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Gas & Electricity

Why are energy prices increasing?

Why are energy prices increasing?
Daragh Cassidy

Daragh Cassidy

Head Writer

Almost all energy suppliers in Ireland have significantly increased their prices over the past few months and more are expected to announce price hikes over the coming weeks. But why?

It hasn’t been a great few months for energy customers in Ireland. 

Most of the the country's energy suppliers have announced big increases in their gas and electricity prices over the past few months and more price hikes look on the way.

Here's a look at some of the recent increases from the main suppliers.

Supplier

Gas increase

Electricity increase 

Effective date 

SSE Airtricity

+4.5%

+6.2%

1st April 

Pinergy

N/A

+4.2%

1st April* 

Energia

+5.7%

+8.6%

5th April 

Panda Power 

No change

+7.5%

8th April

Flogas

+6.5%

+8.5%

12th April

Bord Gáis Energy

No change 

+8.0%

12th April 

Iberdrola

+4.9%

+6.3%

24th April

Bright

N/A

+18%

17th June

A further electricity price increase of 8.2% comes into effect from 11th June.

Gas and electricity prices in Ireland are already among the most expensive in Europe and with the economy still reeling from the effects of the pandemic, and with ‘free’ renewable electricity at record output levels, many might be wondering why prices are increasing? 

Why?

Although the amount of electricity being generated from renewable sources has increased hugely in Ireland in recent years, around 50% of our electricity is still generated from burning gas and 10% to 15% from burning coal, peat and oil. 

This dependency on fossil fuels means we’re highly susceptible to any changes in their price, which can often be quite volatile.

And the price of gas and coal in particular has increased on wholesale markets in recent months as the global economy recovers from the effects of the pandemic and demand for energy increases.

Although prices plummeted at the height of the pandemic, at the end of December 2020, the price of gas was up by over 30% year-on-year while the price of coal was up by around 10%. 

And although oil only makes up around 2 to 3% of our electricity generation these days, the price of a barrel is now back to its pre-pandemic high of between $60 to $70, having increased more than 50% in the past few months alone.

The second biggest driver of the price of energy is the cost of building, operating and maintaining the country’s gas and electricity networks.

For electricity this is the high voltage wires, pylons and electrical lines that transport electricity around the country and into people’s homes. 

For gas it’s the network of pipes, large and small, that connect the country’s towns and cities and transport gas into people’s homes and businesses. 

The electricity network in Ireland is made up of the transmission network (or grid) and distribution network, managed by EirGrid and ESB Networks respectively.

The gas transmission and distribution network is managed by Gas Networks Ireland.  

All supplies must pay EirGrid and Gas Networks Ireland so-called Transmission Use of System (TUoS) charges (or tariffs), while the charges suppliers pay ESB Networks and Gas Networks Ireland to distribute electricity and gas to our homes and businesses are called the Distribution Use of System (DUoS) tariffs. 

The TUoS and DUoS tariffs combined make up about one-third of a typical household’s energy bill and ultimately these tariffs are passed through by energy suppliers to all customers in their bills. 

Back in October, the CRU, Ireland’s independent energy regulator, announced an increase in these charges for electricity customers to help finance investment in the grid, which it said at the time would add around €29 to the average household’s annual bill. 

Of course, it was up to the suppliers as to whether they wanted to pass on these charges to their customers. However most now are. And this coupled with the rise in gas and coal prices is leading to increased electricity bills in particular.  

Estimated makeup of a typical household's final energy bill

Expense

Percentage 

Fuel generation costs  45%
Network tariffs 30%
Government tax (VAT and levies) 17%
Supplier overhead costs & profit 8%

Renewable energy

Ireland’s level of renewable energy output has increased hugely in recent years and consumers often wonder why this hasn’t led to more downward pressure on electricity prices. 

Wind is 'free' after all, no?

It’s a controversial topic between supporters of green energy and climate change sceptics but we need to remember that renewable energy isn’t free. It’s far cleaner and better for the environment of course, but it costs money to build the turbines, solar panels and hydroelectric plants, convert the wind, sun and water into electricity and then distribute this energy into people’s homes.

And without getting too technical, renewable energy creates very different demands on the electricity network than fossil fuels and the two don't go well together, meaning renewable energy requires investment and money.

And this isn’t going to change in the near future. 

Indeed, under the Government’s Climate Action Plan, 70% of Ireland's electricity is to be generated by renewable means by 2030, with most of this to come from wind and solar. But for this to be possible, there needs to be considerable investment in the national grid.

Depending on which approach is taken, that could cost between €500mn and over €2bn. And this money will most likely be recouped through higher TUoS and DUoS tariffs. 

The increase in the number of data centres in Ireland also needs to be recognised. These centres consume vast amounts of energy. And a report from Moody’s in 2018 said the continued growth of data centres in the Republic would “significantly” contribute to a rise in electricity demand over the coming years, thereby putting upward pressure on prices.  

The final point is that renewable energy is volatile – we can’t tell very far in advance how windy or sunny it’s going to be and therefore how much energy will be generated. As a result, back-up power plans which generate their electricity from fossil fuels are still needed for when renewable energy dips. But turning these on and off at irregular intervals depending on how windy or sunny it may or may not be isn’t very efficient and can add to costs too.

And on the subject of power plants, these regularly go out of action from time to time because of maintenance. However in recent weeks a higher number than usual have been out of action, which has put further pressure on prices. 

Are we being ripped off with our energy prices?

The latest figures from Eurostat, the EU statistics agency, show that Irish electricity prices are the fourth highest in the EU with only Denmark, Germany and Belgium having higher prices. Gas prices are around the seventh most expensive in the region.

However, as well all know, Ireland is an expensive country for consumers anyway and Ireland’s energy prices are no more out-of-line with the EU than our other prices. Cold comfort I’m sure!

Things like wages and business overheads also get factored into the price of supplying energy and these costs are also higher in Ireland than other European countries.

Switch and offset the price increases

For those seeking better value the best option at the moment is to switch. 

Despite the rising prices, there is huge competition among the 13 energy suppliers for new customers right now. In fact, the average energy switcher at the moment could save well over €400. 

It’s quick and easy to switch and with more time being spent at home than ever before, energy usage in households has never been higher, meaning it’s never been more important to ensure you’re on the most competitive tariff. 

You can compare gas, electricity and dual fuel tariffs right now across all suppliers using our energy comparison tool

Secondly, consumers should also look at ways to reduce their energy consumption.

Whether that’s installing energy-saving light bulbs or remembering to unplug appliances at night, there are lots of little things we can do to use less energy around the home.

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