Energy prices to households continue to decline, with Electric Ireland announcing its third cut yesterday. It is reducing prices by 3 per cent generally and 5 per cent for those using a smart meter. The reduction would have been higher had Electric Ireland, the ESB’s retail arm, not decided to absorb an increase in the standing charge which customers pay to contribute towards the network, which has just been given the green light by the Commission for the Regulation of Utilities (CRU).
The reduction in energy prices since their peak has been substantial – around 20 per cent in the case of Electric Ireland for electricity and gas customers. While the operation of the market and the impact of tactics such as advance purchasing on consumer prices is quite opaque, the series of reductions across the market in recent months provides some encouragement. So does the ongoing competition for new business, even if it penalises those who do not move supplier regularly.
Nonetheless, household energy prices remain significantly higher than they were before the rise in wholesale prices began, as do costs to business. While wind is playing an increasing role in Irish energy provision, the wholesale price of gas is still key. For now, there is no sign of a further sustained decline in its cost on wholesale markets and so costs to households will remain above the levels which consumers were used to for many years.
The question is the appropriate policy response. Emergency energy supports to all households were a reasonable reaction to the initial surge in prices, albeit a blunt one. Increases in supports for those reliant on fuel allowances and general welfare were justified. Now, with energy price falling, but still remaining well above historic norms , what should the Government do in this October’s budget?
It needs to start from a recognition that the Government cannot compensate all households on an ongoing basis for higher energy bills. Real wages are now rising and many middle and higher income households will be able to manage. This leaves more scope to help those on lower incomes, and suffering from fuel poverty – an inability to heat their home during winter. This can be done via fuel allowances and the welfare system.
The direction of travel here must be towards increasing permanent supports to households through welfare payments. There may be a role for a last round of temporary payments for those most in need. But there is no case for an expensive further payment of universal energy credits to all households. As well as being wasteful, this would build up an expectation that the State can support households with their energy bills on an ongoing basis. The buoyant exchequer returns, however, will tempt the Coalition to go down this road again, under the cover of “helping families”.