Can we protect ourselves against price increases?
As we import the vast bulk of our energy we have to pay the international market rate; while we cannot insulate ourselves from energy price changes we can reduce their impact.
For example, to avoid over-dependence on imported gas, previous Governments’ policy limited natural gas for power generation to 50% 1. The Irish Government has set a target of 40% for renewable energy in electricity supply by 2020 (22.7% was achieved in 2014) 2. These are two of the ways by which Government policy promotes fuel source diversity in electricity generation.
So while gas is a large input cost into electricity generation in Ireland we have other sources of power such as coal, wind, peat and hydropower that reduce the volatility of any one input. Their weight in the mix reduces the impact of gas price movements on the average price of electricity but give rise to higher emissions in the case of coal and peat.
When gas is expensive other sources of power with more stable costs help to hold down prices; when gas is cheap they keep prices up.
The fixed costs of the electricity network don’t change nor do the guaranteed REFIT prices offered to peat and wind generators over the REFIT period (generally 15 years). In 2014, the grid and network infrastructure accounted for 32% of the electricity charges to consumers (excluding VAT) and the costs of the PSO including the price guarantees accounted for 5% 3. These factors dampen the variation and reduce the impact of gas price movements.
Similarly, when electricity prices in Ireland move out of line with those in the UK the electricity that is traded over the electricity interconnector helps to balance prices in both jurisdictions. At present, this trade is benefitting Ireland because British prices are lower, although research suggests power flows across the interconnector can be less than optimal in regards to price spread if the price of electricity increases in the North of Ireland 4,5.
Thus the 14% plus of Ireland’s electricity that comes from coal, the 18% of Ireland’s electricity that comes from wind, the 8% that comes from peat and the 2.5% from hydro are all hedges against high future gas prices 6.
However, the most certain way of reducing the impact of energy price movements is to use energy more efficiently. By using less energy one is less exposed to movements in fuel prices. The government aims to deliver more energy efficient upgrades to reach low carbon energy goals by 2030, including via grant schemes for efficiency investments, consumer support and community projects 7.