Why is the cost of energy so high? - Midlands 103

Image audioImage Why is the cost of energy so high? - Midlands 103

As the energy crisis trundles on, likely to continue into the new year, consumers are bearing the brunt of rising costs.

Our Head of Communications, Daragh Cassidy chatted to Will on Midlands 103 about the reasons why prices are continuing to rise, whether consumers will see any reprieve sometime soon, and how to make sure you're not overpaying this winter.

What's the context for energy prices increasing?

Energy has increased by a huge amount and many customers are probably getting their first winter bill now, and are seeing their costs going up.

This year alone we saw over 35 price hike announcements from the various suppliers in Ireland. Gas and electricity prices are now at record highs. Some suppliers even had to raise prices five times.

When it comes to the average bill, people are looking at paying anywhere between €700 to €800 extra on average for their energy as a result of the price increases.

The rise in prices has been unprecedented and unfortunately it seems to be continuing into 2022.

When you look at how gas is performing on wholesale markets, it's back at record highs. Gas is important as we obviously use it for our heating, but we also generate around 50% of our electricity from burning gas.

When we move into winter that's usually when prices on wholesale markets go up, but to reiterate, the prices we're seeing at the moment have never been seen before.

Is there still value to be had by switching?

You absolutely can save money on your energy bills by shopping around and switching your supplier.

There are 14 suppliers in the energy market in Ireland, most of whom are still competing aggressively for business. Some aren't of course due to the nature of the market.

If you look at switching supplier you could save anywhere from €500 to €600, maybe more, on your average energy bill. That's because all suppliers offer really, really good discounts to new customers.

Switching your energy supplier is similar to switching your broadband provider in that you change to get a discount and pay less.

If there's one time when people don't want to be overpaying on their bills or spending more on their gas and electricity it's this year!

Are suppliers causing the need to switch?

They do a little bit. Usually when you come to the end of your discount, generally after 12 months, your supplier will let you know your contract has come to an end, and they let you know whether or not they're going to offer you any type of extended discount.

Some suppliers are better than others at communicating when you've come to the end of your discount.

Often we find that any follow-on discount you receive is not as good as the discount you would get by shopping around.

In fairness to suppliers that could be because sometimes the discount that they're offering for new customers are almost loss leaders; they're so competitive that they almost don't want to offer them to anyone. They're happy to sell to you at maybe close to a loss for one year in the hope that you'll stay with them and make them a bit of profit in the next year.

That's why we always say to people to shop around and look at switching every year and not to take a retention deal if it's offered, because more often than not that retention deal is not going to be quite as good as the deal you'd get by moving.

We know that between 15% - 20% of people in Ireland switch every year, so it's quite a strong switching market. But there's a big chunk of people, maybe 50% - 60% who have not switched their gas or electricity in years and those people are paying the top rate for their energy needlessly.

Who is the cheapest supplier on the market at the moment?

It depends on your energy usage and whether you use more in the day or at night, the type of meter you have, whether you're in an urban or rural area, and so on.

At the moment it's probably the bigger suppliers who are coming out as cheapest so the likes of Electric Ireland and Bord Gáis Energy.

However, we would recommend consumers to conduct a full energy comparison on our site to give them the exact tariff that's the cheapest for them and relative to their usage habits.

The thing to remember though is if you are an existing customer of Electric Ireland you'll still get a better deal by going elsewhere because you'll probably be paying their standard rates with no discount applied.

When you look at some of the price increases that have been announced so far, Electric Ireland's and Bord Gáis Energy's have been at the lower end of the spectrum, hitting customers for maybe €300 to €500. Whereas some of the smaller suppliers have announced price increases of well over €1,000.

How likely are prices to come down?

No one can definitely tell where prices are going to go. This time last year we all thought the property market was going to plummet but the opposite happened.

At the moment it doesn't look like they're going to come off their record highs looking at current prices. For example, gas is back up trading at around 400 pence per therm on the UK market which pretty much influences our prices. For context it was trading at 50 pence this time last year so it's gone up eight fold. 

This is at record levels and I don't see it falling back a huge amount next year. Hopefully it'll begin to ease as we get into February or March as the cold weather begins to abate.

If you do sign up to a deal however you can always switch. There isn't a huge penalty fee for switching while still in contract, it's only €50 per fuel. Find out more about energy cancellation fees in our guide here.

Most of the tariffs in Ireland are variable tariffs so you're not actually getting locked in to a price. When you agree to sign up you agree to the discount. So if the price falls that too will be passed on to consumers.

In short, there's really no worry about getting locked in to an energy tariff at a higher price.

Switch and save on your energy 

It's easy and free to mitigate the cost of rising energy prices and can be done by switching supplier on bonkers.ie.

The average energy customer who switches on bonkers.ie today could save over €500!

With our energy comparison tool, you can compare gas and electricity deals and tariffs across all 14 energy suppliers nationwide in just a few clicks. 

Before making the switch, you might find it helpful to take a look at the following guides:

Don't forget that you can also compare prices for broadband, insurance and banking products on bonkers.ie! 

Get in touch

How much have you saved by switching your energy supplier on bonkers.ie! We’d love to hear from you!

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