rose to move, That the Grand Committee do report to the House that it has considered the Electricity (Single Wholesale Market) (Northern Ireland) Order 2007.

The noble Lord said: The draft order was laid before the House on 19 February. It will enable the establishment and operation of a single wholesale electricity market. I emphasise that; the order does not relate to the retail market, but to the wholesale electricity market covering Northern Ireland and the Republic of Ireland. The single electricity market is a key building block in the development of a sustainable all-island energy market covering electricity and gas. The aim is to enhance the mutual economic and social benefits, including security of supply, from cross-border co-operation on energy matters.

Development of an all-island energy market has been a strategic policy objective since the time of the first Northern Ireland Assembly. I understand the initial work started in 1999, and that led to the signing of an all-island energy market development framework in 2004 and action to put in place the flagship element of this work, namely the creation of the single electricity market. The draft order itself is made under the Northern Ireland (Miscellaneous Provisions) Act 2006, and the Northern Ireland Act 2000. We welcome the constructive comments and common-sense approach to co-operation with the Republic of Ireland on the single electricity market that were made during the debate on the 2006 Act in June last year.

The proposal to legislate for reform of the existing wholesale markets in Northern Ireland and the Republic is set out in a Memorandum of Understanding between the UK Government and the Government of the Republic. Similar legislation has been introduced into the Irish Parliament. The principal objective of both pieces of legislation is to protect the interests of consumers. The single electricity market will bring together two small isolated markets to form a larger, more competitive marketplace. Along with improvements to both north-south and east-west electricity interconnection, the market is a sensible and practical first step towards longer-term British Isles co-operation within the wider UK/Ireland/France electricity market. The new market is set firmly in the context of the European Union’s internal market for electricity and natural gas and the growing regionalisation of national markets.

The project itself has been led and managed by the two regulatory authorities, the Northern Ireland Authority for Energy Regulation and the Commission for Energy Regulation in the Republic. They have worked closely together and with the industry to deliver the new market on time. It is an incredibly complex project, and they deserve support and commendation for their work.

The two regulators, in addition to their existing domestic duties, will be responsible for development and governance of the single electricity market. This will include common trading arrangements and licensing of market participants. Day-to-day trading will be managed by a market operator. This is being established by the two transmission system operators as a contractual joint venture.

The need to secure mutual benefits from the market was raised during consultation on the draft order. It is vital that consumers are the beneficiaries of the new market. Their interests have been paramount in the work done by the two governments and the two regulators.

The Memorandum of Understanding and the draft order make it clear that the new single electricity market should be a competitive market where there is effective rivalry between generating companies. We believe that this is in the best interests of consumers.

Maria Eagle MP, as Northern Ireland Energy Minister, has worked closely with the Irish Energy Minister, Noel Dempsey, to ensure that the necessary action is taken to deliver competition to the new market. They agreed that measures must be taken to tackle dominance and transparency in both the Northern Ireland and the southern markets.

The measures to address ESB’s dominance proposed by the Irish Government in their White Paper on energy published earlier this week are supported by the Northern Ireland Authority for Energy Regulation. The Northern Ireland direct rule Minister and I welcome the Irish Government’s commitment to opening up competition to their generation sector. It presents business opportunities for UK and Northern Ireland-based companies. But we must be realistic about how much competition can be delivered. The all-island market is still very small compared with European Union markets. While the market will cover a large geographical area, it will only be the size of Greater Manchester in terms of output and customers. It is vital to consumers who want the lights on when they turn a switch, but it is a very small and highly complex market which needs looking after as well as the introduction of competition.

This short technical order of 12 articles and 4 related schedules covers the provisions needed to get the market up and running. It was amended following the consultation exercise, but it was not possible to take on board all the proposals that were made. For example, the order was amended to cover best regulatory practice but it was not possible to include provision for a separate appeals mechanism to deal with licence modifications at this stage. This issue will, however, be considered further in light of discussions with interested parties on the existing arrangements for the single electricity market.

Articles 3, 4 and 5 of the draft order make provisions for the department or the regulatory authority to modify the conditions of licences for the generation, transmission or supply of electricity in connection with the single electricity market; the introduction of a licensing regime in respect of the function of the market operator of the market; and property arrangements schemes to facilitate the transfer of property, rights and obligations between the owner and operator of a transmission system to implement the single electricity market.

Articles 6 to 8 provide for the establishment of a special committee of the authority, to be known as the Single Electricity Market Committee—the SEM committee. It will take any decision regarding the exercise of certain functions of the authority where it considers that such functions materially affect or are likely materially to affect the single electricity market. Articles 9 and 10 provide for single electricity market-related duties for the department, the authority and the SEM committee when carrying out their functions in relation to the single electricity market. Articles 11 and 12 clarify the effect of the draft order on certain arrangements between licence holders and provide for certain minor and consequential amendments. I beg to move.

Moved, That the Grand Committee do report to the House that it has considered the Electricity (Single Wholesale Market) (Northern Ireland) Order 2007.—(Lord Rooker.)

I thank the Minister for his clear brief on a complex subject. I also thank him for making available to me his official Bill Team; I had an interesting conversation with them for some time this morning, which I found very helpful. But it is a very complex subject with a number of loose ends and is a brave challenge to those who are taking it on.

In principle, I support the concept of a single market within the United Kingdom and the 32 counties. I hope that the total single market within the United Kingdom and Europe will come sooner rather than later, because it will make the position considerably more realistic. The noble Lord pointed out that the size of the market in relation to this order is extremely small, scattered and sparse.

I have a number of questions. The first thing that one asks as an inhabitant of Northern Ireland is: what will happen to electricity prices? As a business person, you are thinking of the cost base, which between the north and the south must be very different, and if both sides are to have profitable businesses working in competition, that must lead to some complex differentials. The cost base of distribution, of power, the tax implications, the revenue from customs and excise are all different. We have quite a number of seriously different cost bases that must make trying to get some sort of parity within the 32 counties either very artificial or very difficult.

My next question is, after asking what price changes are expected in the short term and given that we have seen publications and a press release stating that there will be significant savings to both sides of the border in the medium term—not the long term, I hope—will Northern Ireland in the early stages be subsidising the Republic, because I believe that the cost base in Northern Ireland is considerably lower than is currently the case in the Republic? What is being done with the current contracts between NIE and the generators, which are very favourable to them, but very unfavourable to the consumers?

That was a short list of some of my questions and concerns. Putting on my cynical politician’s hat, I would like reassurance that I am not wrong to ask whether this is being done for real business reasons, or is it just for political posturing by both Governments? Having raised those matters, we support the principle of the single market. I would feel more comfortable in supporting it in realistic terms as a UK-Franco-Irish market than covering only 32-county Ireland.

I, too, thank the Minister for introducing the order and we generally welcome it. I wish to ask about an issue raised in the other place by my honourable friend the Member for Argyle and Bute. The order creates a single wholesale market covering the whole island, but each jurisdiction will still be responsible for its carbon emissions trading schemes and renewable support mechanisms. Those are created in paragraph 6.6 of the RIA, which points out that,

“differentials have the potential to distort all-island trading and could give competitive advantage to players operating in either jurisdiction to a greater or lesser degree”.

Furthermore, a negative instrument, which takes up a rather large amount of paper, has been tabled which impacts on this order—the Renewables Obligation Order (Northern Ireland) 2007, which give powers to the Northern Ireland Authority for Energy Regulation to impose obligations on generators. Clearly, if different obligations are imposed on generators in different jurisdictions, we do not have a fair single market. Perhaps the Minister will comment on that. Otherwise we support and welcome the order.

We also generally welcome the legislation. Before getting into the substance of the matter, I want to draw attention to some terminology. Terminology on matters connected with this subject can be very dangerous. It is very easy for people to make slips, particularly when describing geographic areas. I draw attention to the interpretation article of the order which defines the single electricity market in this way:

“that is to say the new arrangements in Northern Ireland and Ireland”.

I ask the Committee to note the terminology used: “Northern Ireland and Ireland”, and Ireland does not comprehend Northern Ireland. That is entirely correct. It was a consequence of the Belfast agreement of 1998 that the changes made to the constitutional law of both United Kingdom and Ireland brought into existence a new definition in Irish constitutional law of “Ireland”. “Ireland” now means what people in the past called the 26 counties, the Irish Free State and the Republic of Ireland. Those old terms are now obsolete and the correct description of the political entity to the south of us in Northern Ireland is Ireland. Using the term “Ireland” now refers only to that entity and does not include Northern Ireland. This is the modern terminology that people should use.

I realise that people tend to repeat old terminology and easily make mistakes. I noticed that particularly when I was looking at the otherwise interesting 12th report of the Merits of Statutory Instruments Committee, which, in its concluding paragraph on this, talks about establishing unified markets for electricity and gas in Northern Ireland and the Republic of Ireland. The use of the term “Republic of Ireland” shows that the Merits Committee is still very much in a pre-1998 mindset, as indeed are some others who have contributed to this debate.

In introducing this, the Minister referred to how in Northern Ireland and Ireland there had been two small isolated markets. That is absolutely right. One of the consequences is that we in Northern Ireland were—and still are—paying the highest electricity prices of any part of the United Kingdom. Consequently, when we formed the Administration in 1999, our intention was to see what could be done to reduce electricity costs and energy costs generally. That is why our objective right from the outset was not only to have the electricity interconnector but also to have a gas interconnection.

That was extremely difficult to achieve, but we did it and managed to ensure that there would be a gas network for all of Northern Ireland. To achieve that, my colleague Sir Reg Empey had to sell the Irish Government the idea of creating a pipe network around the whole island of Ireland—that is, including Ireland and Northern Ireland—in a single network and persuade them that they would benefit by adding a second gas interconnector, which would give them stability of supply. That enabled what the Northern Ireland Office has, for its own reasons, decided to term the “single electricity market”, as though it existed in Ireland and Northern Ireland alone, whereas, as the Minister pointed out, it will essentially be a British Isles market.

Part of the reason for enhancing the electricity interconnector was to enable Scottish electricity generators to sell electricity to Ireland, where they have a shortage of generating capacity. That demonstrates how this is upgrading essentially as a British Isles market, but we have this little bit of persiflage about a single island market, a single energy market and all the rest of the terminology which the current Secretary of State has been using as though he invented it, something of great significance and to do with bringing about an all-island economy, which is also another bit of useless verbiage. It leads some people to suspect, as the noble Lord, Lord Glentoran, suspected, some political motivation, but that motivation is only in the more deluded recesses of the mind of the present Secretary of State and does not reflect reality. I hope that nobody is put off by the Secretary of State’s effusions on this subject.

The substance of the matter will be for the benefit of people in Northern Ireland and Ireland by introducing competition, more supply and, I hope, by getting prices down to more reasonable levels, which we have long sought to achieve.

I am most grateful for the contributions to this debate and have taken to heart what the noble Lord, Lord Trimble said. When I read the Merits Committee report and I looked at the notes on my speech, I thought that I understood the term “Ireland”. There are some words I have not used in the past 18 months. In fact, today is the first time I have ever uttered the term “British Isles”; it was in my notes, it was in my speech and I referred particularly to France, which is a much wider issue. Some terminology is sensitive and modified; the noble Lord, Lord Trimble, is quite right about the modification and that people have not always caught up with it. However, in describing the geography in layman’s terms, I make no bones about referring to an all-Ireland electricity market. It is an easy way to describe what we are talking about. On the island of Ireland there will be one market, with shortages in some areas. It makes common sense and business sense to know that if you turn on the switch, the lights come on wherever you may live—whether it is a rural or urban area, north or south. It is a complex issue although the principle is easily understood and, I hope, quite straightforward.

The noble Baroness, Lady Harris, asked about distortions in the tax. The difference in tax and revenue regimes may impact on the type and magnitude of the generation between Northern Ireland and Ireland. We believe that there will be minimal distortion in wholesale prices and therefore to consumers. As I emphasised when I started, it is difficult to explain the concept, but this is about the wholesale market for electricity on the island of Ireland. There is a slight difference in the retail market.

Both economies have grown in the past decade—if I refer to the north and south, then we know what we are talking about. Energy consumption is rising. I understand that 10 years ago, no electricity flowed across the border. The network interconnection allows a more efficient use of power generation, and I understand that today, some 10 per cent of Ireland’s energy consumption is imported through Northern Ireland from Scotland, as the noble Lord observed. The second north-south main electricity interconnector is due to be completed no later than 2012, and that will double the transmission capacity, increase trading opportunities and improve stability of supply.

The trading with Great Britain will continue across the Moyle interconnector. The Republic of Ireland’s planned east-west interconnector will further enhance the security of supply and competition as well as a future integration of the Republic of Ireland into a wider British Isles market. It makes sense for everybody.

Electricity price is a contentious issue, as more than one colleague mentioned. I understand that. The legacy costs associated with the long-term generation contracts put in place at privatisation are the main reason why Northern Ireland electricity prices have generally been higher than those in Great Britain. In fact, even following the recent round of tariff increases, domestic tariffs in Northern Ireland are lower than in the Republic. I will come to some figures and percentages in a moment.

The noble Baroness asked about the impact on the renewables obligation legislation. The department in Northern Ireland is committed to ensuring the continued and effective operation of the Northern Ireland renewables obligation within the new single electricity market arrangements. The introduction of the single market does have implications for both jurisdictions, including the possible impact on the renewables obligation. It is a complex area and the subject of ongoing work between the authorities in both jurisdictions.

The differential in certain costs will lead to some retail differences. This goes back to the point I was making: this is a wholesale issue and there are cost differentials between the north and the south which will lead to retail price differences. What I can say is that citizens and taxpayers living in Northern Ireland will not be subsidising the republic. In other words, we believe that both jurisdictions will enjoy mutual benefits from the market, but it will not operate as a subsidy.

On the long-term contracts between the generators, the existing contracts will need to be amended to facilitate the introduction of the single electricity market. It is anticipated that the existing commitments under the contracts will be unaffected. The single electricity market will create competitive conditions which would allow the regulator to cancel these contracts after 2010 if that was in the best interests of the consumer.

Regarding prices, here I enter a caveat: this is the wholesale electricity market, not the retail one. We believe there should be downward pressure on wholesale costs that ultimately will be passed through to retail prices. On current wholesale price projections, electricity prices on average could rise in 2008 by 0.9 per cent in Northern Ireland and by up to 3 per cent in the Republic of Ireland. There is an advantage to the north in this, but there is a historical reason for it. As I have said, I understand that the condition of the transmission system is quite different in the jurisdictions and much more investment needs to be made in the Republic of Ireland, given what has happened in Northern Ireland over recent years. However, the point to make here is that Northern Ireland consumers will not end up paying for the modernisation of the Irish electricity system. While there are mutual benefits, there has to be fairness as well.

The last point responds to the final question put to me by the noble Lord, Lord Glentoran. It shocked me somewhat when he referred to this as being “political posturing”. Given the fact that I have the background to this in my own notes, this process was started off by the Northern Ireland Assembly. Indeed, I think that the noble Lord, Lord Trimble, can confirm that. So it is hardly political posturing on the part of the Government or anyone else when, as is the case for so many of the changes and reforms taking place in Northern Ireland today, the genesis for them can be traced to the early days of the Assembly. Local politicians who had a grip on the situation were asking, “How are we going to run the show? What do we need to change in the future? We need reviews, discussions and consultations on many issues”. This is just one of those and it has come to fruition. However, it is by nature incredibly complicated.

I hope that I have responded to all of the questions put to me, but if I have not I shall certainly come back in writing. However, we should try to get as much done in Grand Committee as possible. Given that there have been no interruptions, I commend the order.

On Question, Motion agreed to.