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Major financial package expected to help with fuel bills as vast implications of energy crisis become clear

Price projections ‘off the Richter scale’ with estimate of average annual household bill rising from €2,000 last year to €6,000 next year

Energy is usually a complex, unglamorous slog of a brief for a minister – heavy on regulation and light on political credit, or indeed major risks.

“So long as the kettle plugs in in the morning and the light comes on in the evening, it’s left to the industry and the professionals,” says one former energy minister.

Since the Russian invasion of Ukraine, however, energy is the centre of the agenda.

The issue of price, which is largely linked to the war, and the security of the system, which is homegrown, are distinct problems. Yet politically, they are two sides of the same coin: keeping the lights on, and keeping prices down has suddenly become the central issue facing the Government.

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Like the pandemic, it has forced rapid revision to policies, with the previously unimaginable becoming unavoidable.

Senior sources accept that failure could spell the end of the Coalition. And in recent weeks, concern has reached new heights in Government as the crisis has grown and rapidly evolved.

Green Party leader and Minister for the Environment, Climate and Communications Eamon Ryan believes a dramatic shift was forced by the forward prices indicated on the wholesale gas markets recently. “In the last three or four weeks, things changed significantly,” he said, with the price at “absolutely unprecedented levels”.

“That’s why there’s been such a shift in attitudes and approach.”


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The wholesale price of gas, and what it will do to bills, has shocked some in Government who are privy to forward projections. This, more than anything, has shifted the gear from mere crisis to a full emergency.

In the new year, projections for energy bills are “off the Richter scale”, says one senior Government source, with gas “starting to look more like a mortgage bill”.

Internal Government projections seen by The Irish Times confirm this. Figures shared with the Cabinet this week warn that households could face an effective trebling of their bills when compared to mid-2021.

Cabinet was warned in briefing documents that “if the wholesale price of gas remains at the elevated levels expected for the coming months, further retail price increases can be expected, with a typical household paying circa €6,000 for gas and electricity annually. The timing of these increases is unknown but could be early in the new year.”

For comparison, ministers were told a typical household would pay €2,000 annually in 2021, and might expect to pay the equivalent of €4,000 annually now. The projections are enough to make political blood run cold, and have shredded plans and stoked pressure and expectations for a massive budgetary intervention.

‘At this level, all households with a gross income of less than approximately €115,000 would be defined as being in energy poverty’

Figures supplied by the energy sector to the Government are even more stark. In a letter sent in August to the Taoiseach, seen by The Irish Times, utility company Energia said that if suppliers passed on the current wholesale price, bills would grow by €4,000, “from a current level of €3,100 to €7,000 per annum”.

“At this level, all households with a gross income of less than approximately €115,000 would be defined as being in energy poverty.”

‘Not sustainable’

Ministers didn’t need the statistics to tell them of the profound shift under way – it has been bubbling up from constituency level as well. “We have to intervene. Definitely... Businesses are saying to me this is not sustainable. We can’t charge €8 or €9 for a cup of coffee,” one Cabinet member said this week.

A huge budget day package of one-off measures is a given – Tánaiste Leo Varadkar said it would be “several billion this year”. A second electricity credit is guaranteed, with more provided in the new year if needed. The only question is how much, and whether it will be enough. Varadkar said this week that he fears bills will reverse recent gains on deprivation, poverty and income inequality.

“It’s a big concern that I have, I don’t want to see the progress that we’ve made over the past seven years go into reverse. And that’s why we need to respond with scale,” he said.

A meeting of the Labour Employer Economic Forum (LEEF), the State’s clearing house for industrial relations issues, was held this week, with Ibec’s Danny McCoy joined by the Ictu’s Patricia King, Forsa’s Kevin Callinan, the three party leaders and the two finance ministers. Sources present said both unions and employers argued for “major financial assistance” and a “massive fiscal response” – and they say they felt the Government was moving, or had already moved, to accept their case.

‘It will be €10 billion by the time we get to budget day,’ sighed one exasperated Government figure this week

Fiscal hawks in the Government – Minister for Finance Paschal Donohoe and his Department of Public Expenditure colleague Michael McGrath – have been fighting a rearguard action, but it increasingly seems the tide is turning against them, with ministers from high-spending departments seeking more.

“It will be €10 billion by the time we get to budget day,” sighed one exasperated Government figure this week. “This is normal budgetary chatter but there’s a real risk it goes too far and we create expectations we can’t meet.” One option is to hold off on more energy supports until the new year, staggering interventions until EU energy market reforms are agreed and come on stream.

Ireland strongly supported the EU proposals at talks on Friday, with a belief at the highest levels of Government that they will provide an effective way to slice into the revenues of companies enjoying windfall gains.

However, with interest rate hikes and projections of Eurozone growth dismal, there is also growing concern about the economy writ large. Ministers were this week muttering darkly about the “balance of payments, employment consequences, [and] the impact on the economy”. Meanwhile, the challenge continues to evolve.

Liquidity risk

Even though energy companies are hiking bills at unprecedented rates, there are fears that the energy crisis is resulting in a situation where even these companies may face fundamental challenges.

The Finnish economy minister this week said a collapse triggered by an inability to make ‘collateral’ payments had ‘all the ingredients for the energy sector’s version of Lehman Brothers’

Cabinet was warned this week that wholesale prices are “giving rise to a risk to the liquidity positions of energy companies”, which have to put up “collateral” payments on energy markets in order to partake in trades. The requirements are such that the Finnish economy minister this week said a collapse triggered by an inability to make these payments had “all the ingredients for the energy sector’s version of Lehman Brothers”.

If energy companies fail or quit the market, their customers are jettisoned to a “supplier of last resort” – Electric Ireland or Bord Gáis. Ministers were warned that the collateral requirements could “put an unmanageable financial burden on the supplier of last resort and create a contagion effect”. Customers transferred to providers of last resort also lose access to any preferential deals they might have had with their original provider, meaning they “may face immediate exposure to prevailing market prices and not be protected through hedging”. Government sources indicated consideration was now being given to a State intervention, perhaps in the form of guarantees or working capital, or loans.

August’s letter from Energia – which last week hiked electricity and gas prices by 33.5 per cent and 47.11 per cent respectively – warns that the problem could grow to such a scale that energy companies would not be able to access gas due to the associated financial requirements – even if it were available physically.

Warning of “massive advance collateral payments” being asked of them by gas suppliers, it said that “this financial risk can interrupt gas supply, even when there is gas available in the market,” the company told the Taoiseach. In the six months to the end of June, the company’s collateral requirements increased by €100 million and are expected to “increase substantially over the winter period ahead”.

“We do not know the future price of gas or the impact these prices will have on the credit policies of gas suppliers to Ireland. Therefore, Ireland should prepare for the possibility that collateral asks become too much for Irish energy companies and threaten security of supply,” the company warned. It said that the increasing burden of cost “has the potential to cause the entire Irish energy market to malfunction”, giving rise to “significant adverse and social effects, unless appropriate measures are implemented urgently”.

While not explicitly asking for support for the sector, the company pointed out that other European countries had supported their energy utility companies in similar situations. “We encourage the Government to engage urgently with energy companies to address the potential issue,” the company said.

“Leaving action on this until a problem emerges will be too late given gas must be collateralised ahead of delivery to allow it to flow.”

Threats continue to multiply as the Government stares down the barrel of winter.

Jack Horgan-Jones

Jack Horgan-Jones

Jack Horgan-Jones is a Political Correspondent with The Irish Times