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Marginal Cost of Electricity Service Study

7 January 2004
By Dr. Hethie Parmesano and Amparo Nieto with former NERA Senior Consultant Dr. William Rankin

The Commission for Energy Regulation retained NERA to prepare an estimate of the marginal costs of supplying electricity in Ireland. This report quantifies the marginal costs of electricity service by addressing the additional costs that would be incurred with changes in kilowatt-hours of energy, kilowatts of demand, and number of customers. Specifically, the study estimates the marginal costs of generation, transmission, distribution, and supply activities in Ireland as part of an analysis of alternative tariff structures for Transmission Use of System charges, Distribution Use of System charges, and Public Electricity Supply tariffs.

In this study, the authors examine the planning processes employed by the regulated companies in the electric power industry to determine what drives new investment and purchase decisions and how changes in consumption affect system operations. However, the introduction of competition to the electricity retail market in February 2005 and the anticipated inception of a fully competitive wholesale market in February 2006 will most likely spur further evolution in the electric power industry structure in Ireland. As a result, the basis for the marginal costs of generation, transmission, and ancillary services will continue to change.