Energy firms under pressure to pass price cuts on to customers

The government is heaping pressure on energy companies to deliver on household energy bill reductions in time for the budget, as wholesale energy prices continue to fall.

Following unprecedented energy price spikes last year, wholesale electricity prices fell this month to their lowest point since 2021.

However, the vast majority of energy companies have not passed on the price reductions to households, due to varying levels of hedging strategies that have locked in higher wholesale prices for longer periods of time.

The pressure on energy companies to reduce household bills comes as new figures from the Central Statistics Office estimate that inflation moderated to 4.6 per cent in July – its lowest level in almost two years.

There has been frustration in government that the improvement in the wholesale energy market has not yet been passed on to households, and there is a growing concern that the lack of information on when energy bills will start falling, and by how much, will make developing a cost of living package for the October budget more complicated.

Government and industry sources confirmed that Eamon Ryan, the Minister for the Environment, has been putting pressure on energy companies in recent weeks to provide indications of when prices will fall and by how much. Companies are precluded from disclosing this information due to commercial sensitivity and price signalling rules, but government sources said there had been a broad indication that prices would begin to fall at some point in the autumn.

Energy companies must give 30 days’ notice to customers of any intended price change, and so the end of August and start of September are being watched closely by government as a period when notifications of price reductions could start coming in.

“It is clear from the department that pricing and the consumer price levels are front and centre of their agenda all the time. The pressure is there from government. And while their questions are pretty direct, the answers just can’t be as precise as they would like,” one industry source said.

“At the moment, future energy prices are still a good bit higher than the wholesale prices today. That says that the market is still anticipating possible volatility and shocks in the winter. Also, longer term, gas prices are going to stay high, because we have substituted Russian gas for expensive LNG.”

Paul Deane, energy researcher with the MaREI institute at University College Cork, said consumers could see energy bill reductions announced by the end of August, but that they would only be minor.

“My analysis of the market tells me that energy supply companies should be in a position to begin offering discounts to customers by the end of August or the start of the autumn,” Deane said.

“It’s important to say that any price cuts will be small. Electricity prices will not go back to 2020 levels for at least four or five years. The era of cheap electricity is gone. I think we have to hope that electricity can stay affordable for families that are under pressure.”

Last year, the government provided €2.2 billion in the budget for a cost of living package, which included three €200 electricity credits, double welfare payments, fuel allowance bonuses, and a range of one-off welfare lump sums targeted at more vulnerable groups. This was followed in spring of this year by a further €1.3 billion cost of living package, which focused on further bonus welfare payments.

Many of the same measures are on the table again, but the quantum will be dictated by just how much of the reduction in wholesale energy prices feeds through to households over the winter. The lack of clear information on what those reductions will be is complicating the already difficult arithmetic of the budget, but it is hoped that the package will not need to be as big as last year’s.

Muireann Lynch, senior researcher with the Economic and Social Research Institute, agreed that while prices would likely start to come down in the autumn, they would not return to pre-2021 levels.

“The €200 energy credits are not the worst way of getting money to people. They aren’t the best, but they aren’t the worst. They have some administrative efficiency that is an advantage too,” she said.

“Also, by taking €200 off bills directly, it means you are reducing the number of households going into arrears and potentially winding up disconnected.”