Presentation by Stephen Kelly of Manufacturing NI to the NICVA Centre for Economic Empowerment Masterclass on Energy Markets in Northern Ireland (17 October 2014)
This presentation covers the cost of energy and its impact on Northern Ireland business, especially large manufactures, and the importance of this to the economy. The difference between the cost of generation and the price paid, where the policy priorities lie, how manufacturers are coping with high costs and what the response should be.
2. Why is manufacturing important?
Far from being a twilight part of our economy, manufacturing generates annual sales approaching £20 billion, directly employing almost 80k people, supporting production and employment in a wider supply chain and creating jobs and strong communities in every constituency across Northern Ireland.
You are just as likely to see world-beaters in rural communities as you are in technology centres and industry parks.
3. What’s the ambition?
“Europe must re-industrialize. The target is 20% of GDP”.
EU Director General for Enterprise and Industry, Daniel Calleja Crespo
Manufacturing currently represents an estimated 12.5% of GDP. Just think what achieving 20% would do for the local economy and for communities right across Northern Ireland!
But, this is only possible if we resolve the issue of competitiveness.
4. How do we get there?
The issue isn’t one of demand, quality of innovation…
… the issue is the cost of doing business.
Richard Ramsay, Chief Economist, Ulster Bank
5. Our vision… To create the most competitive region in Europe in which tostart, sustain and grow a manufacturing business, thus creating wealth and work.
7. The third largest input cost for business after labour and materials.
NI manufacturers suffer the 2ndmost expensive electricity in Europe.
Our electricity is 20% more expensivethan Republic of Ireland.
8. It’s the same picture for smaller companies –either the 2ndor 3rdmost expensive Electricity in Europe.
Only “Very Small” (up to 20mwh) businesses enjoy something near a European median
14. Generation and
Fuel costs
Impairment and Capacity Costs
Generator Margins
Add- Ons (PSO etc)
Network Costs
20%
Retail Margin
5%
Typical Business Customer Bill
15. Little can be done
Sorted! Dealt with by Price Control
Minimal wins –Competitive market
Generation and
Fuel costs
Impairment and Capacity Costs
Generator Margins
Add- Ons (PSO etc)
Network Costs
20%
Retail Margin
5%
Typical Business Customer Bill
16. Where customers need intervention and strong regulation!
Little can be done
Sorted! Dealt with by Price Control
Minimal wins –Competitive market
Generation and
Fuel costs
Impairment and Capacity Costs
Generator Margins
Add- Ons (PSO etc)
Network Costs
20%
Retail Margin
5%
Efforts should concentrate where the big wins are
20. There was a commitment to update and publish this report in Q1 of 2014… it has still to be published!
Are our Regulators (N & S) designing a new market without a contemporary analysis or understanding of how the participants in this market are performing?
As a minimum, this information has not been disclosed to customers! Why?
21. Just a word about gas…
Gas, where available, is an obvious choice –cheaper, more competitive
However, there’s been sudden rises in ‘conveyancing’ charges
News of the closure of a major manufacturer, representing 5% of all the gas volume, will add £1m of charges to all customers
22. What are manufacturers doing?
Onsite generation
if they can find the investment AND afford the scandalous cost of connection
Energy Reduction
if they a can get the capital
Aggregating supply
if network operators will get their act together
Leaving!
Anything to get their bills down!
23. The impact?
As customers go off grid or lost to NI, all the costs are shared amongst a smaller group of customers
Broader shoulders, but weaker knees!
24. What needs done…
There are fundamental interventions which need immediately addressed:
We need to set an NI Executive target for affordable, cost competitive energy.
the allocation of network charges across customer groups must be cost reflective
excessive profits for generators and the SEM Operators must be addressed
25. What needs done…
There are fundamental interventions which need immediately addressed:
Competition to address the cost of making connections
Drill down and ensure ‘add-on’ costs from NI government policy are in the interests of customers
Support for on-site generation and efficiency
26. Finally…
We need a customers collective. Representative groups from domestic and business consumers to come together and demand affordable and cost competitive energy.