The month of May brings both good news and bad news for hard-pressed consumers who are dealing with record energy prices.
There's some mixed news for energy customers as we head into May as a somewhat controversial increase in the carbon tax comes into force at the same time as a temporary reduction in VAT on gas and electricity bills comes into effect. Meanwhile, customers of Electric Ireland, SSE Airtricity and Panda are to be hit with double-digit price hikes.
Let's look at each event in more detail.
Carbon tax increase
From 1st May the carbon tax will increase yet again.
The carbon tax is a charge applied to carbon-emitting fuels such as coal, peat, oil and natural gas. Introduced in 2010, the tax is intended to reduce carbon dioxide emissions and is part of Ireland’s strategy to support a greener and cleaner environment.
The tax was raised by €7.50 to €41 per tonne of CO2 in last October’s budget. However, as is now customary, the increase was postponed until May on home heating fuels such as coal, peat, natural gas and home heating oil.
The Government has committed to increasing the carbon tax to €100 per tonne of CO2 by 2030.
For gas customers, the new charge will work out at 0.741 per kWh of gas (ex. VAT) or 0.841 per kWh (inc VAT at 13.5%). Considering the average Irish household uses 11,000 kWh of gas each year, the increase will add around another €17 a year to people’s bills, or around €93 in total.
However those in homes with three or more bedrooms or with a poor BER are likely to end up paying more.
The increase will add approximately €19 more to the fill of a 900-litre home heating oil tank.
The increase in carbon tax also means it now adds around €4.30 in total to a 40kg bag of coal and 93 cent in total to every bale of briquettes.
The tax already adds around 10.5 cent to every litre of petrol and diesel.
The carbon tax doesn’t apply to electricity, where the PSO levy is applied, and which currently adds almost €59 (inc. VAT) to bills a year. However this is due to reduce to €0 from 1 October.
Below is an approximate outline of what the increase will add to various fuels, as well as the total amount now being paid in carbon tax each year.
Carbon tax at €33.50 a tonne
Carbon tax at €41 a tonne
€93 a year
Bale of peat / briquettes
€0.93 per bale
Bag of coal**
€4.30 per bag
Home heating oil***
€93 per fill
*Based on average annual consumption of 11,000 kWh of gas
***Based on 900-litre tank
At the same time, VAT is due to temporarily decrease from 13.5% to 9% on gas and electricity bills from 1st May until the end of October.
However, given that gas and electricity prices have skyrocketed over the past 18 months, households will still be paying more in VAT to the Government each year than they were in 2020.
For example, back in the autumn of 2020, before prices started to increase, the average annual electricity bill was just over €1,100 while the average gas bill was just over €800 including VAT. That meant the Government was taking in around €238 a year in VAT from the average household’s gas and electricity bills.
Now the average annual electricity bill is around €1,900 and the average annual gas bill is around €1,400 - however this does vary significantly by supplier.
This means even though the Government is reducing VAT to 9%, and only for six months remember, households will still be paying well over €300 a year in VAT to the Government at current prices.
And while the temporary reduction in VAT to 9% is obviously welcome, the timing is a bit peculiar. The reduction will come into effect when energy demand in the home usually begins to plummet while it will go back up when it begins to increase again.
Electric Ireland is increasing the price of its electricity by 22% and its gas by 25%. SSE is increasing the price of its electricity by 30% and its gas by 39%.
Meanwhile, customers of Panda are set to see their electricity bills go up by almost €300 a year and their gas bills by over €200!
Offset the price hikes
In terms of offsetting the price increases, the easiest thing for you to do is to switch supplier.
Customers who switch can get discounts of up to 40% or more from their new supplier for an entire year, which would help offset some of the price hikes.
And you can switch and save quickly and easily right here on bonkers.ie. Just head to our gas and electricity comparison service to get started.
Get in touch
Do you have any questions about upcoming developments? If so, get in touch as we’d be happy to help.