A new unexpected crisis has crept in for many Irish businesses and the upcoming winter could be a very dark one indeed.
hen the Sunday independent calls Brian Goff, whose company runs the food court at St Stephen’s Green shopping centre, as he looks at his latest electricity bill from Bord Gáis.
“I used to not pay much attention to energy bills because they didn’t fluctuate,” he says.
But since signing a fixed-price contract in April, the monthly bill has gone from €6,500 to €13,000. At first he thought the bill was a mistake. It was not.
“We were just about to get back to normal. August was our busiest month in terms of sales since the end of Covid restrictions. I’ve been in this business for 40 years and I’ve seen all kinds of crises.
“If you’d told me the electricity bill might get us some money, I would have laughed at you. But that will hit every business in our industry badly – pubs, bars and restaurants.”
Electricity for Goff’s business used to cost about 2.5 percent of sales: now it’s 9 percent
He fears that many other companies are only now coming out of fixed rates and will be in for a big shock. He now pays 33 cents per kilowatt-hour (kWh) for electricity, but has been offered a new fixed-rate contract of just over 40 cents per kwh. Fixed contracts are now only available for at least 60 cents, he says.
“Previously, we paid 13 cents per kWh for our fixed-price Bord-Gáis contract. Our agent tells us that we may have to pay 50 cents or even a euro per kWh in the coming months. That would be sayonara for us. At these rates, it would be easier for most businesses to just turn off the lights and stay home.”
Electricity used to cost Goff’s business about 2.5 percent of sales: “Now it’s 9 percent. In a business where you’re lucky enough to have a 5 percent profit margin, that’s very problematic. There are things we can do to conserve energy, such as limiting how long our ovens run.
“But it’s really just tinkering around the edges and saving maybe 15 percent. We still have to cook our food, bake our bread and make our coffee. The government needs to do something fast because many companies have to wait for the budget and it can be too late.”
Trapped in a web of energy
Dave Geoghegan is CEO of Web World Ireland, a web hosting company based in Tallaght that runs a large server room 24/7
Before the energy crisis, a broker recommended switching to a wholesale tariff tied directly to the gas price offered by Energia. That’s how the company caught the eye of the energy crisis long before most others.
Web World’s Energia statement for the past year is stunning. It had consistently been paying €6,000 a month for energy, but that started to creep up in August 2021 when it surged above €7,500. In the months that followed, it rose rapidly, reaching €11,500 in November. By February it was €16,400. Since then it has fallen to around €11,000, but the worst could be yet to come.
Last week, Energia provided him with a price forecast. It’s been grim, with sharp price hikes predicted through Christmas. Web World is hanging on his contract until February. “I complained to the Utilities Regulation Commission when our bill reached €16,000. They said there was nothing they could do and were inundated with complaints.”
Web World was forced to increase prices by 20 percent to cover its energy bill and has since lost two major customers: “It’s just not sustainable. There’s only so far that you can raise your prices,” he says.
Ironically, the fact that every company is now getting huge bills makes it a little easier: “Customers didn’t really believe us at first. But it’s easier to explain now because they see their own energy bills going up.”
Factories afraid of the dark
The Wavin pipe factory in Balbriggan, Co Dublin is expected to have a very busy September despite fears demand for goods could fall due to a slowdown in the construction sector.
Wavin Ireland country director Michael O’Donohoe plans to ramp up production as much as possible over the next few weeks — not because he thinks good times are ahead.
But on the contrary.
He wants to fill the Wavin Yard with as much finished product as possible before energy prices soar further or the threat of winter blackouts become a grim and disturbing reality for heavy consumers.
Already, Wavin’s energy bill is up a massive 76 percent in the first six months of this year compared to the same period in 2021: “It’s a huge cost to our business that we didn’t budget for.”
Wavin has had to increase the price of some of its own products by more than 60 percent due to energy price hikes and a rise in PVC raw material prices. Due to recession fears in the European construction market, Wavin’s raw material manufacturers expect lower demand and falling prices for their products.
“But the increase in energy can subsume all resource depletion,” he says. “On the basis that there could be energy restrictions, supply risks and significant increases in energy costs, we will ram our factory for September with as much production as possible. It’s a bit of a gamble. We could be left with this stock on our books at the end of the year, which is never a good thing. But it would be remiss of us not to have a plan.”
In Monaghan, Combilift Managing Director Martin McVicar is also thinking of contingency plans. The factory makes forklifts that ship around the world, and its assembly lines are a complex mix of processes and high-performance machinery. It’s easier to explain now because they see their own energy costs increasing.
It’s easier to explain now because they see their own energy costs increasing
McVicar is increasingly concerned about the energy situation.
“We have an energy contract with Energia and our costs have more than doubled in the last 15 to 18 months. Our agreement is up for renewal on September 1st and will be renewed again.
“For many of us, the delivery times for our products are very long at the moment.
“So if energy costs rise again in the next few months, there will be a lot of uncertainty about manufacturing costs.”
However, McVicar is even more worried about possible power outages in the winter months.
“We’re a design and assembly facility, so we buy a lot of our components instead of making them.
“But every one of our 700 employees uses electricity to get their jobs done, from the computers in administration to the airguns on the assembly line. So if the power goes out, the factory just stands still and we can’t have employees on site if we don’t have energy for them to go about their daily tasks.”
“We have installed two diesel generators and are in the process of negotiating a third. Installing a generator costs over 100,000 euros.
“We’re just installing them as an insurance policy because they’re expensive to run and they run on fossil fuels, which is the opposite direction to where we want to go.”
McVicar is also concerned about energy-related disruptions at its suppliers across Europe: “I have told our procurement staff to order more raw materials per month than we need if there is a supplier outage.
“But carrying more inventory is another additional cost for us.”
Retailers are at risk of electrocution
Fear is growing in retail. Energy costs have doubled, if not tripled, for many.
Retail Excellence Ireland’s Duncan Graham fears that – having weathered a major crisis – this could be one crisis too many for some.
“Margins have been tight for many, but if your energy bills double it could eventually lead to some closures of businesses that have been on the fringes during Covid.
“I now get a lot of inquiries from retailers. It has been built all summer and is now reaching a crescendo. People are getting their bills and looking forward to what fall might bring.”
Companies are looking for measures to reduce energy costs instead of reducing opening hours: “For example, many shops will turn away from leaving the lights in the windows on after closing time.
“The streets will certainly look a lot darker in the run-up to Christmas. Retailers will try to keep things as tight as possible in September, October and November, I think, and then try to make some money in December. But it’s going to be a very tough time.”
Businesses will either not pay their bills or close their doors
Finbarr Filan owns a Centra store in Sligo. He has had a busy summer but is concerned about the coming winter. He is currently on a fixed group scheme for power through Musgraves but that contract expires at the end of October.
“My bill is currently an average of €3,500 per month. The best deal Musgraves have been able to get is a wholesale price on Energia, which will bring my bill to €9,000 but will realistically rise to €11,000 after Christmas. My annual bill will go from around €37,000 to well over €100,000.”
When homeowners spend more than 10% of their income on energy, they are said to be fuel poor.
“As a company, I’m heading towards energy poverty,” he says.
Filan is a member of the ISME Retail Committee and regularly speaks to other business owners. There is only one topic of conversation at the moment. The monthly bill of a small ready meal manufacturer he knows has gone from €1,800 to €5,500. Another man who has Astro Pitch complexes has seen his energy bill triple.
Filan believes a dramatic response is needed, much like she has been keeping businesses afloat during Covid: “This is a silent and hidden crisis. It creeps up on people.”
Larger companies may have contingency plans, but Filan believes most small businesses don’t have more than a month’s coverage for the kind of unexpected energy increases that are coming.
“It becomes completely unsustainable. If there is no cap on energy prices, one of two things will happen: companies will either not pay their bill or they will close their doors.”
https://www.independent.ie/business/irish/electric-shock-how-businesses-are-trying-to-keep-the-lights-on-41956130.html Electrocution: How companies try to keep the lights going