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For the second time this year, electricity prices and gas prices are set to rise in Ireland. Electricity will rise by about 11% while gas will rise about 13%. Collectively this will add over €200 to average annual bills. This number could be even bigger for your business. Why is this happening, and can anything be done about it? 

Beginning in August, the price of gas and electricity is set to surge. This follows an increase in April which saw gas and electricity increase for residential properties by an average of €150. Despite a price decrease in 2019 and a reduction of tariffs in 2020, a second increase this year alone indicates this will only continue to trend upwards. Irish customers already pay the fourth highest electricity prices in the EU. When tax and VAT are excluded, residential and business customers in Ireland pay the second highest basic price for electricity. The reason, in short, behind the price hike is wholesale energy prices. But what does this really mean?

Electricity prices are set by the electricity suppliers in tariffs which may be either fixed or variable. They are adjusted from time to time, but never retrospectively. Energy suppliers buy their electricity on the wholesale market at the ruling prices which fluctuate throughout the day and night. Suppliers can also purchase electricity through a variety of fixed and variable priced “directed contracts” which are set for a certain period of time. Suppliers carry the risk of not recovering their costs including the wholesale cost of the electricity they retail. Retail prices have to be above wholesale prices to fund the suppliers’ costs and provide a margin for profit.

Between 55% and 60% of the price of electricity in Ireland is the price at which generators sell power to the wholesale electricity market; this element of the price is determined by competition. The cost of transmitting and distributing electricity accounts for another 30% and includes system charges to cover network investment and operation, as determined by the Commission for Energy Regulation. The remaining 10% to 15% is supplier charges and government taxes and levies, such as the Public Service Obligation (PSO), which cover services relating to creating a secure and sustainable electricity system. Residential customers pay more than businesses because they are liable for VAT and incur higher supplier charges to meet the extra cost of supplying and billing small customers.

So why the high prices? We have noted previously the issues regarding the current electricity grid, but more factors are at play. This price hike can be attributed to the country’s dependence on imported fossil fuels, particularly gas. The costs of generation and supply is also a factor, although transmission and distribution costs have increased year on year with greater investment. Also due to the small size and nature of the Irish market, the country misses out on economies of scale. The dispersed settlement pattern of the population means it is more costly to connect, service and supply customers here than in Britain, for example. Additionally, the Public Service Obligation levy has increased in each of the last two years. Finally, one of the effects of the economic downturn was to increase the burden of transmission and distribution costs because the forecast demand for electricity was less than actual demand.

While Ireland is working to decrease its fossil fuel reliance through renewable energy projects like wind farms, most projects won’t see widespread benefit to the country until at least 2030. While the government and energy providers are pushing for every building in the country to have a smart meter, this project isn’t expected to finish by 2025 at the earliest . A smart meter might help you manage your energy spend, but it won’t directly cut down on your energy bill. Even so, the smart meter would have to be installed and work correctly. Recent reports from smart meter users in the UK suggest that the units are faulty, resulting in an even higher energy spend.

There is a way to combat the high energy prices, and that is to switch to renewable energy. Solar energy and highly efficient utilities like LED lighting will directly help you save money on your ever increasing energy bills. Your business will save due to lowering your reliance on fossil fuels from the energy providers. The energy you collect from the sun comes to you at no cost. With Solar as a Service, you don’t have to pay steep upfront installation and further maintenance costs – in fact, you don’t have to pay any installation or maintenance costs at all. With UrbanVolt’s Solar as a Service, you only pay for the energy you need. And while energy rates may fluctuate, you’ll pay a fixed competitive rate for the duration of your contract. Get in touch now if you’re interested in saving on your energy bills!