Data centre demand to lead to higher energy prices

Energy prices in Ireland are likely to rise in the coming years, partly as a result of greater electricity demand from data centres.

A report on the country’s electricity market from ratings agency Moody’s also backs the Climate Change Advisory Council’s recent conclusion that the State will not achieve its target to cut carbon emissions by 2020.

Following a spike in costs earlier this year to €55 per megawatt hour (MWh) due to higher gas prices and a particularly harsh winter, Moody’s forecast energy prices would likely decline to within a range of €45-€55 in the five years to 2022. However, it warned that, buoyed by demand growth, higher commodity prices would persist.

Moody’s said the continued growth of data centres in the Republic would “significantly” contribute to a rise in electricity demand over the coming years, noting that the total capacity requirement of data centres is expected to reach 1,200 megawatts (MW) of power by 2022. Data centre capacity in Ireland is currently 483MW of power with a further 138MW of power under construction.

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The total planned investment in data centres up until 2021 is €9.3 billion, according to recent figures compiled by Host in Ireland and Bitpower.

Moody’s also said Ireland would miss its 2020 decarbonisation targets but added that some newly-introduced measures would support progress in the following decade.

Nine years ago Ireland was given a target to, by 2020, reduce emissions of greenhouse gases to 20 per cent below what they were in 2005. Ireland has consistently lagged in reaching these goals and is on target to have reduced its emissions by less than 1 per cent come 2020.

The Climate Change Advisory Council, chaired by Prof John FitzGerald, last week issued a report saying the policies being pursued to improve Ireland's record on greenhouse gas emissions were inadequate.

Moody’s said that while the State would miss its targets, increasing renewable generation, phasing out carbon-intensive generation and increasing adoption of electric vehicles are steps that would ultimately help it meet its goals.

The ratings agency said that while both ESB and Viridian are both exposed to decarbonisation risks, ESB would likely benefit the more from higher power prices than its rival, partly because its thermal fleet provides baseload requirements and because it has a diversified portfolio.

It also said that reform of the wholesale market, which has been delayed until October, would lead to a reduction in capacity payments and should boost ancillary revenues for providers. However, it added that the reforms could also lead to volatility in balancing payments.

The new all-Ireland electricity market was scheduled to go live in May but was delayed earlier this year because of software problems. The reformed system is meant to favour the most efficient electricity suppliers and could reportedly cut energy bills for businesses and consumers by up to €200 million a year.