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Electricity price squeeze: Regulator wants all customers to pay extra €100m for use during peak time

Big energy consumers will find themselves in the firing line this winter as supply pressure mounts

A handful of big businesses will bear the brunt of efforts to thwart power cuts this winter as electricity supplies come under pressure for the third year in a row.

Last week, the Commission for the Regulation of Utilities (CRU) proposed increasing charges for using the power grid from 5pm to 7pm from October 1st to encourage a reduction in consumption.

The controversial plan, up for consultation until the end of the month, is partly a response to what the commission warns is a “significant risk to electricity security of supply in Ireland” over coming years. In short, the regulator confirmed what many in and out of the industry had been saying for months: rising demand and limited supplies have stretched the system to its limit.

As it is too late to build power plants for this winter, the only thing the regulator can do is try to cut demand. Hence it wants to make electricity more expensive during those peak hours between 5pm and 7pm, when the system faces the most pressure, to encourage us to cut consumption.

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Essentially, the regulator wants the entire market to pay an extra €100 million for using electricity during those hours over the 12 months from October 1st. All customers, from big business to families, will pay €30 million of this in network charges, that is for using the national grid, whose operator, EirGrid, will collect the money. That will add an estimated €26 to the average home’s electricity bill over a year.

Along with the peak-time charge, the commission plans to impose other levies also

While that is not much more than €2 a month, it comes at a time when homes face another likely round of energy price increases that some say could push annual domestic bills past €4,000 and leave up to one-third of households in fuel poverty. The CRU argues that if it did not take the steps it proposes, the extra annual burden on families would be €43.

The remaining €70 million falls on the shoulders of a specific group, known as extra-large energy users. These are a mix of big manufacturers and data centres. There are 22 in all, although some may have multiple connections to the national grid. Regulators are focused on these businesses because they say growth in demand from this corner of the market is putting the most pressure on supplies. According to EirGrid, data centres account for the greatest share of this demand.

Along with the peak-time charge, the commission plans to impose other levies also. These are increased block tariffs, meant to discourage large users from boosting their overall demand in the short term. They also face a system-alert tariff, charged for continuing to use electricity when EirGrid issues warnings that demand has pushed reserves to a point where they are lower than ideal.

Finally, when supplies of renewable electricity, generated by wind, solar and hydropower, are low, increasing dependence on fossil fuels, these businesses will pay a decarbonisation tariff for using power during those periods. Broadly speaking, this will be about 60 per cent of the time.

Regulators have earmarked the €100 million they calculate the proposals will raise to help pay for emergency standby generators due to come on stream in coming years to ensure we have enough electricity in the future. That will ultimately cost €478 million in total, according to the CRU.

Separate to this, about 2,000 large energy users — which include employers such as pharmaceutical makers, tech companies and others — will pay an extra €50 million in network charges this winter. The CRU is simply shifting this cost from homes to these businesses, reversing a Government decision made 12 years ago to transfer this burden from these organisations to domestic users. Consequently, this will not raise any extra cash.

While the CRU’s plan will help pay for badly needed new generators, the regulator makes it clear that it believes shortages are a real threat this winter. If that problem materialises, EirGrid and ESB Networks will have to resort to “load-shedding” a euphemism for cutting off some customers.

Will a European gas crunch affect Ireland?

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That will also put extra-large energy users in the firing line, as plans for this involve ESB Networks instructing them to cut demand first. Many, though not all, have backup generators. The load-shedding plan starts with those who use the most electricity and works downwards. Vital public services, including hospitals, train stations, ports, water treatment facilities, even prisons, are meant to be protected, as are homes. So, theoretically, at least, it should take a very severe shortage before families are cut off.

Regulators want to avoid forcing any customer’s power off. However, after the commission announced its peak-time charges plan last week, it emerged that EirGrid, which will play a key part in it, does not fully support the proposals as they stand.

Margaret McCarthy, Eirgrid’s interim head of regulation, told the regulator two months ago that some of the big companies targeted might not have the flexibility to cut demand during peak hours, as they could have manufacturing processes “which cannot usually be interrupted or adjusted”.

In any case, she notes that all large energy users account for 24 per cent of electricity consumption during peak times, while just 4 per cent of this is down to the group that the CRU is targeting.

EirGrid is already working on measures to cut demand. One includes getting large users with their own backup generation to use this on a routine basis and assessing how it could be accessed in emergency circumstances. Data centres can only be connected if they can cut consumption when requested. Then it has “demand-side” measures, which involve paying large energy users who can do so to cut consumption when required.

The security of supply problem has been looming since the middle of the last decade, when the Republic’s recovery from recession began in earnest while increasing numbers of data centres began seeking connection to the national grid

McCarthy’s letter stresses that any new proposals should not conflict with these steps. She also warns that the two-week consultation that the CRU is allowing for its proposals does not allow enough time to consider and implement them.

She argues that the CRU’s measure is conflating two things, tackling the ongoing security of supply problem and the longer-term aim of cutting dependence on fossil fuel imports. That aim is partly a reaction to the fallout from war in Ukraine. Russia has cut supplies through the Nord Stream 1 pipeline, which provides about 40 per cent of Europe’s natural gas needs.

McCarthy points out that while the war could potentially worsen security of supply problems, it is not their sole cause. She warns that EirGrid “would not support” getting one small group of customers to pay for any broadening the aim of cutting fossil fuel dependence to include improving security of supply.

In fact, the security of supply problem has been looming since the middle of the last decade (see panel), when the Republic’s recovery from a sustained recession began in earnest while increasing numbers of data centres began seeking connection to the national grid.

It began coming to a head in the winter of 2022-21, when the unexpected closure of two generators, Bord Gais Energy’s Whitegate plant and one of Energia’s two units in Co Dublin, highlighted the system’s weaknesses (both reopened late last year).

Last September, Government, EirGrid and the CRU agreed it was likely that SSE Airtricity’s oil-burning power station in Tarbert and ESB’s coal-fired generators in Moneypoint would have to remain open beyond their respective closure dates in 2023 and 2025.

At this point, the system faces several big challenges. One is that while there is enough renewable energy in Ireland to provide more than 5,000MW of electricity, close to peak demand in the Republic, it does not work much of the time. According to a recent Irish Academy of Engineering report, at 10.15am on March 25th, total Irish demand for electricity was 5,124MW. Wind amounted to 10MW, less than 0.2 per cent of the total, at that time. “The reason for this was simple,” say the authors, “the wind wasn’t blowing”.

They add that over the 24 hours to 7:00pm on that day, renewables provided less than 3 per cent of the total electricity consumed on the whole island. Gas accounted for 63 per cent while coal contributed 20 per cent. Wind has provided up to 90 per cent of Irish electricity on occasions, but at other times, it’s been close to zero. Renewables accounted for 35 per cent of last year’s electricity consumption.

Basically, we generate 60 per cent of our electricity by burning fuel, mostly gas, with some coal and oil. A new problem is emerging here, a lot of those power plants are ageing, so are less reliable than in the past. Consequently, they are prone to unexpected shutdowns for repairs. EirGrid figures from last year show that technical problems temporarily halted generation at one in four Irish power plants.

The national grid company cited this problem for two alerts issued earlier this month. Several gas plants were out, while a technical problem shut one of three units at Moneypoint, which returned to action a few days later. Renewables indirectly aggravate this difficulty. Gas- and coal-burning plants are meant to run consistently for long periods. However, they must switch on and off more frequently than their design allows to accommodate wind when it is available, increasing wear and tear.

To help deal with this, we should have had newer, standby gas generators designed to function efficiently alongside wind, by now. In 2019, the ESB won contracts from EirGrid to build several of these in Dublin that would have provided 428MW on time for this winter. However, planning problems and difficulties getting the right equipment delayed these projects.

EirGrid forecasts that we will need 5.6% more electricity over the 12 months from October 1st than during the previous 12 months

A second deal to build 200MW, also in Dublin, on time for this winter, fell through following a legal challenge last year. EirGrid then considered seeking bids for 300MW in emergency generation but decided against it as it was unlikely to have been ready on time. In June, Government approved plans for 450MW of standby generation, but that will not be ready until next autumn at the earliest.

Meanwhile, demand is likely to grow. EirGrid forecasts that we will need 5.6 per cent more electricity over the 12 months from October 1st than during the previous 12 months. So, the situation is tighter now than last September, when the Government, national grid and regulator pledged to tackle the energy squeeze.

Short circuit: A chronology of the energy crisis

August 2017 EirGrid says that if all the data centres that had approached it were connected to the national grid, they would add 17 per cent, almost three average power plants, to peak demand.

April 2019 The ESB pledges to spend €500 million building power plants in Dublin with the capacity to generate 428 megawatts (MW) of electricity to meet anticipated demand.

August 2019 EirGrid predicts that data centre demand would match Dublin’s total electricity consumption by 2027.

December 2020 The ESB closes Shannonbridge and Lanesboro peat-fired power plants, taking 240 MW out of the system.

January 2021 EirGrid issued the first of eight amber alerts of 2021, warning that electricity demand had cut reserves below their optimum level.

June 2021 It emerges that Bill Thompson, EirGrid’s head of regulation, had warned the Commission for Regulation of Utilities (CRU) that data-centre demand is contributing to “acute” security of supply problem.

July 2021 Leading suppliers Bord Gáis Energy and Electric Ireland increase prices as natural gas costs continue soaring, the first of the now ongoing wave of energy bill increases.

September 2021 Government, EirGrid and the CRU acknowledge that if coal and oil plants are shut on schedule while demand continues growing, the Republic could face a 1,050MW electricity shortfall by 2025.

September 2021 The ESB confirms that planning and supply problems prevented it from building the emergency power contracted in 2019 on time for last winter.

November-December 2021 Power plants in Cork and Dublin restart after being out of action for a year, easing concerns about winter shortages.

July 2022 Gas prices surge on world markets, sparking further price increases here, as Russia cuts capacity on the Nordstream 1 pipeline that supplies 40 per cent of Europe’s needs.

August 2022 EirGrid issues two amber alerts as low wind speeds and unexpected power plant shutdowns hit supplies, confirming fears of likely bottlenecks ahead of the winter.

August 2022 The CRU proposes charging extra peak-time tariffs to help tackle a “significant risk” to security of electricity supplies.