1. Emissions Trading Potential North / South Impacts Eugene Coughlan Head of Generation & Environment

2. EU pilot emissions trading scheme – 2005/7 for emissions of carbon Applies to all power generators and large industrial installations National allocation plans (Northern Ireland (UK)) & Republic of Ireland) remain to be finalised after consultation Implications on North / South energy market therefore not clear at this stage Context

3. Elements of scheme I Cap and trade approach –existing installations allocated percentage of required allowances free –based on historical emissions – must then purchase allowances to cover the shortfall –current carbon price – 12tonne

4. Elements of scheme II Allocations to generators in Northern Ireland and in Republic of Ireland are provisional Those generators in Northern Ireland may receive a higher allocation of free allowances – potential impact on North / South energy market

5. Republic of Ireland - NAP Consultation on NAP finished 10 th March – plan to be finalised by 31 st March 14 million tonnes allocated annually to powergen sector Taken from powergen pool of allowances - known powergen developments (Tynagh and AA), new peat plants Assumed renewable targets will be met on time (13.2% of consumption by 2010 / 12) Allowance for CHP developments also Average of 77% of required allowances given free (historical emissions)

6. Northern Ireland - NAP Part of UK National Allocation Plan 90% free for existing generators Coolkeeragh position unclear Any update?

7. New Entrant Treatment A factor in the location decision of a new entrant RoI – 1-2% available allowances held for new entrants ( in all sectors industrial and powergen) Restrictions on percentage of such allowances which can be used in one year New 400MW CCGT requires 1.4 million tonnes (yearly base load) – this is less than available in new entrant pool Northern Ireland –pool for new entrants expected to be larger

8. Treatment of emissions trading costs by regulators is key Incremental cost – cost of the extra permits required – pass through to customers Opportunity cost – cost of holding free allowances – pass through to generation price to reflect intent of Directive and to incentivise new entry Treatment of Costs

9. Recommendation from CER of full cost pass through Why? Need for generation in 2007 – prices need to be high enough to cover the marginal costs of the new entrant generator Correct price signal to customers – renewable energy more attractive Need for recycling to protect customers from very high retail tariffs – but maintain carbon signal Costs of emissions trading - treatment

10. Emissions trading beneficial to renewables Conventional generation reflect true costs of generation (actual and external costs) Renewables more competitive Full costs pass through better for renewables Renewables

11. Potential Implications I Increased wholesale and retail tariffs in Northern Ireland and Republic of Ireland Relative increase will depend on allocation of free allowances AND cost pass through decisions of regulators / policymakers Generators will wish to sell into markets which command highest wholesale prices Estimates in RoI of 14% increase wholesale resulting in 7% increase retail (full costs pass through)

12. Potential Implications II In Northern Ireland expected smaller impact on retail tariffs - 2% In Northern Ireland depends on regulatory controls / developments in generation, distribution and supply Shifts in merit order in both markets – less carbon emitting plants more attractive

13. Summary Wholesale energy prices will rise – amount will vary depending on allocation decisions and decisions of cost pass through Retail price impact a matter for regulator New entrants may be more attracted to where there are more free allowances yet wish to sell where wholesale price is higher Positive impact on renewables greater where there is full costs pass trough At this stage potential impacts on exports and imports North and South unknown