Precarious Winter Outlook

According to the Eirgrid Winter Outlook, the Irish electricity system will be operating at twice the level of acceptable risk this winter. The system is expected to enter the Alert State at times of low wind, low interconnector imports and low temperatures. No mention is made of Huntstown or Whitegate power stations. Are they assumed to return as expected? We are not told [update: it appears that Huntstown will be back later this week]. 

There are a number of engineering realities that are laid bare in the report that are a sobering read and at odds with the endless spin that has been published in the past in the media about green energy. 

•  Only 9% of total wind energy capacity is deemed as reliable or can be relied upon. 

•  Forced outage rates (the rate at which power stations are breaking down) have increased by 5 times over the past 5 years. This would appear to indicate that these power stations cannot cope with higher levels of intermittent wind energy.

•  Some CCGT (gas) plant is scheduled to be unavailable for 5-6 weeks of the winter period because of scheduled maintenance. This will be in November and early March. There is no guarantee that wind energy will be available during these weeks and, hence, the highest risk of blackouts will occur during these periods. This proves that wind energy cannot replace, nor is it equivalent to, a power station. 

There is also another factor which does not seem to be included in this report. Wind farms, like power stations, also need maintenance - in particular, the older fleet. Whilst it is unlikely that a significant amount of them would break down at the same time, sourcing replacement parts may take more time than normal in the present supply chain crisis. 

This is the first time that Eirgrid have published a winter outlook that warns of a high risk of blackouts. Last year, they were concerned about a trend of "increasing demand, dispatchable generation exiting the market and increasing generator forced outage rates". 

They were correct, that trend has continued into this year. Did anyone listen or take note ? Of course not. But then Eirgrid's own chief, Mark Foley, dismissed concerns about blackouts, saying  people can sleep soundly in their beds this winter.  

We must trust the plan. 

Daylight Fuel Robbery

An independent TD has brilliantly summed up the ongoing theft of motorists by the government :

"if you fill your car with €100 of fuel today, the shopkeeper who works in the shop and has people and wages to pay gets just €3.90, the companies that operates the refineries and drills the oil and deliver it all around the country gets €34, and the government who sits in the dail and have nothing to do with producing or supplying the fuel gets a whopping €54"... This has got to change.

https://youtu.be/xcpL1ppH6xo

Why Inflation will not be Temporary

 

The current conventional wisdom is that inflation in Ireland will only be temporary as the economy recovers from the covid lockdowns. But this can only be the case if there was deflation during the lockdowns which the re-opening induced inflation would now be negating. The only deflation that occurred during the lockdowns that I can remember was petrol prices. Core consumer items such as food, electricity bills and rent did not fall or at least not in any noticeable way. A period of deflation is not equivalent with an economy being closed down. A rental freeze is not deflation. This is the mistake the economic experts are making. They also have not taken into account the effects of the large government spending. 

When a hotel or other business is shutdown, its prices do not reduce, the service simply ceases to exist. In fact, inflation will likely occur. Say two hotels close down in a region leaving only one hotel open. This will lead to a period of inflation as the remaining hotel raises its prices to take advantage of the increased demand and reduced supply. The difference between this scenario and the lockdown was that  during the lockdown all three hotels were shutdown meaning there was no deflationary pressure. Then when the hotels opened, they could charge high prices because people had a lot of savings. This was an unintended consequence of the high level of unemployment support.  And the same happened with rent, an opportunity was missed during lockdown to bring about rental deflation through a smaller Pandemic Unemployment Benefit. Instead, the government went along with the calls from the most populist spending cheer-leaders.  

Another point that is missed is that many businesses may never re-open again. This will bring further inflationary pressure as supply reduces. 

As you can see from the graph above, the sharpest fall in prices was in November 2020 when year on year deflation reached -1.5%. This was the sharpest fall in a decade. In less than 12 months however , the inflation has skyrocketed to +3.7%.

While there are other factors impacting inflation right now, such as our high dependence on global supply chains, the high levels of pandemic payments paid out last year are part of the reason why Ireland has inflation above the EU average and even above UK's inflation rate of 3.2%. People saved up, then spent most of it in-between the lockdowns leaving little pressure on businesses to drop their prices. Little haggling took place with landlords who should have been under severe pressure to drop their rents during a period of very little house moving by job hunters both within Ireland and those coming from abroad. 

But as every economist should know but seems to have forgotten, all this money had to be printed, which was happening at a high rate prior to the pandemic anyway. Too much money printing or quantitative easing (or whatever you want to call it) , and the inflation snail eventually catches up with you. Too much money ends up chasing too few goods.  And then the snail begins to look like a rabbit. 

Gas Prices Rise and Fall but Energy Bills never get Cheaper

People's memories are short in Ireland so now is a good time to remind them that gas prices rise and fall but energy bills never get cheaper. This is a quote from an Irish Independent article from 2015 :

 

 "Irish consumers pay the fourth-highest energy bills in Europe, according to EU statistics. Little of the large recent falls in wholesale gas and oil prices have been passed on to consumers".

The energy industry and politicians are now blaming high gas prices for the massive rise in electricity prices. In a properly functioning market, falls in wholesale prices would lead to lower bills. It has to work both ways. This clearly did not happen.