Cheaper oil and falling wholesale gas and electricity prices have left many wondering why we’re still paying record prices for our energy. We decided to investigate why household gas and electricity bills aren’t coming down.
It’s been a tough two years for energy customers. All suppliers announced major price increases last year on the back of multiple price increases in 2021.
This has left gas and electricity prices in Ireland at record highs and left many households struggling to cope with their bills. But over the past few months energy prices on wholesale markets have dropped, leading many to wonder why they aren’t seeing any falls in their bills?
In this article we look at what’s been happening in the energy world and whether households can look forward to cheaper gas and electricity any time soon.
Falling oil prices
Much has been made about the fall in the price of oil in recent months. Oil is trading at around $70 to $80 a barrel, down significantly from its highs last summer when it reached over $120 a barrel following the outbreak of war in Ukraine.
However we use oil to generate only around 3% of our electricity these days. So its price has very little impact on the overall cost of our electricity. On top of this, oil is sold in dollars and the euro has been quite weak against the dollar in recent months.
At the start of 2022, €1 was worth around $1.15. However this fell as low as $0.96 last summer. Though the euro has since recovered a bit this year. This has meant that a lot of the benefit of the fall in the price of oil has been negated by the weaker euro.
Fall in the wholesale price of electricity
Last October the Central Statistics Office (CSO) announced that wholesale electricity prices had fallen by 52% compared to the previous month. Which made big news and left many wondering why they weren’t seeing cheaper energy bills. More recently, for April, the CSO said wholesale electricity prices had dropped over 40% compared to the year before. However, wholesale energy prices are still at a very high level.
At one stage during last summer, the price of gas was up by well over 1,000% on a yearly basis on wholesale markets. And in March 2022 the wholesale price of electricity in Ireland was up by over 400% compared to the year before. So when we hear of falling prices we need to remember that it’s on the back of prices which were at record highs to begin with. The average price of electricity for the first four months of the year is still almost €150 per MWh for example.
That’s still over THREE times what would be considered normal levels. Meanwhile, on the UK gas market, from where we import about 75% of our gas, the price of gas has been trading at very high levels until very recently. It has now fallen hugely. But due to hedging, which we discuss below, this benefit won’t be felt by consumers immediately.