Analysis: The outlook for lower prices is promising due to current stability in gas markets. but prices will stay above the long-term average - Dr. Paul Deane, Senior Research Fellow and Senior Lecturer in Clean Energy Futures at MaREI Centre and the Environmental Research Institute (ERI) at UCC

The energy crisis of 2022 cast a long shadow into 2023, with residential electricity prices reluctantly reducing in the final quarter of last year. This week saw Electric Ireland, the largest energy supplier in the Irish market, announce an 8% price cut for its 1.1 million customers. This was followed by Bord Gáis Energy also reducing energy charges for its 600,000 domestic customers

For 2024, the worst of the crisis looks to be behind us, and we can expect to see our annual electricity bills fall again before the summer. But this element of optimism must be tempered with the reality that residential electricity bills will not return to pre-crisis levels for the foreseeable future.

A typical family's electricity bill on a standard plan is now approximately €2,000 a year. There are better value deals of €1,700 available on discount plans, which are typically set contract periods of one to two years, but customers are put back on the supplier’s standard tariff once a contract has expired.

If you have not changed your electricity supplier in the past year, you should look at some of the price comparison websites to see if you can benefit by switching. It is easy to do, causes no disruption to your electricity supply and can save you money. There is very little reason to have loyalty to one energy supplier.

While it is not possible to predict energy prices, it is possible to understand the factors that influence them and when we observe these factors change, we can judge whether prices will increase or decrease. Our electricity bills are essentially made up of two costs. There is a cost for generating electricity, reflected in the wholesale price which has reduced across 2023, and there is the cost of delivering electricity to our homes, which is a fixed price per day. Both are subject to tax.

The primary driver of price hikes in Ireland is international natural gas prices because we generate most of our electricity in Ireland from natural gas. While wind energy and renewables put downward pressure on prices, they are a secondary rather than a primary driver of prices. The factors that determine the international price of natural gas are predominantly things that happen outside of our control such as the weather in mainland Europe, the war in Ukraine and the global and Chinese economy.

The substantial increase in energy prices led to the government introducing support measures for household costs for 2022 and 2023. VAT on household electricity and gas was reduced from 13.5% to 9% on May 2022, and will remain at that reduced rate until October 2024. Several energy credits were provided to all domestic electricity accounts from April 2022 and three additional electricity support credits of €150 each will be provided between November 2023 and February 2024.

The outlook for lower electricity bills in 2024 is promising as there is currently stability in gas markets and the extreme volatility that we witnessed in 2022 has dissolved. However, prices will stay above the long-term average because there is still an element of fragility in the market and because gas supply to Europe has fundamentally changed.

The energy crisis triggered by Russia's invasion of Ukraine marked a turning point for global gas markets. While Ireland didn't import gas from Russia and has no direct pipeline connection, we were connected via market prices rather than physical flows.

A factor that now impacts us in Ireland is that a significant volume of gas coming into Europe and the UK is transported via ships from places like the United States and Qatar rather than pipelines from Russia. Ships are more expensive to move gas - and subject to geopolitical friction - so gas prices will be higher than pre-crisis levels and this price increase gets passed to us via our electricity bills.

While the outlook is promising across the next six months, there is still an underlying fragility In the EU. Gas storage and supply are in a healthy position today, the weather has been relatively mild and gas has flowed uninterrupted into Europe, but this is not a full guarantee against volatility. A cold spring season together with any interruption of shipped gas into Europe could renew market tensions.

Many companies have hedged well against this outcome, and this means gas prices and electricity prices will reduce in 2024, but they will not return to 2021 levels when we were paying about €1,100 a year for electricity. Gven current trends, my expectation is that annual bills will settle just below €1,500 per year for 2024.

But at the core of this energy crisis is the problem of natural gas supply and, at a wider level, our reliance on fossil fuels. Ireland is one of the most fossil fuel reliant economies in Europe and we are essentially bystanders in a global energy landscape. Until we start to produce significantly more of our own clean sustainable energy, we will remain as price takers in the global energy market.