Monday, 18 October 2021

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 ould 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.

Precarious Winter Outlook

New blog post coming soon..... 

Tuesday, 12 October 2021

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. 


Monday, 4 October 2021

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. 

Thursday, 30 September 2021

How Close is Ireland to Blackouts ?

 

                                  Chart 1 - The green line includes all potentially available capacity whether currently in use or not. Some adjustments have been made to the red line to take account of the temporary loss of two gas and one oil generators . 


The above graph shows how Ireland's electricity supply position has evolved since the height of the building boom in 2006. The green line shows the total generation capacity that consumers must pay for including wind energy. As you can see the gap between the green line and peak demand in blue has increased exponentially in tandem with the building of new wind farms in yellow and new power stations in red. This gap is a large part of the reason why electricity bills have soared in recent years as the capital element of all of this capacity must be financed through bills regardless of how much energy they produce. So with all of this excess capacity, how is it that we are facing the prospect of blackouts? 

The red line is dispatchable plant, that is, plant that can be switched on at a moment's notice as required. The main ones in Ireland are gas, coal and oil power stations. The interconnector to England (EWIC) is also included in this however it's debatable how dispatchable this is in light of recent events (more on this later). Peat is also dispatchable but two of those power stations were closed down in 2020 leaving only one remaining peat station in Edenderry which also runs on biomass. It is due to be closed down in 2023. It has now finally being accepted by almost everyone (apart from the Green Party Energy Minister ?) that wind is not dispatchable and during long periods of low wind as we have had this year it is really the red line that we are relying on to keep the lights on.

The red line takes a noticeable dip after 2020. This is to take account of the loss of three power stations during 2021 - Huntstown 400MW, Whitegate 444MW and Tarbert 243MW. This has returned us to 2007 levels of dispatchable plant. This shouldn't present a serious problem, we managed okay back then. However, there are two main differences between now and back in the Tiger days :

1) Peak demand has increased by about 10%. The peak of 5,357MW was reached in December 2020. It is likely that this will increase further this winter which means the gap between the red and the blue line in Chart 1 will narrow even further. 

2) The rate of forced outages has increased dramatically in recent years. According to Eirgrid, the forced outage rate went from a low of about 3% in 2016 to a high of about 16% in 2021. The forced outage rate is the rate at which power stations are breaking down. Power stations are becoming less reliable and not just old ones. One reason for this is that they are switching on and off too much to balance the wind (more here) . 

The situation then is precarious enough but what happens if the UK does not have spare energy to give to us over the interconnector ? This has become a greater risk as energy shortages have recently become a major political issue in the UK. Chart 2 shows what happens when the EWIC is no longer available :



Chart 2


There is now a very small gap between the red and blue lines. 353MW to be exact. Which is about the size of a single power station. So another power station outage would leave us on the precipice and if the winter is a cold one demand will surely rise pushing us over the edge into blackout territory. 

To sum up here, it would take six events occurring at the same time to leave us in a very dangerous position - three of those are the three currently unavailable power stations not being repaired in time for winter, the fourth is the interconnector becoming useless, the fifth is either another power station breaking down or demand rising higher than last year. The trend for the fourth and fifth events is going the wrong way in all cases. The likelihood however of all 3 power stations not being repaired in time for winter is fairly slim although I have a feeling Whitegate may not be repaired by mid November as scheduled.

The sixth event is perhaps the biggest variable of all, the yellow line in the charts - wind energy. If there is plenty of it then in theory the majority of these events occurring simultaneously would not pose such a major problem. But if we have another lull as we have had this summer then that is a different story.

I say, in theory, because it is slightly more complicated than that. Certain power stations are required to be operating at all times to maintain the stability of the grid. Currently that includes Moneypoint coal power station. Moneypoint happens to be the oldest power station on the grid so there is a risk to the entire grid if it alone suffers an outage. No amount of wind energy can replace the inertia that Moneypoint provides to the system. 

In any event, the demand of large energy users will most likely be cut before we get near the precarious position of all or most of these events occurring together. 

Demand management they are calling it. Which is another form of blackout, just with a nicer name . 


Saturday, 18 September 2021

Record Prices hit the Irish Electricity Market

 On Thursday the 9th September, prices in the All Ireland Electricity Market hit record highs of €4,680 per MWh, well over 20 times the normal price :


The scale here is from €0 to €5,000 MWh


What a normal day looks like, prices rise to about €150 MWh


These prices may have had something to do with the UK switching on coal plant that same week, the cost of which can be very high. Margins are set to get even tighter in the UK as this week one of the interconnectors to France went on fire causing wholesale prices to rise even higher there. Low outputs of wind energy have plagued both Ireland and the UK for many months now. In essence, high prices in the electricity market go hand in hand with low amounts of reliable generation.

There have been three Amber Alerts and seven Notifications of Tight Generation Margins issued this month in the Single Electricity Market (SEM). An Amber Alert means there was expected to be enough energy to meet demand, but possibly not enough in reserve should something go wrong. They can also be issued if there are significant frequency / voltage deviations which can happen when there aren't enough large power stations on the grid. The notification of Tight Generation Margins seems to be a prelude to an Amber Alert. 

System Alerts can go from Alert (Amber) to Emergency (Red) to Blackout (Blue) and finally to a Restoration state. Up to the end of August of this year there have been six system alerts on the grid. In the previous decade, they averaged just one per year.








Thursday, 16 September 2021

Energy Regulator - Existing Generating Fleet has become less Reliable

The energy regulator, in a recent Oireachtas Committee meeting, explains that what this blog has consistently warned for many years would happen has now come to fruition - that power stations have become less reliable as a result of excessive ramping up and down to back up wind :

Coming into the past winter, winter 2020-21, we had our seasonal update with EirGrid. We have a winter outlook and a summer outlook. That involves EirGrid, ourselves and the Department of Environment, Climate and Communications. In this we identify short-term challenges. These included an uptick and increase in demand from a range of sectors, which would have included data centres and the economy recovering or starting to recover post Covid. Separately, we noticed a reduction in the reliability of the existing fleet. Some of those pieces of the fleet that are of medium to older age are being asked to turn up and turn down more frequently as they balance the wind. They are being asked to do things they were not designed for, so the reliability of some of the existing fleet has decreased a little.



This was something that was not factored in to any of the assessments of wind energy. But reality doesn't change by ignoring it.