Incoming cold snap looks likely to bring inflated Irish energy bills with it in early 2022

AN INBOUND EUROPEAN cold snap could significantly increase already inflated Irish household energy bills as soon as January, experts have warned.

Daily European electricity prices rose to record levels yesterday, Bloomberg reported, with this winter’s first major bout of cold weather beginning to bite on the continent after a mostly mild start to the season.

While the forecast for Ireland is not as grim as it is for much of Europe, the arrival of freezing temperatures in parts of France, Germany, Denmark and the United Kingdom over the coming days will likely increase European demand for natural gas, supplies of which are already under pressure due to a number of factors.

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This could feed into higher Irish household gas and electricity bills as soon as January.

Ireland imports most of its natural gas from Britain, which — like the rest of Europe — is largely reliant on Russia for its supply, Muireann Á Lynch, an energy economist and Senior Research Officer at the Economic and Social Research Institute, told The Journal.

Cold weather tends to increase demand for gas — both for home heating purposes and for electricity, she said. Gas-powered generators are Ireland’s largest source of electricity generation, representing about 50% of the total in 2020.

“What that means is that if you do have an increase in a large demand centre — France or Germany, or the UK — if that pushes up demand sufficiently, then that, in turn, will push up prices,” she explained.

In the short term, that’s going to have an impact on what’s called wholesale energy prices,” Lynch said, “the prices the energy firms themselves pay for energy.

“That will eventually feed through to the retail price — whether that’s the retail gas price or the retail electricity price — and then some consumers will start to see pressure on their bills.”

So even if the weather is comparatively mild in Ireland over the coming weeks, Irish households may face further household bill hikes eventually in the new year.

Consumer price inflation

Rising energy costs have been responsible for most of the consumer price inflation experienced in Ireland and other Eurozone economies this year.

Spiralling European wholesale gas prices have mostly been to blame. 

A range of different factors have conspired to put upward pressure on prices this year:

• Russian gas giant Gazprom has been sending less gas to Europe in recent months amid worsening diplomatic relations
• European gas storage is lower than it normally would be at this time of year with countries being forced to dip into reserves earlier in the year due to tight supply
• A relatively mild winter so far has also reduced the amount of electricity generated through renewable sources like wind, which is boosting demand for gas-powered electricity
• France has also recently temporarily closed two nuclear power plants due to safety issues found during an inspection

“So all these worsening elements combine to make it a really tough environment as a backdrop for a cold snap where everyone reaches to turn up the thermostat,” businessman and former corporate finance director at Airtricity, Fintan Whelan told The Journal.

“Markets tend to anticipate the future,” he added.

“The year-ahead price quoted by Bloomberg looks a lot higher than current prices. So that is saying something about the weight of opinion among gas buyers and consumers for what they expect to have to pay to secure gas supply.” 

Energy companies active in the Irish market including SSE Airtricity, Iberdrola and Pinergy have already hiked their prices in recent months in response to surging wholesale gas prices.

And despite relatively clement weather in November, demand from businesses and households for gas had already begun to spike last month, according to Gas Networks Ireland.

In a statement yesterday, the company said residential gas demand climbed 16% in November from October and 7% from November 2020. As a result, household gas demand is 4% ahead of 2020 after the first 11 months of the year.

Demand from businesses has also increased rapidly this year as the economy reopened. The reopening of Cork Airport last month contributed to a 116% increase in demand for gas from the air travel sector last month.

Overall demand — from both industry and households — was up 18% from October.

Lynch explained, “While we’ve had a relatively mild winter, and while that might have decreased the demand for gas, it hasn’t done so enough to mitigate against these other factors that are driving prices.”

Data centres

Concerns have also been raised throughout 2021 about the security of Ireland’s electricity supply amid rising demand from energy-intensive data centres.

The Single Electricity Market Operator (SEMO) — a joint venture between EirGrid and the Northern Ireland grid operator SONI — has, so far, issued seven System Alerts or so-called ‘amber alerts’ this year. These alerts are put in place to indicate that the balance between demand for electricity and supply is particularly tight.

When an amber alert is in place, it means the national grid is particularly vulnerable to any outages or faults, which could lead to blackouts.

The temporary closure of two major power stations — Energia-owned Huntstown in Dublin and Bord Gáis-owned Whitegate in Cork — for maintenance works for much of 2021 has mostly been blamed for the shortfalls,

Both stations have recently returned to service, Tánaiste Leo Varadkar told a meeting of the Fine Gael parliamentary party early this month, despite fresh delays after Whitegate suddenly and unexpectedly disconnected from the national grid last month shortly after reopening.

The problem, Lynch explained, is that the solutions to issues around both the security of supply and price issues involve long-term action “because they involve investment” by the State in alternatives like renewables.

“So in the short term, you just kind of have to suck it up and pay those higher prices and that can have a particularly severe impact on those on low incomes,” she said. 

As for blackouts caused by the current tightness in gas supply, Lynch believes they’re unlikely this winter.

“Never say never. I mean, all it takes is one or two technical things to go wrong on the grid and there are loads of ways that could happen,” she said.

“But I don’t think we’re at one of those super crunch times. Certainly, it is the case though that we are looking at higher prices.”