THE ONLY CERTAINTY around the current energy price crisis is that it’s likely to get worse in the coming months and year ahead, experts agree.
Governments could be forced to intervene further to help struggling families but one energy researcher who spoke to The Journal said a “pragmatic” approach may be required that helps vulnerable people more than those with greater financial means.
The latest shock to the inflationary landscape took place on Friday when SSE Airtricity announced gas and energy hikes that could add over €1,000 to the combined annual cost of bills.
This increase came on the back of a similar hike by Electric Ireland in July and more increases are expected when the demand for energy gets further squeezed in the winter months.
The outlook for the coming months was brought into sharper focus by regulators in the UK last week, when it was confirmed that the energy price cap was to almost double from £1,971 to £3,549 (€4,158) .
It will remain in place until 31 December, when it will be adjusted again, with latest forecasts warning bills could surge again to around £5,400 in January and around £7,000 in April.
The UK price cap essentially limits the amount suppliers can charge for each unit of gas and electricity they supply. Although the system is different to Ireland’s, the rising value of the cap can perhaps be taken as a forecast of the kind of increases customers here may be facing.
Speaking to The Journal, Daragh Cassidy of price comparison website Bonkers.ie says that while Ireland’s prices may not jump as high as the UK’s, they are currently at similar levels.
At the moment the average gas and electricity bill (in Ireland) is about €4,000. In the UK, they have the energy price cap, so their market is a little bit different, but it’s not far off. In the UK the price cap is just over £3,500, so about €4,200, but they’re expecting the price cap to go to the equivalent of over €6,000 in January, and to be honest, I wouldn’t be surprised if we’d be that far off it.
Cassidy says Irish consumers have so far had to deal with energy prices that have doubled since the start of last year, increasing by an average of €1,500-€1,600.
The outlook is for even more of the same due to the price of gas on global markets, which is up tenfold in the past year. It’s an increase Cassidy describes as “astronomical”.
“In the 70s when we had the oil crisis the price of oil went up by I think 400%, now we have the price of gas going up by around 1,000%,” he says.
The same but different
Companies in the energy market are roughly divided into extractors, generators and suppliers – but revenues being made are each not in proportion.
British oil giant BP’s net profit increased threefold in the second quarter of this year compared to the same period in 2021. Shell had a fivefold surge in net profit in this time.
Dr Paul Deane, research fellow at UCC’S MaREI institute, explains that extractors are getting massive prices for their fossil fuels with the cost of electricity generation skyrocketing as a result.
Deane describes the current price of wholesale gas as “absurd and frightening” and adds that Ireland is at the mercy of market prices despite not physically getting our gas from Russia.
It fundamentally comes down to the fact that we generate most of our electricity from natural gas in Ireland. We purchase most of that gas from international markets and while we’re physically not connected to Russia via pipeline, we’re connected via market prices, and the market prices of gas have skyrocketed.
He adds: “The prices that we’re seeing for gas at the moment, the increases in the last two weeks, are frightening. They’re really shocking, so the outlook is not good for supply companies, because when you generate most of your electricity from a fuel that costs a huge price, unfortunately, we as consumers have to pay for that.”
Both Cassidy and Deane agree that while the profits of energy companies are an issue that has to be looked at, it’s not simply that they’re squeezing consumers.
Cassidy says that for every €100 on a customer’s bill, about €10 is profit for a supplier.
“They don’t necessarily make, some of them anyway, vast vast profits. They may make a profit of maybe the equivalent of €200- €300 at most per customer over a whole year,” he says.
Deane argues that while some companies may be making revenues from the supply of side of the businesses, they may be using that to insulate them from losses being made elsewhere
“I don’t think it’s correct or fair to say that they’re making lots of profits, they might be generating revenue but they’re using a lot of that revenue to offset losses on the sale of electricity,” he says.
I would expect retail prices to be much, much higher in Ireland than what they’re at now. I’m sure readers will be shocked to hear that people might think prices are relatively low but when you look at the cost of generating electricity in Ireland and if you look at the cost of natural gas, there’s a mismatch there.
“So prices, even though they’re record high, they’re being kept artificially low because they’re using revenues from generating electricity to absorb losses on the supply of electricity. If suppliers passed through the full cost of generating electricity in Ireland, I’d expect prices to be much, much, much higher.”
What can be done?
Earlier today, EU Commission president Ursula von der Leyen said officials were “working on an emergency intervention and a structural reform of the electricity market”.
Von der Leyen said the current crisis was “exposing the limitations” of the current structure, with EU energy ministers set to hold urgent talks in Brussels on 9 September.
Irish MEP Com Markey is among those who has called for an “EU wide cap” on prices and said that efforts must be made to”decouple electricity and gas prices altogether.”
Long-term, the solution is to move away from fossil fuels completely but as Deane tells The Journal, “time isn’t on our side”.
In the short-term, national governments will have to try to ameliorate the effect of price rises, with the upcoming Budget brought forward to next month for precisely this reason.
The Irish government has already implemented €2.4 billion in measures to help people with the cost-of-living but further measures have been suggested, including another energy credit and a so-called “windfall tax” on energy companies.
In an Irish context, any such windfall tax is not likely to be a huge revenue-raiser given the international dimension of the sector and the fact that, for example, ESB is 95%-owned by the Irish State.
It is however seen as a political imperative to demonstrate solidarity with people struggling to pay bills.
With the Budget four weeks away, Deane argues that tough choices will have to be made.
“There’s two things we need to do in terms of the regulator and government, we need to be pragmatic but compassionate,” he says.
Pragmatic in terms of, we can’t protect everybody from the soaring energy prices in the future. Those of us who can are going to have to reduce our electricity use and those who can’t need to be protected.
“So you need to look at the elderly, the vulnerable, the sick. They need as much protection as possible, and then the rest of us if you’re fit healthy and well, we’ll just have to soak up the extra costs. We can’t protect everyone.”
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