Big firms to take hard hit on energy costs

News of an increase in the price of electricity has prompted warnings of job losses, writes BARRY O'HALLORAN

WITH ONE fell swoop, the Commission for Energy Regulation intends adding an extra €157 million to the Republic’s electricity bills from October.

The charge is a direct result of Government policy and is intended mainly to pay for supports given to peat-fired power plants and wind farms. The news sparked warnings from the business community about the threat that the charge poses to jobs, and it seems that on this occasion at least they are right.

The worst hit will be the so-called “large energy users”, in other words big companies with big workforces, many of which are owned by the multinational investors that the State is courting so desperately at the moment in its efforts to turn the economy around.

Households will have to pay an extra €2.73 a month, which will be €5.46 more on their electricity bills which they pay every two months. The CER’s sums show that private consumers will contribute almost €67 million of the €157 million total.

Small businesses, sole traders such as hairdressers, corner shops and the like, will pay an extra €99.03 a year, which works out at just over €8.25 a month.

Everybody else, from small- and medium-sized operations to big manufacturers will pay according to the amount of power they require, known as their maximum import capacity.

Within that, large energy users face a double whammy. Along with the public service charge, they face the loss of a series of credits they have been receiving up to now. This will add further to their costs. Ironically, some of those credits stem from the fact the State overcharged them when it last imposed the public service obligation on electricity users.

Sandra Quinn of energy consultancy McKinnon Clarke (MC) explains that a typical SME could be looking at an increase of €690 a month or €8,280 a year.

Much bigger businesses face a much bigger hit. For example, manufacturers such as pharmaceutical plants could face increases of between €16,000 and €34,500 a year, depending on their energy needs.

The CER’s figures show that large energy users will pay €72.5 million of the €157 million total. So the biggest users alone will pay more or less half the levy.

Quinn’s calculations show that a business that faces a €34,500 levy is looking at a loss of credits worth €28,000 a year, leaving them with a final increase of more than €60,000 a year. “It’s the bigger businesses that are going suffer most,” she says. And that is where the jobs are going to come under most pressure.

In the case of multinationals, the extra burden will be hard to justify to a faraway head office, which, at the very least, is presumably going to tell its Irish operation to compensate by cutting costs elsewhere.

The charge is being imposed to pay for Government policy. The cash will be used to pay for market supports for peat-fired power plants, renewable energy and two private sector players, Tynagh Energy and Aughinish Alumina, which provide power to the national network under public service deals agreed in 2005.

The theory goes that peat-fired plants are supported because they reduce our dependence on imported fuels such as gas, oil and coal. Renewable power is supported for the same reason, and also because it contributes to cutting greenhouse gas emissions. Tynagh and Aughinish are supported because they help to guarantee security of power supplies.

The thinking behind the policy runs like this: cutting dependence on imported oil and gas will help control costs in the long term as the prices of both will inevitably increase. The way to do this is to support peat and renewables, which are “indigenous” fuels.

Peat will get the largest slice of cake, with three plants, the ESB-owned Lough Ree and West Offaly and Bord na Móna-owned Edenderry, sharing €78 million.

Wind farms will get €43 million, while Tynagh and Aughinish will share €14 million. The balance, over €20 million, will go to administration and other costs.

There is a plan to compensate large energy users. The Government intends charging power companies a carbon windfall tax, which it believes will raise €175 million.

Power companies are exempt from paying for carbon credits until 2012, but their customers are not, so the tax is designed to end this temporary discrepancy. The Minister for Energy, Eamon Ryan, says the money raised will be given back to large energy users in the name of protecting employment and competitiveness.

This will take time and money, so not all the €175 million will be available for redistribution when the time does come, if it comes at all. Quinn says we should only believe it when we see it. The ins and outs of policies and levies are academic to the businesses that are facing a hike in their costs next October. “They’re not interested in what’s going on in the background, they’re just trying to figure out where the extra money is going to come from,” she says.