Will falling wholesale electricity prices lead to lower energy bills? - Midlands 103

Image audioWill falling wholesale electricity prices lead to lower energy bills? - Midlands 103

Wholesale electricity prices fell by 52% in October, however this decrease has yet to be reflected in energy prices by suppliers.

Daragh Cassidy, Head of Communications at bonkers.ie, appeared on Midlands 103 FM to discuss what’s happening in the energy market with Will Faulkner.

Listen back to the interview above or check out the main points discussed below.

Main points from the interview

  • Wholesale price refers to the price of gas in international markets and the price of electricity in the Irish market. Suppliers also pass on their own margin, so we don’t necessarily pay the wholesale price.  
  • There can be a huge difference between wholesale costs and household costs.
  • Despite falling wholesale prices, we won’t see a decrease in our bills for quite a while.
  • The price people pay for gas and electricity is a blended/average rate over 12 to 18 months.
  • Suppliers buy gas in advance - sometimes a year in advance - so that the household price doesn’t increase wildly on a day-to-day basis. This process is called ‘hedging’.
  • If the price falls rapidly over one month, it won’t have an immediate impact on bills. 
  • A lot of these extreme profits are being made further up the supply chain, such as in countries like Saudi Arabia and Norway.
  • As we don’t own any coal or oil, and only own a small bit of gas, Irish energy suppliers aren’t making huge profits.
  • Wholesale prices in October fell for two reasons: 
    • A decrease in the price of gas, which came about due to the mild October in Ireland and across Europe. Households didn’t need to turn on the heat, so less gas was consumed. 
    • The level of wind output increased, generating more renewable energy.
  • There are two markets for gas: The spot price and the future price.
  • The future price of gas has remained quite high, but there’s been a big decrease in the spot price of gas, which is the immediate price for gas today. 
  • When the colder weather comes, spot prices will likely shoot back up again. Any further escalation of the Russia-Ukraine conflict could put upward pressure on prices too.
  • There’s talk of putting a cap on the price of gas, but that wouldn’t work as this gas would just then be sold to other countries that are willing to pay the higher price for it. This could lead to a shortage of gas, increasing our risk of blackouts.

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