A sudden exodus of customers is likely to come as a shock to the long-established and profitable ESB, which enjoys a near monopoly in the domestic electricity market. In the last few days consumers have begun switching their accounts to take advantage of price cuts of at least 10 per cent being offered by Bord Gáis and by Airtricity, a subsidiary of Scottish and Southern Energy. In these difficult times, any reduction in domestic energy charges has to be welcomed. Crude oil prices on the world market have fallen hugely since their peak last July but energy prices have remained stubbornly high. Now, in a campaign designed to capture a quarter of the domestic electricity market, Bord Gáis is offering to undercut ESB prices charged by at least 10 per cent for the coming three years.
It sounds too good to be true; in an unregulated market, it would be. But competition – of a sort – is finally coming to the Irish energy market. The Electricity Regulator will shortly establish the up-to-date cost of generating and supplying electricity and will then prevent the ESB from dropping its charges below that level to drive competitors from the marketplace. New entrants will therefore be allowed to engage in below-cost selling and to build market share until such time as the regulator decides sufficient competition exists. Below-cost selling is a practice which has to be regarded with caution, even suspicion, as it is often deployed to drive opponents out of business but in this case it will increase consumer choice. This challenge to the ESB echoes competition that has been growing within the commercial electricity sector. In an interesting twist however, the new entrants to the domestic market will also compete against one another for the supply of natural gas.
Signs of downward pressure on prices are already evident. Officials at Bord Gáis have spoken of the possibility of reducing gas prices by up to 25 per cent by the end of this year. Airtricity imports gas but relies on wind power to generate electricity. It plans to attract half a million customers within five years. Bord Gáis hopes to get double that figure.
The emergence of head-to-head competition between two semi-State companies will raise eyebrows. But that may be the most effective way of reducing the unhealthy dominance of the ESB and cutting prices while avoiding any threat of industrial action. Continued ownership of the national grid by the ESB is undoubtedly an an obstacle to fair competition. The new price-setting approach by the regulator should minimise such concerns in the short term.
In spite of the State’s over-reliance on fossil fuels, Bord Gáis plans to generate the great bulk of its electricity from imported gas. Up to 15 per cent will come from renewable sources and the company will invest some € 10 million in research and development of alternative energy systems. Allowing for reserves in the Corrib field, the scale of the State company’s reliance on imported gas is still a cause for concern. The Russia/Ukraine gas dispute showed how vulnerable Europe has become in that regard.