI in the North, has formally endorsed the SEM Committee’s recommendations as set out in the “Next Steps” Decision Paper.

This discussion of SEM and its achievements reminds me of one of its particular design features, the capacity payments mechanism. This has certainly contributed to the success of the market in terms of security of supply and creating a good climate for market participants and investment.

Related to the Commission’s Communication on the internal market, which I have already mentioned, is its consultation on generation adequacy and capacity mechanisms. The design and operation of the SEM capacity payments mechanism is relevant to this consultation.

The Presidency is in listening mode on this question, as others are. There are of course varying views on both generation adequacy and capacity mechanisms across the Union.

Some Member States have highlighted that, in the interests of security of supply, they must have room for manoeuvre to deal with generation adequacy, given their own particular national circumstances. Other Member states have difficulties with such mechanisms. I have learnt much that is useful about the significant challenges in generation adequacy faced in other markets, from governments and industry.

I can understand how such mechanisms might distort cross border trade, depending on how they are designed. In the SEM market, I note that the mechanism is for capacity only and the energy element is remunerated separately. Regulatory stability of the existing mechanism in our regional market is important.

I expect that the next steps from the Commission side will be this summer, in terms of guidelines on the subject. These should be flexible enough, in my view, to take into account Member State’s individual energy circumstances.

In any case, regional cooperation in the development of capacity markets is of course essential. We have found our dialogue with Northern Ireland and the UK government on the question of capacity payments, and generally on energy issues, to be enormously valuable to date.

A physical manifestation of benefit of cross-border cooperation is shown by the East/West Electricity Interconnector. The Interconnector is a strategically vital energy project for the island of Ireland, a hugely significant step in delivering electricity connectivity between Ireland and Britain and also a step towards lessening our isolation as an energy market.

Investment in infrastructure such as this is critical if we are to achieve an internal market that functions in reality. The market cannot expand overnight, to include every European customer, just because common trading rules are agreed. The size of the real functioning market will be determined by the capacity of interconnection.

If further direct interconnection, not just with Britain but with the European mainland, becomes a real possibility, this will enable a gradual greater integration with British and European markets. When such trading becomes a reality, relative prices will then influence which way the flows will go – whether we become a net importer or exporter of electricity.

Considerable progress has been made on important gas and electricity infrastructure, in the context of the projects of common interest under the EU Regulation on Trans-European Energy Infrastructure. I’m pleased that, following considerable North South co-operation in identifying projects, we expect agreement will be reached in the autumn. This should help to stimulate the private investment which will be key to further progress on these projects and, as a result, significant further improvement in our energy infrastructure.

As you will no doubt be aware, on the 24th January this year my UK counterpart Edward Davey and I signed a Memorandum of Understanding that clearly signals our joint interest in developing the opportunity for trade in renewable energy. Though it is ambitious, our target for completion of this work, by signing a formal Inter-Governmental Agreement, is early 2014.

I would strongly encourage all involved to follow this example and pursue the development of a new Single Electricity Market in accordance with the Target model.

Our aim is to make this happen by 2016. This will contribute further to the completion of the Internal Energy Market and will benefit both customers and industry on these islands.

Finally, cooperation on these islands on energy projects of mutual benefit will help us collectively move forward to a better energy future. Conferences such as this one help to cement relationships and to generate ideas and projects that can further enhance beneficial cooperation in energy. We would like to be in a position at the next such event to be able to add to the list new examples of energy cooperation and enhanced market integration on these islands.

Thank you.