A plan to increase the rates paid by the ESB for electricity produced by independent generators should be "strongly encouraged", the industry regulator has said.
Mr Tom Reeves said in a letter to the Minister for Public Enterprise, Ms O'Rourke, that the proposal by Huntstown Power should be seen as short term only. This was because the plan could be "detrimental to competition" if introduced as a long-term measure.
He noted, however, that such an initiative could foster competition. Mr Reeves said: "The reality is that potential new entrants struggle to develop bankable projects while those independent suppliers already in the market find it very difficult to operate on a financially viable basis."
His letter was published last Wednesday, the day ePower, an electricity company controlled by the businessman, Mr Denis O'Brien, signalled it would abandon the market in October.
Mr Reeves was responding to a letter from Ms O'Rourke in which she sought his advice on the proposal.
Ms O'Rourke was concerned about the effect of rising energy prices on the viability of new power plants. She said: "I am concerned at the implications of this for the development of competition and, by extension, for security of supply in the medium term."
Huntstown Power, a subsidiary of the former Northern Ireland monopoly Viridian, wants to include a "capacity price" in "surplus" electricity it sells to the ESB. Such sales will be necessary because demand for power at any time rarely exactly matches capacity produced by generators.
The company's power station at Huntstown, north Dublin, will be commissioned next year. In the current regime, the ESB will pay only for the electricity it sources from Huntstown or any other independent plant, not the fixed cost of power.
According to Huntstown Power, the "capacity element" would reflect the fixed costs associated with power generation. This would increase the cost to the ESB by about 30 per cent.
Such a measure would underpin revenues of independent producers as competition emerges, Ms O'Rourke said. She said she was not proposing the measure, but merely bringing it to Mr Reeves's attention.
Mr Reeves said he was not empowered to require the ESB to take part in such a plan, but said it could ensure future electricity generation requirements were met.
