The Energy Crisis: Why are prices increasing and how can you beat the price hikes?
In the latest episode of the bonkers.ie podcast we chat to David Kerr, the founder and group CEO of bonkers.ie about the energy crisis, why prices are increasing, what consumers can do to offset the price hikes, and whether there may be blackouts this winter.
Talk us through the energy price hikes
This year is the only time in the last eleven years we’ve been in operation and the only time in the history of deregulated energy prices that we’ve had this number of price increases in a single year.
This year we’ve had over 30 energy price increase announcements by various suppliers. This is unprecedented. Some have even increased their prices four times this year.
What is the impact on the customer?
Unfortunately, the price of gas and electricity in Ireland is the highest that it’s ever been. To put this into perspective, we’ll be paying on average around €600-800 more for gas and electricity this winter and into next year than the equivalent period last year.
If you consider €600-800, that’s €10-15 a week. This is also the complete cost of most peoples’ annual car insurance premium. It’s almost like having a 13th mortgage payment in a year, for no additional service. We’re not getting anything extra and nothing has changed, other than the price.
The price increases are something that will creep up on us. We’re recording this podcast in the middle of October and the first winter bill has yet to arrive. However, by the time this podcast comes out, many will have got their first bill, the clocks will have changed and it will be dark already by around 6.30. Our consumption is dramatically increasing and we’ve still yet to see the effect of this increase.
The price increases started in spring but then we moved into summer when energy demand is at its lowest. We had a good summer this year, it wasn’t too cold. People are going to be in for a huge shock when the bills start coming in.
Some people may also be catching up on bills that were estimated. When you’re paying to catch up on bills, you’re paying for the unit rate now as opposed to when the energy was consumed.
As the smart meter programme has rolled out around the country, there’s now around 500,000 smart meters rolled out in the country - which is about a quarter - suddenly all bills are accurate all of the time. There are no estimated bills.
Why are prices increasing?
There are three main reasons why energy prices are increasing, but the main reason comes down to the cost of natural gas on wholesale markets.
1. The price of natural gas
Roughly half of our electricity generation is made by burning gas in a gas turbine. The cost of burning gas has gone up over 200% in recent months, so the cost of the electricity generated has to go up as well.
2. A lack of wind output
The second reason is to do with wind energy. Wind turbines do contribute significantly to our electricity generation but unfortunately, we’ve had a very calm summer. July was the least windy summer since 1961. There’s been a wind drought. Even sailing races have been cancelled due to the lack of wind.
Up to 50% of the electricity on the grid at certain times of the year comes from wind turbines, but in July this was only 7%. This is a really small amount generated by wind. As a result, we’ve relied more on the electricity generated from burning gas, which has been extremely expensive.
3. Power plants out of action
The third reason is due to the closure of two major gas-fired power plants. These usually contribute to about 15% of our electricity generation. There’s one in Whitegate in Cork, operated by Bord Gáis Energy, and one in Huntstown in Dublin, operated by Energia.
These are the two most efficient power plants in the country, but they’ve both been down for maintenance purposes. They couldn’t be maintained because of Covid as the servicing teams couldn’t travel to Ireland from abroad. This has meant that we’ve been reliant on the less efficient power plants, which burn more gas. We’ve been burning more for the same amount of electricity.
Eirgrid operates a most efficient first principle. This means that it will request that the most efficient generators contribute to the grid first. With these two being down, the least efficient ones are contributing.
There’s some geopolitical aspect too. Part of the reason for the wholesale gas price going up is there’s a new pipeline proposed that goes in the sea between Russia and Germany. The German regulators are slow to approve that. It seems as though now Russia is restricting supply, which is having a knock-on effect.
In Asia they had a particularly cold winter and burned a lot, so now they’re replenishing the stocks over there. It’s a global phenomenon and we’re at the end of the pipeline in Europe.
Should this have been forecast better?
One thing that we need to recognise is that renewable energy through wind is only part of a mix of ways that we can generate electricity from renewables. Another thing we need to be aware of is that it’s not windy, you don’t get the electricity into the network.
Wind isn’t the only answer to renewable energy. It seems as though we’ve put all our eggs into one basket sometimes.
We need to think more about microgeneration and microstorage. For example, you can see more houses with photovoltaic (PV) solar panels - the ones that generate electricity as opposed to heating your water. Those should be coupled with battery packs on the side of the house so that you’re less reliant on the grid and so there’s less of a draw from the home on the grid.
People think that because Ireland isn't very sunny that solar is of no use, but that’s not true at all. Certainly, we’re not the Sahara, but we’re also not in a closed room.
Some of the newer solar panels are so efficient. The technology is definitely there. With microgeneration and micro storage, you as an individual can contribute to the overall demands of our national grid. If you’re planning a retrofit, don’t just consider the generation, but also the storage.
In the budget, there’s a tax credit for people who can contribute energy back into the grid.
One type I’m a big fan of is tidal. The tide goes in and out every day, there’s no reason that it won’t. Ireland has a really low implementation rate of hydro tidal, whereas places like Scotland and Newfoundland have big tidal installations.
We don’t have these here and we’re perfect for them. We should look at more elements in the mix for renewable energy. Wind energy is great but we should do more tidal hydro and more solar.
How can people beat these price increases?
First people should consider switching energy supplier. If you haven’t switched in the last 12 months - and 6 out of 7 people haven’t - you’re not getting any discount. And you can get a discount at no charge with only the commitment of one year by staying with a supplier. If you’re staying with a company anyway, you may as well stay with one that’s giving you a discount.
Discounts can be very significant, up to 30-40% off standard rates. You can offset €500-600 of that increased amount just by switching your electricity and gas supplier.
It’s easy and only takes a couple of minutes to do online. No one needs to come to your house to change your meter, it’s just a change of supplier. It’s the same electricity in the wires and the same gas in the pipes.
There is still value to be had by switching and this can’t be overemphasised enough.
Reduce your energy consumption
The second thing you can do is use less energy. In the 1980s, mortgage rates were 18% and that’s when you had your parents yelling at you to switch off lights, close doors and turn off the immersion. When you stop consuming, you stop getting billed for it, so do the little things.
Retrofitting is a big endeavour, but you can easily do smaller things like putting more insulation in the attic which makes a huge difference. It’s really simple to do.
Assess the wind that comes through your door and put up a weatherstrip. This is really cheap and makes a huge difference.
Also consume less. If you haven’t got a NightSaver Meter, or you haven’t got a NightSaver tariff and you have a smart meter, consider availing of a better tariff. With smart meters, you have a day rate, a night rate and a peak rate. You can then decide to run your dishwasher, washing machine and tumble driers at night.
Other things you can do include half filling the kettle if you’re making one cup of tea and using LED light bulbs. These things make a difference to consumption over the course of a month.
The SEAI (Sustainable Energy Authority of Ireland) has some really good tips on its website, as does the bonkers.ie blog. For example, here are 15 ways to use less electricity and save money, and 10 top tips for heating your home for less.
Is there any help from the Government?
If you’re over 70, you will qualify for the free electricity allowance. This is a payment that’s taken off your bill or paid to you directly. This is €35 a month, paid throughout the whole year.
If you’re looking for more information on how to apply, we’d recommend you look on the Department of Social Welfare website.
Should the Government introduce an energy price cap?
We’re seeing huge increases in the price of energy and it’s an important product that people need. There are price caps on energy in the UK, so should the Government here be putting a limit on how much consumers can be charged?
People think a price cap should be put in place to prevent companies from gouging, but in fact, there’s no gouging going on here. The input cost - the cost of gas - has gone up dramatically.
The price cap in the UK was introduced for a different reason. It was to stimulate the market to actually take advantage of the offers available. Unfortunately as a result of the price cap, companies are going out of business.
There were 70-odd energy suppliers in the UK and there’s now 60-odd. The price cap has forced companies to go out of business and has resulted in customers not having a supplier, or being forced onto a new supplier that they didn’t select themselves. In addition, it creates unemployment. All of the companies that have gone out of business have created job losses.
You have to ask yourself is it morally right for a Government to force a business to sell something at a loss?
This year the minimum unit pricing for alcohol was introduced to prevent below-cost selling by the supermarkets. They wanted to entice customers into the shop with the low cost of alcohol. That was outlawed and banned.
As well, the loyalty card club schemes can’t count points based on alcohol purchases and you can’t redeem points against alcohol purchases either. All of this was to prevent this bad activity of below-cost selling, but that’s exactly what a price cap would require in a very increased market for pricing. If there was a price cap, some companies would be forced to sell at below-cost.
So what can the Government do?
This has been talked about a lot recently and is one area that people have started to question. One break that was given at the start of Covid was a reduced VAT rate for the hospitality industry, going down to 9% from 13.5%.
Yet, every single home consumes electricity and 650,000 homes consume gas, and we’re paying 13.5% VAT on our electricity and gas costs. Perhaps a reduction to 9% would be in order.
When you consider the context of Great Britain, the British VAT rate for energy is 5%, not 13.5%.
Do you think there will be blackouts this winter?
I don’t think there will be blackouts this winter. I think the media may have picked up a report from Eirgrid that said it expects there will be a massive increase in demand in the coming years and that we need to plan for it and put the infrastructure in now.
If it comes on all of a sudden, which is likely given the amount of planning permission applications for data centres, then we might put our grid under pressure. At the moment it couldn’t cope with the switching on of 20% more data centres than we currently have and also cater to our domestic requirements.
Eirgrid and ESB Networks run our electricity in the country. Eirgrid runs the transmission network and ESB Networks runs the distribution networks. The wires to your house are from ESB Networks and the pylons are from Eirgrid. They work in conjunction with each other and one hands over to the other as it gets closer and closer to your home. The backbone of the network has to have electricity flowing through it at all times and there’s very little storage in it.
Planning for data centres
I think there should be a national program of infrastructure upgrades for the transmission network and also the distribution network.
Specifically, when it comes to planning for data centres, technology is at a significant level now that we can make them both carbon-free and energy neutral. We could require that every single data centre planning permission that is granted comes with caveats of having to be carbon neutral and energy neutral.
They could figure out their own blend locally of turbine, solar and emergency diesel backup generators even. Make the data centres not be a draw on the core network.
The big companies that require data centres know this too well and they do plan to provide their own energy for their data centres.
We can accept the data centre volume that we’re getting if we plan for it well and it could be more of an industry.
Some would argue that a data centre only employs 20-30 people. This might be true for its daily operations, but there are companies in Ireland that contribute hugely towards their construction. There are specialist technicians and local economies that benefit greatly too. The fact that they can be put anywhere means they could contribute to the diversification of our population.
What advice would you give to those who are worried about energy prices?
The first thing is to check and see if you’re eligible to apply for the various supports available, such as the winter fuel allowance and free electricity allowance.
Secondly, if you are finding it difficult to pay your bills, do not let them mount up. Your energy company doesn’t want to disconnect you and there are moratoriums in place over winter which prevent this.
However, the bill doesn't go away so you can contact your energy company. Some suppliers work with MABS (Money Advice and Budgeting Service) or St Vincent de Paul. There are funds available that can help to reduce the amount you owe, even though you’ve consumed the energy.
Switch and save on bonkers.ie
Are you worried about the increasing cost of energy? Start saving by switching energy supplier today.
It’s quick and easy to switch and can all be done on bonkers.ie in the space of a few minutes, provided you have a few things on hand.
If you’re seeking advice when it comes to switching, have a look at our guide on 7 things to consider when switching energy supplier or check out the list we compiled of frequently asked energy switching questions.