Rising demand, stagnant supply: Burning questions for Irish electricity network

Homes and businesses face further energy price hikes in 2022 after natural gas costs soared once again in the days before Christmas. Gas traded at a new record high of €5.04 a therm – the unit in which it is traded – on the London market.

The latest surge repeats a pattern that began last spring as Covid began receding. As activity picked up, it became clear that there was not as much gas in storage as had been thought. Meanwhile, tensions between the European Union and Russia, which supplies much of the fuel, contributed to the squeeze. In the weeks before the latest peak, gas had been selling for five times the price it fetched a year earlier.

Rising gas prices on world markets have been driving up Irish energy costs since spring 2021. As burning the fuel generates almost 60 per cent of the electricity we use, homes and businesses saw energy costs rocketing also.

Most suppliers announced several increases between April and December. Price comparison specialist Bonkers.ie calculates that some families are paying €1,300 more a year for electricity than they were 12 months ago.

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Government hopes that the problem is short term. With that in mind, it agreed that all customers should get €100 off their bills next March. Unfortunately it is likely the situation will persist well into 2022, past the point where everyone has spent and forgotten the €100.

From early January through to September 2021, electricity market overseers issued eight 'amber alerts' warning that demand had stretched the system

Suppliers buy gas and electricity months ahead to ensure they can meet their customers’ demand. Current prices are likely to determine the cost at which they are doing this, so they will continue to pass that on.

Before the Government begins praying for an unlikely easing in gas prices, it will be watching the weather forecast more keenly than usual in coming weeks for signs of a prolonged cold snap.

From early January through to September 2021, electricity market overseers issued eight “amber alerts” warning that demand had stretched the system close to its limit. In essence, the alerts pointed out that the capacity held in reserve was less than optimum, and that any problems on the system – say the unforeseen shutdown of a power plant – could bring the prospect of power cuts closer.

The risk was more acute close to Dublin, where demand for electricity was obviously highest.

Demand

A particular combination of problems created the situation. One was electricity demand, which hit a new peak of 5,535 megawatt hours for a few hours at points in early January. That was in part due to the exceptionally cold weather which hit western Europe, including Ireland, around that time.

Low wind speeds during the cold snap aggravated the problem, as did the temporary shutdown of two gas-fired power plants – the Bord Gáis Energy facility in Whitegate, Cork, and one of Energia's two generators in Huntstown, Dublin. Energia returned to production at the end of the year while Whitegate was due to do so before the likely worst of winter weather.

National grid operator EirGrid said the power plants' return would make this winter a lot more comfortable. Its chief executive, Mark Foley, went so far as to say on national radio that people could sleep easy knowing that nothing was likely to hinder electricity supplies.

Nevertheless, rising demand and stagnant, if not falling, supply have brought the Irish electricity system to a crossroads. The risks may have abated for this winter but, as current trends seem likely to continue, the problems encountered this year could easily arise again in the near future.

Auctions meant to recruit new gas-fired power plants have to date failed to bring in what the State will need

Older, fossil-fuel burning plants are closing but are not being replaced. Industry figures point out that, over the last three years, power companies have built new plants with the capacity produce just 209 megawatts (MW) of electricity in Ireland. At the same time, demand is likely to increase by 1,000MW between 2019 and the winter of 2023-2024, which is now just two years away.

So the squeeze is poised to continue. EirGrid hopes to combat this in several ways, first by recruiting 300MW of emergency generation next year, and then by adding a further 2,000MW of gas-fired plants to the network through to the end of the decade.

Auctions

But auctions meant to recruit new gas-fired power plants have to date failed to bring in what the State will need. ESB won contracts for five plants in Dublin in 2019, but has yet to build any of them. The State company maintains that it had to abandon plans for the largest facilities, in North Wall, when a supplier was unable to provide parts that met EU emissions standards on time. It says planning and licensing delayed the others, but had pledged to complete them.

However, others in the industry maintain that the payments the ESB sought from the single electricity market in return for building those power plants were so low that they deterred rivals from entering the competition in the first place, contributing to the shortage of power plants.

Wholesale prices charged by the ESB's generating business drew fire from both independent electricity suppliers and Fianna Fáil TD Barry Cowen, who said he had figures showing families and employers paid €250 million extra for power in the three months ended September 30th, alleging the State company had made "supernormal profits". The company rejected these claims, saying its prices were below market average. Either way, the ESB is likely to face renewed pressure in 2022.

Not as much though as the Government and its Green Party Minister for the Environment, Eamon Ryan.

If new power plants fail to materialise, that will leave EirGrid and the Commission for Regulation of Utilities no choice but to allow the ESB’s coal and fuel oil burning generators on the Shannon estuary to remain open beyond their projected closing dates in 2024 and 2025.

That will embarrass a coalition whose members not only include the Green Party but which is generally keen to push its climate credentials. However, the fallout will be a lot worse if current policies result in power cuts hitting homes and businesses in coming years.