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Wholesale electricity prices fell 40% in past year, but savings for customers will be delayed

Daragh Cassidy from price comparison website, has said that prices for consumers still remain high and may not fall for months.

WHOLESALE ELECTRICITY PRICES decreased by 13.5% in the month to April 2023 and were 42.5% lower than April 2022, according to the Central Statistics Office.

The prices that energy companies bought electricity at last month were at their lowest level since August 2021.

However, Daragh Cassidy from price comparison website, has said that the decrease in prices may not be felt by consumers until the second half of this year.

“While it’s welcome that wholesale electricity prices continue to fall, they still remain at very high levels,” he said.

“Back in 2020, before the energy crisis kicked off, the wholesale price of electricity in Ireland was around €40 per MWh. It then rose as high as nearly €400 at one stage in 2022.”

“Last month it dropped to €126 and the average price for the first four months of the year was still €148. So wholesale prices are still over 300% above what might be considered normal levels.”

figure-3-wholesale-price Central Statistics Office Central Statistics Office

Cassidy explained that the reduction in prices for energy companies seen in the past several months will have to continue in the long-term before consumers will see a similar reduction in bills.

“Household electricity prices have gone up by around 100% to 150% depending on your supplier since late 2020.”

“Energy suppliers buy their energy for delivery at different times throughout the year, and sometimes up to 12 or 24 months in advance through hedging. This is to ensure security of supply and to try ensure households aren’t faced with extreme swings in the price of their energy on a weekly or monthly basis,” he said.

“So the price households pay for their gas and electricity is usually an average price of the cost of energy on wholesale markets over the course of around a year or two. You can’t really draw a direct line between the wholesale price of energy on a given month and retail prices.”

Cassidy added that prices were unlikely to rise again if current trends continue.

“Indeed Waterpower, a small energy supplier, recently announced an electricity price decrease. Its standard unit rate is now just under 35 cent ex VAT per kWh – the lowest on the market and around five cent cheaper than Electric Ireland. However before the reduction its price was over 70 cent.”

“By far the highest in the market. So you can see how hedging plays such a huge part in pricing.”

He stated that a further escalation of the war in Ukraine could put pressure on prices again, as well as a calm, very warm summer which would reduce the amount of wind energy.

A report presented to the European Commission has predicted drought conditions for much of southern Europe this summer, another factor that could impact electricity prices.

An extreme heatwave on the continent, leading to drought conditions, could impact the water available to hydro plants and nuclear plants which would reduce their output of electricity and then indirectly affect Ireland.   

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