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20th April 2021

PR5: Providing an investment framework for a lower carbon future

In December 2020, the CRU put forward its decision of its fifth price review (PR5) that set out the expected allowed revenues for the network companies, ESB Networks and EirGrid, for the next five years until 2025, as well as examining the cost and performance in the previous five years.

In the decision, the CRU has approved €4 billion in capital investment and in doing so provided access for the network companies to the funds necessary to deliver the Climate Action Plan, while placing strong incentives on both EirGrid and ESBN to facilitate the transition to a low carbon future and provide better service for customers.

While this is a detailed piece of work that the CRU undertakes every five years, this cycle came at a particularly important time for the evolution of the electricity networks as it will play an important role in enabling the transition to a low carbon system by 2030 and ensuring security of supply for Irish consumers.

The Climate Action Plan 2019 and the recently approved Programme for Government 2020 set the energy sector in Ireland a collective challenge to decarbonise electricity while delivering security of supply, facilitating consumer and community engagement, against a backdrop of significant electrification of heat and transport and rapidly increasing demand.

EirGrid and ESB Networks have a crucial role to play in the successful delivery of this vision for Ireland’s future. The PR5 decision demonstrates that the CRU is fully committed to facilitating this transition in a manner which supports security of supply, an economically efficient delivery, and the protection of the consumer interest.

The key objectives for this price review were to:

  • Facilitate a secure low carbon future;
  • Resolve local security of supply issues;
  • Transform the role of ESB Networks to support this; and
  • Increase efficiencies in the system and protect customers.

Transmission

Under the objectives, the increase in investment required is clear to see and represents a significant change in revenue when compared to the previous PR4 decision, illustrating the CRU’s ambition to facilitate a low carbon future. A 52% increase in Transmission Operational Expenditure to €1.6 billion between now and 2025 has been approved, with a 35% increase in Gross Transmission Capital Expenditure.

Distribution

In terms of distribution, a 20% increase in Operational Expenditure has been approved to a total of €1.7 billion, with an 84% increase in Gross Capital Expenditure (an increase of €1 billion) to €2.8 billion. While these increases are considerable, they reflect the need to facilitate the changing role of the DSO and its role in facilitating the transition to a low carbon future. The Agile Investment Framework allows for flexible and innovative approaches to the changing needs of the system.

Agile Investment Framework

The CRU took the decision to introduce an Agile Investment Framework in PR5, primarily to accommodate uncertainty and the changing needs and demands of the electricity networks and market and to ensure that the necessary funding is made available to achieve the targets set out in the Climate Action Plan and Clean Energy Package.

This must be done in a way that also protects consumer interests. The CRU’s Agile Investment Framework includes mechanisms to support new system needs, such as low carbon technology and new connections and to support innovation projects that may not be identified yet.

The framework will also see an enhancement to the current incentive and the reporting framework with a focus on visibility, flexibility and facilitating the integration of renewable energy. In addition, the changing role of the DSO, addressing security of supply issues and reducing costs for consumers are key considerations.

The next five years will be transformational for the Irish energy sector as we continue to lay the groundwork to achieve our 70% renewable electricity targets, increase the take up of low carbon technologies such as EVs, provide new smart energy services and facilitate active customers and communities contributing to a secure low carbon future.

Overall, the CRU considers that the PR5 decision provides a balanced package with sufficient funding and appropriate incentives from which ESBN and EirGrid can successfully deliver the ambitious programme of work needed to realise our low carbon objectives. The challenge now is for the companies to make the step changes necessary to deliver those objectives.

Aoife MacEvilly
Chairperson
CRU