Irish firms’ energy costs slashed by up to 18%

Large Irish companies will have seen a reduction of 9% to 18% in their energy costs, this year, a result of a near 30% drop in wholesale gas prices.

The cost of buying natural gas on the wholesale market dropped dramatically in the past year, with independent energy supplier Vayu quoting a 27% reduction in average wholesale prices for 2014, compared to last year in its latest report on the market.

A perfect storm of falling demand (on the back of warmer-than-expected weather conditions and resultant under-usage) and strong supplies has been the main downward driver on prices and Vayu forecasts the positive knock-on effect will continue.

The company supplies gas to more than 20% of Ireland’s industrial and commercial market.

“The outlook for gas supply remains very positive heading into 2015,” said Vayu’s senior energy analyst, Joanne Daly.

“If mild weather conditions prevail in the first quarter and there are few unplanned outages, we could enter next summer with record high storage levels. This will have a direct impact on gas prices.”

In the run-up to the end of this year, gas storage in the UK stood at 86% capacity, while total storage across other major European hubs was above 79% capacity. The UK is the major source of Ireland’s gas supply.

Another major benefit was the avoidance of the feared cut in Russian gas supply through Ukraine, from the ongoing tensions between the two countries.

“Fortunately, this did not materialise and gas flows to Ukraine have been stable toward the end of 2014,” said Ms Daly.

“However, the market is keeping a close eye on the situation as we enter 2015 and continues to factor in a geopolitical risk premium.”

An agreement reached by the two countries in October should see supplies into Europe delivered via Ukraine continue throughout the winter without disruption.

This is vital, as Ukraine is a major transit corridor for gas to European markets. Russia provides around a third of Europe’s gas demand and half of that comes via Ukraine.

Any further escalation in tensions between the two countries could result in an increase on gas prices, Vayu warned.

Taking fixed costs such as gas network and regulated fees into account in Ireland, large industrial and commercial businesses would typically have seen reductions of 9% to 18% in their energy costs this year, due to the decline in wholesale prices, said Vayu.

“Weak economic data and a sharp drop in crude oil prices in recent months are contributing to downward pressure on longer-term gas contracts in the wholesale market,” the company said.

Vayu also said that it sees wind energy playing an “ever more important” role in meeting Ireland’s electricity demand.

“This will continue to grow over the coming years in light of an agreement by EU leaders to set a 27% target for energy consumption from renewable sources by 2030,” said Ms Daly.

“Wind energy will be the primary source of this in Ireland, requiring the installation of substantial additional wind generation capacity between now and then.”

Almost 20,000 of gigawatt hours of wind energy have been generated in Ireland this year, representing over 19% of electricity demand.

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