1. Irish Electricity Market Overview & Procurement Opportunities Peter Duffy Enercomm International

2. Current electricity market New electricity market The Supply business & Suppliers in the market Electricity Tariffs Components of electricity prices & Price Increases Supply Options & Scope for savings Seeking the best deal for your company Suggested approaches Longer-term options including multi-utility supply Overview of Presentation

3. Todays Electricity Market Licenced generators sell bulk power to licenced suppliers –These are termed Bilateral Contracts –Shortfalls & surpluses are dealt with by Top-Up & Spill TSO dispatches conventional plant –Wind generators (normally) self dispatch –Wholesale settlement done by SSA Suppliers supply customers & issue bills –Based on their tariffs & electricity usage (metering) Green suppliers must balance on an annual basis –Green tracking done through settlement system by SSA

4. Mandatory centralised pool (all* gens/suppliers) Eirgrid will be the SMO (System & Market Op.) LMP (locational marginal pricing /nodal pricing) CER & SMO will determine the nodes to be used SMO will dispatch energy & reserve together Settlement at spot market prices for actual vol.s –Generators will be paid LMP –Suppliers will buy at Universal Price (ex.dispatchable) Gens & suppliers can hedge risks (CFDs/FTRs) Irelands New Electricity Market

5. Supply Business with TU & Spill Gen2 Gen3 Gen1 Sup1 Sup2 Sup3 Bilateral Contracts All electricity traded bilaterally between Gens to Suppliers Shortfalls & Surpluses addressed through TU & Spill Top-Up & Spill Cus.1 Cus.2 Cus.3 Cus.4

6. Supply Business with Pool Gen2 Gen3 Gen1 Sup1 Sup2 Sup3 POOL SMO All electricity traded through pool, not from Gen to Supplier Hedge is bilateral contract between Gen & Supplier Hedge Cus.1 Cus.2 Cus.3 Cus.4

7. Airtricity Viridian Energy (Energia) ESB Independent Energy (ESBIE) Bord Gáis CH Supply Ltd. Bord Gáis - Cogen ESB Customer Supply (ESB PES) Suppliers in the Market

8. Regulated tariffs –Approved/published by the CER for ESB PES –ESB PES cannot vary these Unregulated tariffs –Driven by competition –Independent suppliers can devise/develop their own tariffs, and compete in the market Electricity Tariffs

9. Urban (Standard, Nightsaver and Group); Domestic Rural (Standard, Nightsaver and Group); Residential Business Premises; Commercial and Industrial General Purpose (Standard and Nightsaver); Commercial and Industrial Maximum Demand (low voltage); * Maximum Demand (medium voltage); * Maximum Demand (38kV); * Maximum Demand (110 kV) – transmission; Public Lighting Regulated Tariff Categories

10. Come in all shapes & sizes Some simply track the equivalent PES tariff –offer a percentage discount Some broadly track equivalent PES tariff –May offer a flat winter/summer price element –Result in majority savings achieved during winter Others are more sophisticated, numerous elements –Can be quite opaque & difficult to compare –Can deliver good savings –More suitable to large & very large users Unregulated Tariffs

11. Essentially five compnents in the price: –* Energy (generation & losses) –TUoS (Transmission Use-of-System Charge) –DUoS (Distribution Use-of-System Charge) –* Suppliers margin –Levies (PSO & Capacity Margin) * Energy & Suppliers margin are the competitive elements Components of Electricity Prices

12. Approx. Break-down of Price

13. Assume independent suppliers buying most of their power from new independent generating plant BNE price reasonably represents capital/fuel costs BNE price for 2004, fuel = 61%, all other costs 39% –Approx 6 to 4 ratio Assume fuel costs in 2005 increase 10% over 2004 –Then this should increase energy costs by 6% In last slide, energy is approx 75% of supply costs –10% increase in fuel costs 4.5% increase in elec. Costs –20% increase in fuel costs 9 % increase in elec. costs Basis for Price Increases

14. Fuel –To what extent have independent generators hedged their fuel (gas) prices versus spot purchases Wires Charges –CER reviewing the wires charging regime –4% increase in these would result in approx 1% increase PSO –CER has published possible levy –50% increase in these would result in approx 1% increase What is Driving Price Increases

15. EU Emissions Trading On average the powergen sector has received 77% of its CO2 permit requirements free Wholesale prices should reflect the full costs of CO2 Intended to claw back all windfall gains Pass Through of Allowance Shortfall Cost in 2005 – Gens to submit quarterly reports to CER 100% Allowance Cost Pass-Through and Recycling in 2006 – Enabling legislation required to levy generators

16. Consider 2006 Assume 30 TWh total elec. & 16.5 Mtonne CO2 Assume 10/tonne CO2 23% shortfall 16.5 Mtonne CO2 Cost of 23% is 38m Represents 0.127 cent/ kWh BNE 2004 price is 4.79/kWh Represents approx. 2.6% increase relative to BNE Impact of EU Emissions Trading

17. Stay with or revert to PES on published tariffs Sign suply contract with independent supplier –One or two-year contract or longer –Fixed energy price with pass-through of reg. Charges –Variable energy price with pass-through of reg. Charges Take out a supply licence (self supply) –Must now negotiate with generator rather than supplier –Greater admin costs, low economy of scale –Difficult to cut a better deal or costs than supplier Supply Options Short & Medium Term

18. 1-year v. 2-year Contract Offer No advantage for wires charges & levies –Cannot avoid them; will be included in both Advantage in 2-year contract if gas prices rise –Possible advantage in production planning when energy costs are largely fixed for two years Disadvantage in 2-year contract if gas prices fall –It is hard to see energy prices falling significantly Ensure there is common understanding in applying CER-approved increased charges for 2 nd year

19. 2-Year Contract Changes in both Wires charges and PSO levy will be passed through In effect, approx 75% of the electricity price for 2004 is fixed at the 2003 price –The remaining 25% (approx) subject to change –Price clarity for the year & low risk Supplier takes the risk of fuel (gas) price increases and other generation costs –Makes sound economic sense in a price-rising market

20. Suggested Approach If large production facility seeks to fix its costs over a longer rather than shorter period –For example labour, input and energy costs –Then 2-year contract offer is the better option This fixes approx 75% of electricity costs Enables better financial/production planning over 2-year horizon If seeking to fix costs over a short period –Then 1-year contract offers the better option

21. Seeking the Best Deal Forecast demand for next two years based on historical demand & future production plans Invite bids from independent suppliers –both 1-year and 2-year bids Analyse bids against forecast –Suppliers usually have their own bid format –Is bid for forecasted (not suppliers) profile? –Check supply conditions, no hidden costs/surprises Seek last minute negotiations; can bring results Check that savings achieved during contract

22. Is natural gas coming to your location? Is there scope for CHP or polygeneration (electricity/heating/cooling)? Is there scope for autoproduction (on-site generation)?; significant wires savings Stake in gen plant?; multinational supply? Possible savings through multi-utility supply? –Electricity, gas and telecoms Supply Options Longer Term Considerations