'Stat Chat' - Ireland's Energy Price Peaks
SEAI's latest surveys show that gas and electricity prices for businesses are going down and that businesses with very high energy consumption are seeing the biggest drops. Why is that a positive signal for Irish household energy bills?
Twice a year the Energy Statistics Team in SEAI surveys all electricity and gas suppliers in Ireland to build-out a detailed understanding of energy prices to homes and businesses. SEAI's surveys are the basis for the Irish energy price data submitted to and published by Eurostat, which acts as a statistical 'clearing house' for Europe, pulling together the survey work of all EU member states.
The plots below show the ex-VAT 'effective unit price' of electricity and gas to Irish businesses, averaged over all businesses, from massive multi-nationals to tiny corner-shops. On average, business energy prices in the last 6-months of 2023 were 18% lower for electricity and 15% lower for gas, when compared to the same period in 2022.
This is the second 6-month period in a row that energy prices have dropped for businesses, after reaching a peak in late-2022. And the energy price drops currently being experienced by Irish business are even more pronounced when we use SEAI's survey data to zoom-in specifically on those businesses with very high consumption of energy.
The plots below show the ex-VAT effective unit price of electricity and gas to businesses with very high consumption of energy - more than 150,000 MWh of electricity or more than 1,000,000 GJ. The businesses operating at this level have the energy demand akin to that of small towns, and include the likes of datacentres, alumina processing plants, pharmaceutical factories, etc. In the second half of 2023 the energy prices for these high consumption businesses were 38% lower for electricity and 56% lower for gas, when compared to the same period in 2022.
It's clear that energy prices for high consumption businesses are trending down strongly and have broadly returned to late-2021 levels.
During the period of peak energy prices in 2022 and 2023, the Government provided significant supports to businesses of different sizes. The €1.25 billion Temporary Business Energy Support Scheme provided qualifying businesses with a matching fund of up to 40% of the increase in electricity or gas bills (to a limit of €10,000 per month), where their average unit gas or electricity price has risen by over 50% compared to 2021.
And the €200 million targeted Ukraine Enterprise Crisis Scheme provided up to €2 million in grant aid for energy intensive companies impacted by exceptionally severe increases in gas and electricity costs.
That's all well-and-good for business, especially big business, but what does it mean for Irish households? Well, the more energy a business consumes, the lower the price it tends to pay, and the closer that paid price tracks to the underlying 'wholesale' price of energy. For example, in the second-half of 2023, businesses with very high consumption of energy paid 20% less for electricity and 44% less for gas, compared to average business prices. And the difference is even greater when compared to household prices - in in the second-half of 2023, businesses with very high consumption of energy paid 56% less for electricity and 76% less for gas than the average Irish household.
The fact that energy prices to businesses with very high consumption are currently going down so sharply means that wholesale energy prices are also going down sharply. And how wholesale prices are trending now is a strong indicator of how household prices will trend in the future.
The reason household prices don't immediately track wholesale prices is because energy suppliers use hedging strategies to increase price certainty to customers - these act to lock-in a guaranteed price for a period, which helps insulate customers from rapid price changes. When wholesale energy prices go up suddenly, hedging acts in favour of households. For example, wholesale energy prices in Ireland started going-up significantly in late-2021, but it wasn't until late-2022 that households experienced strong energy price increases.
But now that wholesale energy prices have started to go down, the same hedging acts to slow the immediate passing-on of savings. Thankfully, if the recent sharp drops in energy prices for high consumption businesses are anything to go by, then we can expect to see initial reductions in household energy prices in early-2024 and more significant reductions in late-2024.
Ideally, the ongoing reductions in electricity prices will continue, further narrowing the gap between fossil fuel prices and electricity. A smaller price differential between electricity and fossil fuels can incentivise the uptake of key technologies for decarbonisation, such as heat pumps and EVs, in the household, business and industrial sectors, and cause a faster shift away from oil and gas.
A challenge for Government will be ensuring long-term price differentials that support this urgent and necessary switch. In the meantime, the €150 account credits applied to household electricity bills in January and March will continue to help offset energy prices in 2024, and useful advice on energy savings found in the Reduce Your Use booklet suggests ways to reduce your bills.
Additionally, SEAI grants are available to help homeowners 'lock in' permanent reductions to their energy bills by upgrading their homes. The roll-out of low-interest retrofitting loans under the Government's €500 million residential retrofit loan guarantee scheme will make the cost of upgrading your home even more accessible.
