The pressure is on consumers as winter energy bills further squeeze budgets already contending with rising prices across the board. But that might just be about to ease off. This week, Pinergy announced it would cut the price that it charges households for electricity by 7.1 per cent, saving the typical family €183 a year or €15.25 a month.
Enda Gunnell, its chief executive, explained that “recent reductions” in the wholesale cost of electricity had allowed it to ease the burden on its 30,000 customers, although he cautioned that the global outlook remained volatile, with prices still three times what they were before the pandemic.
“Recent reductions” is stretching a point. Wholesale electricity prices have generally been falling since they hit new highs in August. There have been ups and downs – in fact, they change every hour – but the overall trend has been downward.
On Wednesday, two days after Pinergy’s announcement, the Central Statistics Office (CSO) said wholesale electricity prices fell 41.4 per cent last month, from December – when demand normally peaks – while they were one-fifth below what suppliers paid in January last year.
Its wholesale electricity price index shows costs topped out in August, when the index read 715.5. They slipped to 299.3 last month, following an uptick in December. Unhelpfully, the CSO uses a 100 benchmark, based on prices paid in 2015, so it does not tell you how much power cost at any point: it simply illustrates movement in those charges.
According to energy broker and adviser Green Procurement Ireland, wholesale electricity prices in January averaged 16.22 cent a kilowatt hour (KWh) – the unit in which it is sold to households. Network and other charges added eight to 12 cent, bringing the total to a maximum of about 28 cent.
Green Procurement’s figures are based on “day-ahead contracts”, which is the price that companies supplying consumers pay generators for electricity they need the next day. Strictly these are not wholesale rates, which vary widely across any given 24 hours, but the two are closely aligned, so day-ahead prices track wholesale trends.
In fact, they mirror the CSO’s wholesale index, which shows a sharp decline from August through September and October, before a slight increase in November and a marked upward swing in December ahead of another distinct retreat last month.
Green Procurement’s calculation of average monthly day-ahead prices show they peaked in August at 38.76 cent a KWh, or a possible 50.76 cent maximum including charges. Excluding those costs, the day-ahead average slipped to 28.349 cent in September, then to 13.616 cent in October before tacking back up to 14.287 cent in November and 27.669 in December.
That month sealed its reputation as the busiest for electricity consumption when Irish homes and businesses used a record 5,544 mega watt hours at one point, so the surge was not unusual. Including network charges, September and December prices hit a high of around 40 cent with a low of 25.6 cent in October.
Figures from the Sustainable Energy Authority of Ireland show that households pay between 43 and 45 cent a KWh. Last year, the average ranged from 22 cent to 35 while in 2021 it was between 15 and 18 cent.
August’s high was a response to record-breaking natural gas prices, sparked by panic buying of the fuel as a result of Russian state company Gazprom shutting off much of its supply to Europe through the summer. The peak was brief and eased quickly as it emerged that the continent’s stores were near capacity, thanks partly to shipments of liquid natural gas (LNG).
Gas generates most of our electricity in Ireland and, under EU rules, sets wholesale power prices. Homes and businesses also use the fuel directly for heating and other purposes.
Trends in its price tell a similar tale to that of electricity. Its cost also hit a peak in August, specifically on the 26th, when it reached a record 848.11 pence sterling a therm – a unit in which it is sold – in London, a centre for trading the commodity. On February 21st of this year, it was down to 120.06p. Once again, the trend from August was steeply down, with normal seasonal variations.
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Most suppliers increased their household charges in the autumn even as wholesale prices slid from their August highs. Those hikes pushed some families’ bills to around €4,000 a year. They also prompted the Government to commit more than €1 billion to giving each home in the Republic €600 credit against electricity bills over six months.
To rub salt in some wounds, it emerged last week that energy companies were charging multinationals as little as 7 cent a KWh last year while domestic customers were paying up to 35 cent and Irish businesses around 28 cent.
So far, there are no signs of any other company following Pinergy. Its move and the CSO figures are likely to lead to further demands that the industry start cutting prices. Last week, Eamon Ryan, the Minister for the Environment, added his voice to calls on power companies to reduce charges as soon as possible.
For its part, ESB-owned Electric Ireland, the biggest player in the Irish domestic market, points out that while wholesale prices have fallen, they remain at multiples of their pre-crisis levels. The State company says it is forgoing profit from its residential business and gave €50 credit to those customers in December. It has boosted its hardship fund to €5 million from €2 million.
Similarly, Bord Gáis Energy says it lost €60 million absorbing household price increases last year and bolstered its hardship fund. SSE Airtricity also says it is forgoing profits from supplying families and has €25 million in customer supports.
All of them, Bord Gáis, ESB and SSE Airtricity as well as Energia, say they are monitoring wholesale prices and pledge to provide customers with the best prices or value possible.
Another common theme runs through their responses, the by now well-known hedging argument. Broadly this says that suppliers buy the electricity and gas they sell to families and small businesses on forward markets – several months, a year or possibly two years in advance – to balance the risk of price movements. This delays the impact of a fall or a rise wholesale charges on customers’ bills.
Suppliers say another version of this explains the difference between domestic and multinational bills. In that case, the big companies get contracts allowing them to fix a low electricity price, tied to the wholesale market, over several years. So, anyone who struck a deal in 2020 could still be paying the exceptionally low rates that prevailed when lockdowns dampened gas demand and thus electricity costs.
From most customers’ point of view, the hedging-forward-buying explanation is far less clear cut than price changes simply being passed on months after they occur. The energy crisis began in earnest in 2021. Europe was caught asleep at the wheel as Gazprom cut supplies, while China emerged from lockdown to begin mopping up LNG shipments. By the end of the year, natural gas prices had increased sevenfold to 354p a therm from 47p in February.
The CSO’s index shows wholesale electricity prices creeping up from a reading of 144.7 in January to 175.4 in June, mostly driven by that year’s steady post-Covid reopening. The severe increases came in the second half, with July posting a near 265 reading, October approaching 400 and December hitting 462.2.
A squeeze on electricity, the result of unexpected long-term power plant closures and lower than normal wind speeds, added to Irish price pressures through 2021. Bord Gáis increased its electricity prices by 7.4 per cent in April that year, but says it had been the only company to cut charges in 2019 and 2020.
In August 2021 it added €8.36 a month to a typical gas bill and €11.39 a month to electricity. It followed this in September with an €8.16 monthly hike to gas charges and €10.26 on electricity, but guaranteed no further increases until the following spring.
Electric Ireland raised electricity prices by 9 per cent or €8.20 a-month, and gas charges by 7.8 per cent or €4.98 a month on typical bills in July 2021. In October, it added 9.3 per cent or €9 a month to electricity charges and 7 per cent or €4.85 a month to gas.
SSE Airtricity announced its first 2021 increase in September, adding 9.8 per cent or €3.89 a week to dual fuel (gas and electricity) customers’ bills. Electricity only households faced an extra €2.27 a week while standard gas rose €1.61 a week.
While suppliers did not increase charges as wholesale prices began their steady climb in April 2021, they responded quickly to the dramatic hikes resulting from surging demand for gas on world markets and the electricity squeeze at home.
One observer says that suppliers’ reaction in autumn 2021 stemmed from a fear – which we now know was justified – that wholesale prices were on an upward trajectory likely to leave household charges well below gas and electricity costs. “Suppliers will be very fast to up prices, but they will be slower to adjust down,” he adds.
Six months on from August’s inflection point on wholesale prices, suppliers’ hedging arguments meet increased scepticism. Speaking this week about the relatively high cost of dining out in Dublin, Adrian Cummins, chief executive of the Restaurants Association of Ireland, blamed energy price increases in part.
“I do not get this thing that it will take a few months to see the lower wholesale rates being passed on,” he said. “I think there’s definitely some profiteering going on.”
Whether or not Cummins is right, families and employers share his view. The pressure is definitely on.
