No wonder people are confused and angry. As COP27 takes place in Egypt this week, against the backdrop of environmental pessimism, we’re told Ireland is leading the world in the use of renewable energy. Good news, surely?
Yet, on the other hand, we’re also told that, despite most electricity now coming from renewable sources, our spiralling electricity costs are tied to rising gas prices. The logical question is: if most of our power is renewable, why are we still paying prices dictated by the gas market?
Meanwhile, many business owners across Ireland purchase guarantees-of-origin certificates, which say they are using 100 per cent renewable energy, only to discover that they are not the guarantee they thought they were, an issue which has now been raised as a cause for concern by the Commission for Regulation of Utilities (CRU).
So, are people being misinformed about these two key issues?
The great Guinness shortage has lessons for Diageo
Ireland has won the corporation tax game for now, but will that last?
Corkman leading €11bn development of Battersea Power Station in London: ‘We’ve created a place to live, work and play’
Elf doors, carriage rides and boat cruises: Christmas in Ireland’s five-star hotels
In reality, the market is complex, out of date and based on very different calculations and assumptions that no longer make sense.
As has been pointed out recently, one major supplier has, with justification – proudly proclaimed its green credentials, highlighting how it is supplying “100 per cent green energy” based on a market share published by the CRU in November 2021. Likewise, the CRU itself said that this and other providers used 100 per cent renewable energy sources with zero carbon emissions.
Rather than leaving energy users with no choice but to more or less pretend to use 100 per cent green energy, let’s supply users with 100 per cent green energy
Let’s consider the facts. Major suppliers can say with justification that they don’t use any gas in the supply of their power, but that same power has almost doubled in price because of the problems with the gas supply!
It all comes down to the outdated design of the market, which is leading to much of the cost increase, as a result of the fact that the retail price of electricity is tied to the price of gas.
Mathematical exercise
So, tying the prices of renewable energy to the price of gas is one of the main reasons for the rise in electricity prices, even though most of our electricity comes from renewable sources. Surely governments should be scrambling to change the rules of the market, rather than throwing vast amounts of public money at trying to cap prices?
And so, to the second point: how can Irish businesses be sure their power, which they have a certificate to say is produced from renewable sources, actually is?
Power taken from the grid is produced from a mix of gas plant, coal plant, nuclear and wind energy and imported from Britain, collectively known as fuel mix.
Customers buying “green” electricity are, in effect, paying for a mathematical exercise, which energy suppliers complete with the CRU to have their supply badged green – commonly known as greenwashing.
This maths exercise is completed annually, where the supplier submits to the CRU contracted sources of supply. If there’s a shortfall in the percentage of electricity produced from renewable sources, energy suppliers can adjust their “supply and fuel mix’ statement by subbing out some parts of their supply and adding guarantees of origin, known as ‘GOs’.
You could be forgiven for thinking that this all sounds like a sleight of hand. In reality, the option to purchase GOs fails to incentivise end-users to support renewable asset development in Ireland.
It also means that companies that believe they are using 100 per cent renewable energy and say so publicly aren’t being strictly accurate, leaving these companies with an ever-increasing liability.
Things have now reached a point where the CRU itself has said that it wants to change the way companies detail the use of their certificates to provide greater transparency to customers.
Renewable energy is subject to the same price fluctuation as fossil fuels, rendering the whole process somewhat wasteful and confusing.
Before and during Covid, GOs were trading at around €0.25c/KWH, so using 9GWh annually costs around €2,250 a year to be able to say your electricity supply was supplied by 100 per cent renewable generation.
Ongoing liability
However, following the easing of Covid restrictions, the value of GOs has been steadily rising to the point where the same 9GWh annually is now €45,000 a year or 20 times that of pre Covid.
On a national scale, Ireland’s annual demand is 28,506 GWh, of which the country produces only 40 per cent. That means that Ireland, as a nation, is spending €85.5 million on GOs produced outside the country, a figure which is set only to increase.
Given that the customer (or supplier) may have been publicly claiming to be using 100 per cent renewable electricity, it is highly unlikely that they will want to revise that position and so are now locked into an ongoing liability without knowledge of their ongoing costs.
It also means that renewable energy is subject to the same price fluctuation as fossil fuels, rendering the whole process somewhat wasteful and confusing.
Is the tech crunch a correction or a calamity?
Ciaran Hancock, Cliff Taylor and Laura Slattery analyse how prepared we are to absorb the losses, what the impact on the commercial property market will be and does the IDA have a Plan B should the multinationals pare back significantly
So, what should be done?
Crucially, there needs to be a new market design and implementation so renewable energy is no longer tethered to gas prices, meaning consumers can pay lower and less volatile energy costs.
Secondly, we welcome the CRU push to make the system clearer and we urge them to amend the Green Verification to Irish renewable assets only and for suppliers and large end-users to properly support local, non-Government supported assets, which could take the form of a corporate power purchase agreement (PPA) or direct private wire (a localised electricity grid).
Otherwise, the status quo removes incentives for suppliers and energy users to support development of renewable assets by buying a virtual cert from outside Ireland and exporting financial value which could be put to use here.
Rather than leaving energy users with no choice but to more or less pretend to use 100 per cent green energy, let’s supply users with 100 per cent green energy.
Paul Carson is the managing director of Strategic Power Connect.
