Warning that excess capacity could hit profits
IRELAND’S electricity market could soon suffer from "excess capacity" lowering prices for customers but hitting profits for utilities, the ESB has warned potential bond investors.
Over-capacity may arise because of the number of power plants built in recent years. The company warned that lower prices and a drop in profits could result unless one of the players here mothballs one of their plants.
Two new plants will be commissioned over the next year and wind-energy capacity is being added each year, the company has warned.
In a document seen by the Irish Independent, the utility warned that the Irish market was small by international standards and the addition of even one new plant had a major impact on capacity.
Adding to the potential glut is a new east-west interconnector that will bring in 500 megawatts of capacity. As supply quickly rises, demand for electricity is falling fast as the recession lingers.
These two factors mean Ireland could be facing an over-supply problem, although this is likely to benefit customers, rather than the utilities.
“Combined with a fall in demand in 2009 and the potential for further reductions in the future, the single electricity market faces the possibility of excess capacity until extra demand materialises, or some existing capacity closes,” the ESB said.
“Surplus capacity could result in lower power prices and reduced profits, or losses, to generators in the single electricity market, including the ESB group,” it added.
A major contributor to the build-up in capacity has come via the wind-energy sector. While individual wind projects do not produce a large output, the sector is becoming a major source of extra capacity.
In addition, Spanish utility giant Endesa has applied to build a 430 megawatt power plant at Great Island in Wexford. If permission is granted, the new plant should be commissioned in 2012.
Sean Quinn is also planning to build a power plant in Co Louth at a cost of about €390m, although this has been stalled by difficulties getting approvals from the Environmental Protection Agency.
The ESB still maintains enough capacity to generate 4,367 megawatts of power, according to estimates by the Commission for Energy Regulation.
Asked to comment yesterday, the ESB said: “The introduction of extra generators into the market, in conjunction with uncertainty around growth levels in demand, could lead to surplus capacity.
However, this does depend on the level of any new generation and whether there is any sustained fall-off in demand.”