IRISH ENERGY CUSTOMERS are “acutely exposed” to cost increases and supply issues because of the country’s over-dependence on imported sources, a new report warns.

The National Competitiveness and Productivity Council (NCPC) says that Ireland urgently needs to diversify its sources of energy to ensure security of supplies in future.

In a bulletin published today, the council outlines how Ireland is heavily reliant on imported oil, gas, coal and peat as its primary energy sources.

It says that Ireland’s dependency on imported energy was 71% in 2020, one of the highest levels in the EU and well above the EU average of 57%.

The same year, the country relied on just two sources – oil (45%) and gas (34%) – to provide more than three quarters of its energy needs.

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“This high import dependency means Ireland is more exposed to external shocks to energy markets, such as the current crisis in Ukraine which has accelerated energy price inflation, with natural gas and oil prices rising to near record levels,” the report reads.

“As a small open economy, Ireland is acutely exposed to these cost increases and energy supply challenges.”

The NCPC also says that “major investment” is needed to improve Ireland’s electricity grid, on foot of significant forecasted growth in demand over the next decade.

It says this will be driven by the electrification of the heat and transport sectors, as well as from demands by large industry and data centres.

The report says that data centres in particular “have the potential to bring advantages to the economy, through the generation of employment and FDI”, but that the growth of the data sector will challenge security of electricity supply and emissions targets.

The council warns that the cost of upgrading the electricity grid will ultimately be borne by customers, and that improvements to the grid must be done in a well-planned and cost-effective manner.

If this does not happen, the council says, Irish businesses – particularly those which are energy intensive – could see their baseline costs increase and this it could in turn erode Ireland’s competitiveness.

“The current crisis in Ukraine has accelerated energy price inflation, with natural gas and oil prices rising to near record levels,” NCPC chair Dr Frances Ruane said.

“But we must not lose sight of the need for investment to bolster Ireland’s energy security in the medium to long term, by focusing on projects to help diversify energy supply sources and by investing in upgrading our electricity infrastructure in ways that align with meeting the targets set in our Climate Action Plan.”

The report comes as a new survey from KBC Bank shows that Irish consumer sentiment had its sharpest monthly drop since the beginning of the pandemic, amid fears about the war in Ukraine and inflation.

The index showed a 10-point decline in consumer confidence in March from February,  the biggest drop in two years, with 85% of consumers also saying they would cut back on their planned spending in 2022.