Pricewatch: Will energy prices remain high for the foreseeable future?

The spiralling cost of energy since the winter of 2021 has been shocking, with most Irish households forced to watch helplessly as the cost of heat and light more than doubled. The price hikes have seen the typical household worse off by more than €2,000 over 12 months, and while a series of energy credits rolled out by the Government have helped, the impact of the hikes has been profound.

What is doubly depressing is how much more we have to pay for energy than our cousins in Europe. Irish consumers pay annual bills that are about €800 more than the EU average, according to a report from the Austrian and Hungarian energy regulator published last week.

It found that Irish households pay 47.12c per kilowatt hour (kWh) including taxes for electricity compared to a European average of 26.34c. Households in Ireland use about 4,200 kWh of electricity each year, a figure which when multiplied by the difference in the average kWh price results in the €800 higher annual bill.

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The high price of energy prompted consumer Terrence Madden to contact us. “My electricity contract with Bord Gáis Energy is due for renewal in September. They offered to continue with a 5 per cent discount. I have searched in all the usual sites and have found that there is no competition at all. The full price of a kWh offered is 47 cent, standing charges aside. While on holiday in Italy, the price is 23c a kWh, and much lower standing charges. Is there anything I can do before I am dragooned into a 12-month contract at these enormous prices? Is the Government continuing to sit back and do nothing?”

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The issue of high prices has certainly been making headlines in recent days. Wholesale electricity prices on international markets fell by 17.9 per cent in July, according to a report from the Central Statistics Office (CSO) last week. It said they were 64 per cent lower on an annual basis.

“Electricity costs on the wholesale market are now lower than any time during the past two years. The last time that prices were lower than the current rate was in June 2021,” the CSO said.

Ireland’s energy watchdog has said it expects gas and electricity prices for domestic users to start falling within weeks.

The Commission for the Regulation of Utilities (CRU) has no role in setting the prices imposed by individual providers, but a spokesman said it “continually monitors the marketplace to ensure that it continues to function as required under EU legislation and that customers benefit as much as possible from competition”.

Our electricity prices will remain very high for the foreseeable future, unfortunately. And we may never get back to the more normal levels they were at in 2020

—  Daragh Cassidy, Bonkers.ie

“While wholesale gas and futures gas prices still remain higher than historic norms, the CRU would expect the effect of the high futures prices from last year to expire and to see some movement on prices in the last quarter of this year.”

While the CRU was somewhat positive in its forecast for falling prices, others were more gloomy.

As Bonkers.ie spokesman Daragh Cassidy points out, “at €96 per MWh [megawatt hour], prices are still over double the level they were in 2020 before Covid and then the war in Ukraine wreaked havoc with energy prices”.

The average price over the past six months is still over three times what would be considered normal.

“This is why households haven’t seen a reduction in their electricity bills yet. There hasn’t been anything to pass on really. Yes, wholesale prices have fallen in recent months and some of the percentage drops look huge – but prices have fallen from really high levels to begin with. And a lot of that increase wasn’t passed on to households in the first place,” he continues.

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“A lot of media attention has focused on the hedging strategies of suppliers as the reason for our high prices. But the simple fact is that... electricity in Ireland is still very expensive to generate and has been for many years. Even if suppliers had no hedging at all in place, at a wholesale price of close to €100 per MWh, which it was in July, the best price suppliers could offer consumers is probably between 35 to 38 cent per kWh, including VAT.

He suggests there will be “some small reductions from suppliers over the coming weeks as hedging strategies unwind. But our electricity prices will remain very high for the foreseeable future, unfortunately. And we may never get back to the more normal levels they were at in 2020.”

Meanwhile, the leading energy providers have all remained tight-lipped about their plans for the autumn and winter months ahead. Here’s what they had to say when contacted by Pricewatch.

Airtricity

“Like other suppliers, SSE Airtricity buys energy on the wholesale market many months in advance. Our approach to hedging means we have been able to protect customers from the full impact of wholesale market volatility, helping to ensure stability for customers and limiting their exposure to market extremes.

“SSE Airtricity’s approach to buying energy, combined with holding back tariffs for our domestic customers, and our market-leading affordability supports including distributing our profits for the last financial year directly to domestic customers, means we have protected customers from the full impact of wholesale increases. Wholesale prices still far exceed where prices were pre-crisis, however, we actively monitor energy markets and, as we have done before, will reduce our prices as soon as it is possible to do so.”

Flogas

“Due to recent market volatility, no decisions yet on variable rates, but Flogas is continuing to keep the situation under active review. However, Flogas fixed price rates are the best in the market for natural gas and among the most competitive for electricity.”

Energia

“Energia constantly strives to deliver high-quality services to our customers at competitive prices. Over the past year, wholesale energy costs reached unprecedented highs. Despite positive movements in recent weeks, they remain significantly above their historic average values. During this time, the forward purchasing of energy has protected customers from the full impact of these wholesale prices, and many of these protections remain in place today. We continue to monitor wholesale electricity and gas prices on an ongoing basis and will proactively communicate any future price changes to our customers, in line with evolving market circumstances.”

Electric Ireland

“Electric Ireland has not increased its residential prices since 1 October 2022, and keeps its prices under constant review.

“Electric Ireland continues, as it has since before the onset of the cost-of-living crisis, to offer the lowest-cost standard variable tariff for residential customers in the market, even after the reductions announced by other suppliers are applied. Electric Ireland also offers an additional enduring discount rate of up to 8.5 per cent for direct debit and e-billing customers.

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“Electric Ireland did not make any profit in its residential electricity business for 2022. In December 2022, Electric Ireland announced it would forego profit from its residential electricity business for 2022 and give a €50 credit to each of its residential customers. Over one million residential customers received this €50 credit at the start of 2023, at a cost to Electric Ireland of more than €55m.

“Our Update on Wholesale Markets and Retail Pricing published on esb.ie on 3 March 2023 explains how hedging has protected Electric Ireland customers from extraordinary wholesale price volatility, saving each customer approximately €650 over the past two years.

“Across an 18-month period from mid-2020 to the end of 2021, prior to the onset of the conflict in Ukraine, wholesale gas prices increased in the region of 400 per cent. As a result of having hedges in place, Electric Ireland was in a position to delay increasing its prices for almost a year, and in much smaller increments, starting in August 2021 with an increase of less than 10 per cent. While forward wholesale prices have fallen in recent months, particularly so since their peak in autumn 2022, they are currently in the region of 290 per cent higher than in 2020.

“Electric Ireland, ESB’s supply business, is subject to licence and regulatory restrictions which require it to be operated separately to ESB’s other (generation and networks) business units, and is not permitted to subsidise its prices with revenues from other parts of the group.”

Bord Gáis Energy

“At Bord Gáis Energy we are focused on helping customers and protecting them as much as we can from volatility in wholesale energy costs. This is shown by our incurring a €30 million loss for the first half of 2023, as reported in our recent interim results published in July. This loss is as a direct consequence of pricing pressure in the retail supply market and our work to protect customers from the worst of the volatility in wholesale energy costs. Furthermore, as confirmed to your publication last month, we do not plan to increase our retail prices in the coming months.

“We continue to recognise the need to support vulnerable customers. To address this, last year Bord Gáis Energy established an energy support fund and we have provided €2 million from this fund to aid vulnerable customers in the first six months of this year.

“Our trading team has an active strategy to utilise emergent downward wholesale price trends as part of our ongoing hedging strategy that is designed to help protect customers. As we buy energy up to 18 months (and sometimes longer) in advance, the impact of the lower wholesale prices being seen over the past few months will still take some time to be reflected in retail prices.

“Any potential price change in the future is dependent on prices remaining stable over a prolonged period. However, as we have shown in the past, Bord Gáis Energy remains committed to passing on any savings as soon as possible.”

Pinergy

Pinergy announced a second decrease to its standard residential electricity prices on Monday, which would take effect from October 1st.

“This latest price reduction will result in a 9.5% decrease to the typical household cost which is equivalent to €220 annually (incl. VAT) in an Estimated Annual Bill (EAB) based on a domestic customer using typical consumption per annum on standard tariffs.”