The decision by Energia, one of the big players in the market, to reduce prices to retail energy customers is welcome, even if it appears overdue given trends on the wholesale market. The other major companies should now follow – if they don’t, they risk losing customers. And more reductions may not be long delayed, even if there is no prospect of prices returning to pre-2020 levels any time soon, if ever.
The difficulty in assessing all this is the lack of transparency in the market. We know that energy companies did not increase retail prices to match the full rise in wholesale costs after the outbreak of war in the Ukraine and the subsequent market squeeze.
Hedging strategies – where energy is bought ahead of time – helped protect customers to some extent, but has also meant retail prices have been slow to fall. This has happened despite the relatively high level of prices here and the fall seen for customers in many other EU markets.
In fairness to the energy companies, in a competitive market they cannot reveal their hedging strategies, nor signal when prices might fall. A way to provide more transparency at an industry-wide level on the impact of hedging would be useful.
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The energy market was set up to provide competition in what had previously been a State monopoly; it may be that changes are needed in the years ahead to ensure consumer interests are to the forefront.
There are peculiarities in the Irish energy market: it is heavily reliant on gas, to a much greater extent than most other European markets; it depends to a large extent on the UK for supplies; and the dispersed nature of the population increases costs of supply. The energy transition, while promising more security and more stable prices in the long run, also brings short-term costs. And the interlinked issues of security of supply and price are vital both for retail consumers and for businesses.
In the short term, the Government must decide how to respond to the ongoing high level of energy bills for households and businesses. A special tax on the windfall profits of energy companies, expected to raise around €600 million, is likely to be used to help pay for a support package.
Financial assistance must first be directed at less well-off households who need it most. Beyond that, care is needed. Calls for a repeat of the regular €200 energy credits for all bill-payers risks directing resources at many households who do not need it. Energy prices are coming down, and the Government cannot afford to continue to compensate everyone for the fact that they remain higher than what we are used to. Temporary supports were appropriate at the height of the crisis, but they now risk becoming semi-permanent.