Fresh from fending off last week’s fuel price protests, the Government could face pressure from households in the coming weeks as senior energy industry sources believe electricity prices are poised to rise, irrespective of how US-Iran peace talks end.
Suppliers’ practice of buying electricity in advance – known as hedging – has so far insulated consumers from the worst of the global price volatility that followed initial US and Israeli strikes against Iran at the end of February.
But senior figures in the Irish energy industry say that the ongoing blockade on the Strait of Hormuz shipping lane, damage to production facilities in the Gulf and Europe’s need to restock natural gas, vital to generating power, will mean prices remain elevated even if peace is restored in coming days.
Household bills could start to rise in “May or June”, one source predicted this week. “It’s something we’re monitoring on a daily basis,” they added. The average Irish family pays €1,700 a year for electricity, according to a report from the Economic and Social Research Institute (ESRI) this week, which quoted price comparison website, Switcher.ie. Prices here are already among the highest in Europe, the institute noted.
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Natural gas prices are key to what happens next. The fuel is used to generate about half the electricity used in the Republic, so its cost ultimately feeds through to domestic bills. About 20 per cent of global supply comes through the blockaded Strait of Hormuz.
The nearby gulf state Qatar is a leading producer of liquefied natural gas (LNG) on which Europe – including this country – has increasingly relied since the outbreak of the Ukraine war in 2022 shut off Russian supplies. Although much of the gas shipped through Hormuz goes to Asia, a shortage in one place has a knock-on effect on prices everywhere else, as it is a globally traded commodity.
Gas prices on the British market, which essentially determine what is paid for the fuel here, are close to double their pre-war levels in some cases. In December, it cost 81 cent a therm (the unit in which it is sold) on average for supplies the next day, known as the spot market. In March, that almost doubled to 151 cent.
Buying gas in advance for the next 12 months averaged 77 cent a therm in December. By March, that was 147 cent, a 90 per cent increase. Dara Lynott, chief executive of industry body the Electricity Association of Ireland, says forward prices are the best guide to what will happen with domestic energy bills, as power companies buy the gas they need in advance.
Wholesale electricity prices mirrored some of those movements on the natural gas market last month. They hit €179.10 a mega watt hour on days when dependence on fossil fuel power plants was high, falling back to €94 when wind power was most available.
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Other pressures too are likely to keep costs high, including competition among buyers keen to source supplies. “Asian customers will actually pay more for gas,” one source told The Irish Times, noting that this will have obvious implications for Irish and European buyers.
That could be a challenge in coming months, as storage levels in Europe are lower than normal following a cold winter, so the region must boost stocks.
Even if the US and Iran strike a peace deal over the next week, there are questions over how quickly supplies can be restored to their pre-war levels, as Iranian retaliation hit production in the region along with halting shipping in Hormuz.
“The large LNG facilities in Qatar were physically damaged,” says one observer. “You not only have supply disruption, you also have supply destruction.” Repairing this could take months, which will also delay any planned expansion of LNG production, they add.
A key question for households, and possibly the Government, is by how much will prices rise? Before charges began retreating in 2024, homes faced bills of more than €2,000 a year following Russia’s invasion of Ukraine in 2022.
This cut Europe off from 45 per cent of its natural gas, sparking a dizzying surge in the fuel’s prices that year. By August they had increased 500 per cent as markets panicked over the risk of a shortage for the coming winter. They fell back from those peaks relatively quickly, but remained high. Irish electricity suppliers responded by increasing their prices that autumn.
No one in the industry here expects a shock on that scale, for now at least. “I would say we’re going to see some increases this time,” says one insider. “But hopefully they will be nothing like what we saw after Ukraine, and hopefully they will be reasonably moderate.”
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Lynott will not speculate on either the scale or timing of any increases. Instead, he points out that each company has their own hedging strategy, which involves regularly assessing their likely needs over months and sometimes years. Their costs are closely tied to natural gas prices, which will influence what they charge customers, he says.
The ESRI pointed out that the gap between Irish wholesale electricity prices and what suppliers charged customers was wider than in most European countries. However, one of the authors, Dr Niall Farrelly, stressed that this did not mean that companies were pocketing the difference.
Lynott says there are multiple costs that explain this, not least VAT, which the Government cut during the last crisis to 9 per cent from 13.5 per cent. There are others resulting from regulation and our supply system itself.
“We are basically a dual fuel market, we have gas and wind. There are extra costs for balancing the two,” he says. Then there is the cost of getting electricity from power plants to customers, which can include “imperfection charges” associated with inefficiencies in the system. Regulatory costs include energy efficiency obligations.
These amounted to 11 per cent of what customers paid for electricity in 2019, the last time they were assessed. Lynott agrees that they could account for a greater share of bills by now.
Network charges, which support the national electricity grid, have risen in recent years. They include a total €1.5 billion bill for emergency supply measures taken since 2021, most of which has gone on four temporary power plants meant to stave off any risk of shortages.
Security of supply remains an issue for the Republic. Europe responded relatively quickly to the fallout from the Ukraine conflict, bolstering storage with LNG sourced mostly from the US and working to diversify from fossil fuels where possible. This trend has continued.
Ireland has neither an LNG terminal nor storage. It has two sources of gas supply: the Corrib field off the Mayo coast and the Moffat Interconnector, owned and operated by State company Gas Networks Ireland (GNI), which links the system here to the UK. That supplies up to 80 per cent of our needs.
The gas that flows through Moffat comes from Norway, Europe’s biggest fossil fuel producer, and Britain, which has its own fields in the North Sea. However, Britain imports large quantities during peak times from the US and Europe. Consequently, this country depends indirectly on those imports.
Lobbyists from all industries, not just energy suppliers, have consistently warned the Government that the Republic needs gas storage and an LNG terminal. A lack of coherent policy means we have neither. ESB, Bord Gáis Energy and Dcarbonx are working on a storage project, while US company New Fortress is seeking permission to build an LNG plant on the Shannon Estuary. But both are a long way from completion.
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Lynott also argues that the Republic needs to keep investing in renewable energy, which cuts dependence on imported fossil fuels. The ESRI acknowledged that this does ease the burden on electricity customers, particularly as the State’s new support scheme for such projects acts as a “hedge” against a market where gas mostly determines prices.
In the meantime, with petrol and diesel charges already high and inflation rising, householders now face the prospect of increased electricity prices. In the wake of the Ukraine war, the Government responded by giving families a €250 energy credit in 2024 and 2025, which cost over €1 billion in total.
The concessions agreed in the wake of last week’s blockades will leave it with a €505 million bill, doubling what it pledged to spend in March as motor fuel prices rose sharply.
So far, it has not committed to doing anything similar should domestic electricity bills go in the same direction. Last week, Jack Chambers, Minister for Public Expenditure, pointed out that the last such scheme was expensive. Any similar response this time around would have to be “temporary, affordable and sustainable”, he cautioned.
