Readers continue to be frustrated, angered and sometimes – understandably – perplexed by the savage series of price increases across all energy providers which has seen domestic electricity and gas bills rising by in excess of €2,000 over recent months.
We recently received a mail from Prof John Crowe which addresses that confusion and poses some fundamental questions about the state of the energy market in this country and across Europe.
“I presume that you, like most, are perplexed by the rise in electricity price,” his mail starts.
“We made the choice to move to SSE Airtricity in 2021 based on their green credentials,” he continues, and notes that in 2017 Airtricity received an award from Minister for the Environment Eamon Ryan as the greenest energy provider in Ireland and says that at the awards, a company representative said: “All of the electricity we supplied to our home and business customers was from renewable energy sourced by SSE Airtricity, abating over 131,000 tonnes of harmful CO2 emissions every month.”
Prof Crowe also notes that in 2020 the SSE Airtricity website stated: “All of the electricity we supplied to our home and business customers is from renewable sources” and in 2021 SSE Airtricity described itself as “the largest provider of 100 per cent green energy supplied to homes and businesses based on market share as published by the Commission for Regulation of Utilities (CRU) in the Annual Energy and Water Monitoring Report in November 2021”.
And according to the latest Fuel Mix Disclosure from the CRU published on October 4th, 2021 – for the year January to December 2020, and based on suppliers’ declarations – SSE Airtricity used “100 per cent renewable energy sources and zero gas, coal and peat with zero carbon emissions”. This description of its energy source is reiterated on the current SSE Airtricity website.
So far, so green.
“Against this background it is difficult to identify a justifiable reason why SSE Airtricity should see fit to put up the price of its electricity by 24 per cent in May 2022 and by a further 35.4 per cent by October 2022. According to Alistair Phillips-Davies, CEO of SSE, the increases are due to the war in Ukraine and heightened geopolitical tensions resulting in sustained and unprecedented increases in wholesale energy costs – a view that was reiterated by Irish CEO Klair Neenan.
“Given that SSE Airtricity has clearly and repeatedly stated that none of its electricity is derived from oil or gas and is therefore undisturbed by volatility in these markets, these price rises are completely unjustifiable and quite disgraceful. If one is to assume that the fuel mix data is correct and that the CRU and SSE Airtricity customers have not been repeatedly misled, then the strong implication is that this simply price gouging led by the parent company SSE plc, a multinational energy company based in the UK. In the UK, the retail price of electricity is indexed to gas and it would appear that this benchmarking has simply been transferred by SSE to the Irish market.”
He says he is also perplexed by the recent exit of Panda from the electricity market on the basis that it could not afford to stay, as “it too had a fuel mix of 100 per cent renewables and no gas”.
The professor points out that the “potential societal and economic consequences of these price rises are highly significant and I am quite surprised that there has been so little public analysis of what is going on and so little political response other than a proposal to provide financial help for those in serious difficulty and a possible windfall tax on power companies”.
‘Pegging the price of electricity not generated from gas at the pre-crisis level and allowing the gas-generated electricity to follow the market would be more sensible than State compensation payments’
He continues: “Financial help with electricity bills ultimately rewards power companies and their shareholders and does not engage with the basic issue, which is the ludicrous indexation of electricity price from all sources to gas. Pegging the price of electricity not generated from gas at the pre-crisis level and allowing the gas-generated electricity to follow the market would be more sensible than State compensation payments. That Irish gas generating stations are mainly State-owned is also helpful.”
He says the price increases, which are often not linked to higher costs, risk “fuelling inflation and adding to the financial difficulties of personal and business account holders. Government, all politicians and the regulator as well as all other interested parties should intervene now with a strong disincentive to unjustifiable increases in the price of electricity and specifically where that electricity is not generated from gas or oil. It would seem me that I acknowledge that this is a pan-EU issue but it is hard to imagine that there will be a coherent EU response in a reasonable time frame.”
This mail raises some very important points and Prof Crowe is not alone in asking these questions.
At least part of the answer lies in the way the entire energy infrastructure has been set up across the European Union.
Energy prices tend to be tied to gas prices, no matter how that energy is generated. That is because EU wholesale electricity prices are set by the last power plant needed to meet overall demand. Those power plants frequently use gas. The system means cheap, renewable energy is sold at the same price as more costly fossil fuel-based power and in times past this made at least some sense because it ensured the cost of renewables was pegged to the cost of the most popular fossil fuel and gave those who invested in wind farms, solar panels and wave technology a degree of security and an incentive as they knew that, whatever happened, they would be paid at price which was comparable to older and more expensive technologies.
But then Russia invaded Ukraine and weaponised at least 40 per cent of the gas supplies coming into Europe.
That has seen gas prices jump by more than 1,000 per cent since the start of the year and, absurdly, led to wind and solar prices soaring too, even though the cost of generating that energy has not come under anything remotely like the same pressure.
As a result, companies such as SSE Airtricity have seen their profits increasing – that company’s earnings have more than doubled over the last 12 months and its parent company is making many hundreds of millions of euro more this year than it did last year. It is the same story with Bord Gáis Energy’s parent, Centrica, and other renewable energy producers.
The EU has recognised that this has to change and is moving to decouple renewable prices from gas prices. It will take some time. Infuriatingly, Spain called for this last winter but other EU countries, including Ireland, demurred. Had the EU acted collectively then, the prices we are paying today might well be lower.
The Panda issue is different. It does not – or did not – generate any energy and simply bought it wholesale and sold it on to consumers here. Energia does the same, as did Iberdrola. Such companies are particularly exposed to global price hikes as they don’t have any of the massive profits being made by the likes of Airtricity to use as padding when the energy crisis deepens.
*This article was ammended to change the name of Prof John Crown to Prof John Crowe.