Government body faced difficulty in arranging power supplies for state agencies due to market volatility

August 11, 2023

The Government body responsible for arranging power supply for state agencies could not even get companies to bid to provide electricity because of “extreme volatility” in energy prices last year.

The Office of Government Procurement (OGP) tried to run a second tender competition, even making changes to the contract to encourage a “more positive market response”, but could still find nobody willing to make an offer.

The contract, which had an estimated value of €80 million, was advertised last September but by the time it was due to close in October, it had attracted “zero bids”.

An earlier tender competition had also failed after only one company expressed an interest in supplying power to a range of state agencies.

The OGP warned government bodies, including An Garda Síochána, the Defence Forces, and the Irish Prison Service, they needed to prepare themselves for price rises of above 300%, according to records released under FOI.

In an update, they said suppliers in Ireland were no longer bidding for large commercial contracts, whether it was in the public or private sector.

“The market in Ireland does not have normal levels of liquidity due to very high levels of risk, underwriting challenges, and price volatility,” said the advisory from last November.

In a later update that month, the OGP explained how the latest tender competition had failed despite “intense engagement” with suppliers and the changes to make the contract more attractive.

It said that public bodies would remain on fixed contract rates until the end of November, but that after that, they would move onto standard electricity prices.

The letter said: “Currently both the standard pricing and wholesale products are competitive, all be it very inflated compared to current contract rates.”

The OGP said they would need to carry out broader market research, and see what was happening in other countries before they could look at running another competition for supplying energy.

Another advisory from September explained how the procurement office had traditionally tried to put in place three-year contracts for the supply of electricity.

However, they planned to try a shorter 18-month deal to reduce “exposure”.

The update said: “We have no way of knowing if supplier margins may move up or down in the next [year and a half].

“However, on balance, after the market consultation, we are of the view that the shorter contract term is the most prudent approach in these uncertain times.

“It said public bodies could expect energy bills to rise by as much as 378% but that prices were still moving “quite dramatically” on a daily and sometimes hourly basis.

The update also explained how the level of uncertainty in markets meant they now had “hours rather than days” to consider and accept offers for energy supply.

A statement from the OGP said: “Prior to the war in Europe, the supply and pricing of electricity and natural gas was stable allowing for longer term contacts and greater price certainty.

“Recent events have made the supply and pricing for electricity and natural gas violate and uncertain. OGP continues to monitor the market dynamics to determine the timing of competitions and the duration of supply contracts to ensure that the public sector continues to obtain value for money.”

Article Source: Government body faced difficulty in arranging power supplies for state agencies due to market volatility – RTE

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