Why are household gas and electricity bills not falling?
Daragh Cassidy
Head Writer

Cheaper oil and falling wholesale gas and electricity prices have left many wondering why we're still paying record prices for our energy. We decided to investigate why household gas and electricity bills aren't coming down.

It's been a tough year for energy customers. 

All suppliers have announced major price increases over the past year on the back of multiple price increases in 2021. 

This has left gas and electricity prices at record highs and left many households struggling to cope with their bills.

But over the past few weeks energy prices have eased somewhat, leading some to wonder why they aren't seeing any falls in their bills. 

In this article we look at what's been happening in the energy world and whether households can look forward to cheaper gas and electricity any time soon.   

Falling oil prices 

Much has been made about the fall in the price of oil in recent months. 

Oil is trading at around $80 a barrel, down significantly from its summer highs when it reached over $120 a barrel following the outbreak of war in Ukraine. 

However we use oil to generate only around 3% of our electricity these days. So its price has very little impact on the overall cost of our electricity. 

On top of this, oil is sold in dollars and the euro has been quite weak against the dollar in recent months. 

At the start of 2022, €1 was worth around $1.15. However this fell as low as $0.96 during the summer. Though the euro has since recovered a bit. 

This has meant that a lot of the benefit of the fall in the price of oil has been negated by the weaker euro. 

Fall in the wholesale price of electricity   

In October the CSO announced that electricity prices had fallen by 52% compared to the previous month. Which left many wondering why they weren't seeing cheaper energy bills.

However, wholesale energy prices are still at a very high level. At one stage during the summer, the price of gas was up by well over 1,000% on a yearly basis on wholesale markets. And in March the wholesale price of electricity in Ireland was up by over 400% compared to the year before.

So when we hear of falling prices we need to remember that it’s on the back of prices which were at record highs to begin with.

Besides, since October the wholesale price of electricity has risen by over 100% again and it’s still significantly above its longer-term price of around €30 to €40 per MWh.

Meanwhile on the UK gas market, from where we import about 75% of our gas, the price of gas is trading at close to 200 pence per therm - well above the 50 to 55 pence level it traded at around 18 months ago. 

Date 

Wholesale electricity price per MWh in Ireland*

2020 average 

€38

2021 average

€136

2022 average

€226

August 2022

€388

September 2022

€283

October 2022

€136

November 2022

€143

December 2022

€277

*SEM Day Ahead market price

Hedging 

Another important point to remember is that energy suppliers buy their energy for delivery at different times throughout the year, and sometimes up to 12 or 18 months in advance through hedging.  

So the price households pay for their gas and electricity is usually an average price of the cost of energy on wholesale markets over the course of around a year or two. This is to try ensure households aren’t faced with extreme swings in the price of their energy on a weekly or monthly basis. 

As mentioned, gas prices were up by over 1,000% during the summer while electricity prices were up by over 400% at one stage in spring. But thanks to hedging an increase of this size wasn’t passed on to households. 

Buying in advance also means suppliers can be sure they have enough energy to meet their customers' demands. 

However a downside of hedging is that falls in the price of energy aren’t immediately passed on either. 

Due to hedging, we’ll need to see a sustained reduction in the price of energy on wholesale markets for several months before we can talk of smaller bills for consumers.

What does the future hold? 

The drop in gas and electricity prices on wholesale market in recent weeks was largely due to record warmth. While strong wind output helped ease electricity prices.

Europe experienced its warmest October on record. Followed by a near record warm November. This helped keep demand for gas far lower than expected during much of autumn, which led to a drop in its price. And as we use gas to generate over 40% of our electricity, this helped push electricity prices down too.  

However the start of winter has brought colder weather to parts of Europe. And any prolonged cold snap could see demand for gas and prices shoot back up. Which in turn would impact electricity prices too.

The level of power outages at generation plants is also down compared to this time last year. In 2020 and 2021 two of the country’s biggest electricity power plants at Whitegate in Cork and Huntstown in Dublin were out of action for a prolonged period which put big pressure on the electricity grid and prices. Keeping power outages at electricity plants under control will also be critical for Ireland's electricity prices over the coming months. 

At an EU level, there is talk of capping the price of energy. People might think it’s an easy thing to do, but it’s far more complicated than many realise and the mechanics are still to be fully worked out. The main fear is that if the price of gas in particular is capped, suppliers will just sell their gas to countries which are prepared to pay the higher market price, leaving Europe short of gas and at risk of blackouts.

Any further escalation in the Russian and Ukrainian conflict could also see prices shoot back up.

Nothing to pass on 

In short, household energy bills haven't reduced in recent weeks because there's been no real reduction to pass on. 

Most suppliers are in fact shielding their customers from even higher prices.   

Over the past two years the price of gas and electricity has shot up as we all know. Gas is still trading at around four to five times its 2020 price. While electricity is trading at around four times its price compared to two years ago.

But over this time period the average gas bill has 'only' gone up by around 140% while the average electricity bill has increased by around 115%. So it's clear all the recent hikes in wholesale energy costs haven't been passed on by suppliers. So in many ways it's unsurprising any recent drops haven't been passed on either. 

Switch, reduce and save 

With no immediate prospect of cheaper energy bills, the only way to reduce your gas and electricity costs is to switch supplier to get a discounted introductory rate or to reduce your energy usage. 

You can switch energy supplier on bonkers.ie today. It's quick and easy and only takes a few minutes. Meanwhile here are 16 ways to use less electricity.