Why is electricity in Ireland so expensive?
Irish households pay some of the highest prices for electricity in all of Europe. We decided to investigate and explain some of the reasons why.
Irish electricity prices are the fourth most expensive in the EU, according to Eurostat. And we’re even more expensive than non-EU countries such as Norway, the UK, and Iceland too.
But when you look at the net price of electricity in countries across Europe, before governments have added on any taxes and charges, electricity prices here are a staggering 60% above the EU average and more expensive than anywhere else.
So why is electricity in Ireland so dear?
Before we try answer this question, let’s take a look at what makes up a typical electricity bill.
Makeup of a typical electricity bill
Let’s say you get an electricity bill in the post for €100.
Here’s the makeup:
c. €40 - fuel generation costs
Around 40% of the price we pay for electricity is for the fuel that’s been used to generate it. So think of the cost for the gas, coal and oil that has been burned or the cost for buying electricity from the wind farms.
c. €35 - network tariffs
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 transmission network consist of the large wires and pylons that move electricity from a power plant to the various substations nationwide whereas the distribution network carries electricity from the substation into people's homes.
All suppliers must pay EirGrid Transmission Use of System (TUoS) charges (or tariffs), while the charges suppliers pay ESB Networks to distribute electricity to our homes and businesses are called the Distribution Use of System (DUoS) tariffs.
Our TUoS and DUoS tariffs are around the third highest in the EU and combined make up about one-third of a typical household’s electricity bill and ultimately these tariffs are passed through by energy suppliers to all customers in their bills.
Speaking recently to reporters in Ireland, Kadri Simson, the EU's energy commissioner, said: "System costs in Ireland seem to be significantly higher than the rest of Europe.”
c. €17 - government charges
The Government adds on VAT (13.5% - though reduced for a limited time to 9%) to our electricity bills as well as the PSO levy (€59 a year). On average government taxes add around 17% to Irish household's electricity bills, compared to an EU average of 36%.
c. €8 - supplier
Finally, around 8% of your bill goes to your supplier to pay for its overheads and profits.
Now we know what makes up an average electricity bill, let's look at the reasons why it's so high.
1. Lack of indigenous fuel sources
Ireland doesn't have a huge supply of its own fuel to generate electricity.
While we have the (rapidly dwindling) Corrib gas field, over 50% of our gas has to be imported from the UK (some of which in turn gets imported via Norway).
And we don’t have any indigenous supply of oil or coal - with most of the latter coming from Russia until very recently.
In almost all instances, countries which have to rely heavily on imports for their fuel, face higher prices.
2. Over reliance on fossil fuels
Ireland still has a large reliance on fossil fuels to generate electricity.
Although around 40% of our electricity now comes from renewable sources, mainly wind and solar, the rest is generated by burning gas, coal and a small amount of oil. These fuels are often volatile in price and as mentioned, most of them have to be imported.
Other countries with cheaper electricity rely far more on nuclear energy or have better developed renewable energy infrastructure.
3. Our location
As a small island on the edge of the Atlantic, there’s an added cost in getting fuel into Ireland.
Ireland is at the very very end of a long European gas pipeline that stretches all the way east into Russia and north into Scandinavia and there are usually charges every time gas crosses a country's network.
So by the time it gets to us, tariffs and charges have been tacked on.
4. Our disperse population
Ireland has a relatively small and dispersed population with a large number of rural, one-off homes.
This means a disproportionately high investment is needed in our electricity grid compared to other countries and this puts upward pressure on prices.
In Ireland over 30% of the price households pay for electricity goes towards the management and upkeep of the network (i.e network tariffs as discussed above). One of the highest rates in Europe.
5. Investment in renewables
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 and complex topic 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 in Ireland, this seems to cost way more than many other European countries.
For example, Conall Bolger, chief executive of the Irish Solar Energy Association, said the average cost for every unit of solar power generated in Ireland is more than double what it is in Spain, largely due to the big fees Eirgrid charges for connecting renewables to the grid.
Also, a lot of wind energy in Ireland gets wasted as the grid can't handle it all. This then forces wind farms to charge more for the power they can produce and sell.
And without getting too technical, renewable energy creates very different demands on the electricity network than fossil fuels and the two don't mix well together, meaning generating more renewable energy requires big investment in the national grid.
And this isn’t going to change in the near future.
Indeed, under the Government’s Climate Action Plan, up to 80% of Ireland's electricity is to be generated by renewables 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/DUoS or network tariffs (which we discussed above). Which in turn will be passed on to consumers.
Once the proper investment has been made, renewable energy has the potential to reduce Ireland’s electricity costs. But this is well over a decade away.
Both Iceland and Norway, for example, which are world leaders in renewable energy and have been investing in it long before we have, have significantly cheaper electricity than we do. Electricity in Iceland is about 50% cheaper than ours while in Norway it’s about 30% cheaper.
6. Data centres
Ireland is an attractive destination for data centres primarily due to our cool climate - data centres create a huge amount of heat and need to be cooled, which is far easier and cheaper to do in a moderate climate. However our competitive corporate tax rate and central geographical location between the US and Europe also helps, as does government policy, which until recently has been hugely accommodating of data centres locating here.
There are currently around 70 centres operating here, with the vast majority of these located in Dublin, which is the largest data centre hub in Europe.
In most countries data centres only use a small amount of the country’s electricity so don’t have a huge impact on prices. That's not the case in Ireland.
As of 2018, Ireland was home to 25% of the data centres in Europe. Therefore, it should come as no surprise that data centres are using a higher percentage of electricity in Ireland, in comparison to other European countries.
According to a 2020 study by the European Commission, on average data centres accounted for 2.7% of Europe's electricity consumption in 2018. This is expected to rise to 3.2% by 2030. However, in Ireland this figure currently rests at 14%, highlighting data centres’ unparalleled demand on the electricity grid here.
This huge demand from data centres for electricity is therefore pushing up prices.
You can read more about how data centres are impacting on Ireland's electricity price here.
7. High cost of living
Suppliers' wage costs, business overheads and rent all get factored into the price we pay for electricity too. And as we know these costs are higher in Ireland than many other countries. Admittedly, this doesn't have a huge impact on prices given these costs make up less than 10% of the average bill.
8. Inefficiencies and anti-competitive behaviour?
In recent months, ESB, which generates around 40% of the country's electricity, has been accused of using its dominant market position to keep prices high.
In 2019, the company got a contract to build nine new power plants, which were due to start generating much-needed electricity between October this year and September 2023. The new power plants should, in theory, have reduced the price of electricity by alleviating the mismatch between supply and demand.
Four are on the way, but the ESB now says it can't fulfil the contract for the other five for various reasons.
When the ESB bid for the contracts in 2019, it sought payments of €46,150 a megawatt, far below the €138,450 per megawatt that the company itself told regulators was viable.
That prompted claims from some, including Fianna Fáil TD, Barry Cowen, and competitors, primarily the Independent Electricity Suppliers of Ireland (IESI), that the State organisation’s own bids deterred anyone else from taking part in the 2019 auction.
The ESB has denied all allegations and said that allegations about its prices “appear based on limited understanding of how the energy market works”.
However with prices here 60% above the EU average before tax, it's clear something is wrong with Ireland's electricity system. Whether that's due to antI-competitive behaviour, inefficiencies with generating electricity, or a combination of all the reasons listed here, is up for debate.
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Let’s hear from you
Do you think electricity in Ireland is expensive? Do you struggle to pay your bills? What do you think, if anything, should be done?