Oireachtas Committee to hear Electric Ireland had 'no choice' but to increase energy prices

ELECTRIC IRELAND IS set to tell TDs and Senators that it had “no choice” but to increase its energy prices due to the “unprecedented” rise in wholesale gas prices.

The energy provider’s executive director Pat Fenlon and the managing director of ESB Networks Nicholas Tarrant will appear before the Oireachtas Committee on Environment and Climate Action tomorrow to answer questions on the price increases being experienced by customers.

Electric Ireland, the retail division of ESB, is the State’s largest electricity supplier. It has  around 1.1 million residential electricity customers and around 170,000 residential gas customers. 

The energy provider announced three price increases this year. The most recent, an increase in residential electricity bills by 26.7% and gas bills by 37.5%, came into effect on 1 October.

In his opening statement, Fenlon will tell the committee that the price increases Electric Ireland have announced over the past 18 months have been “as a direct consequence of the unprecedented increases in international wholesale gas prices”.

“As we operate as a standalone energy supplier in the market, we have no choice but to increase our prices given the quantum of increase in our costs,” he will say. 

He will tell the committee that the significant increases in customers’ bills over the last year “have been driven by extraordinary and sustained increases in the wholesale price of electricity”.

“Increases in wholesale electricity prices in Ireland have been driven primarily by unprecedented increases in wholesale gas prices in Britain and across the EU, driven by concerns over European gas supply, made much more acute as a result of the conflict in Ukraine and reduced Russian gas supply.”

Fenlon will say that wholesale gas forward prices have increased by over 1,000% over the last 18 months.

“Two years ago, Electric Ireland’s annual wholesale energy costs were in the region of €300 million; at current market levels we expect that cost to increase to circa €2 billion. Cost increases of this order of magnitude are staggering and are a direct result of the price of gas on the international markets,” he will say.

While wholesale electricity costs previously accounted for around 30% of the total price of electricity for a typical customer, it now accounts for around 60% of the customer price due to the recent higher energy costs, he will add.

The committee will also hear that ESB’s generation and supply businesses are required to operate separately, so increased profits from ESB’s generation business cannot be used to offset costs incurred by Electric Ireland.

“This means that Electric Ireland must operate in the residential market as an entirely stand-alone supplier, buying electricity and gas from the wholesale markets and in turn selling it to customers,” he will say.

“This is central to understanding how Electric Ireland operates with regard to energy trading and indeed how retail prices are set for customers.”

Vulnerable customers

Fenlon will also outline what supports Electric Ireland have in place to help vulnerable customers throughout the winter period.

The committee will hear that Electric Ireland engages with any residential customer who has difficulty paying their bills and works with them to put in place a manageable payment plan.

“Disconnections are and always will be a last resort. There is a regulatory moratorium on disconnections for the winter period for vulnerable customers,” Fenlon will say. 

He will also say that there are targeted supports in place, including a Hardship Fund of €3million, similar to the one in place during Covid, which will provide support to Electric Ireland customers who have difficulty paying their bills.

Access and administration of the fund and issuance of energy credits will be managed by St. Vincent de Paul and the Money Advice and Budgeting Service (MAB’s).

Fenlon will tell the committee that a range of products are also available through the company’s smart meter plans, Home Electric+, which can help customers to manage their energy consumption.

“Electric Ireland is very aware that these price increases are difficult for customers to absorb. We are committed to helping our customers during these challenging times,” he will add.

‘Unprecedented gains’

The ESB Group after-tax profits tripled in the first half of the year compared to the same period in 2021, reaching €390 million, which is more than three times higher than the same figure last year of €128 million.

Fenlon will tell the committee that ESB recorded “exceptional gains” in the first half of 2022 compared to 2021, but that they relate mainly to the technical accounting treatment of financial instruments and are non-cash gains, which are not related to the
price paid for electricity by customers.

The ESB will tell the committee that there are over five gigawatts (GW) of renewable generation connected to the electricity system, though it expects to have connected 25 new grid-scale renewable wind and solar generators during 2022, increasing the total to 5.4 GW.

A further four battery energy storage projects are also expected to be connected, totalling 80 megawatts (MW), the committee will hear.

They will also tell the committee that smart meters are “fundamentally important to empower customers to actively manage their electricity usage”. 

“By the end of 2024, we expect the vast majority of customers will have a smart meter. This programme is a key enabler of the energy transition and the electrification of heat and transport,” the committee will be told.

Almost one million smart meters have been installed across the country so far. 

Ahead of the committee, Cathaoirleach Deputy Brian Leddin said: “ESB Networks is responsible for planning, building, maintaining and operating the electricity distribution network, while also building and maintaining the electricity distribution network.

“The Committee looks forward to discussing progress towards the development of a low carbon network which will see 80% of Ireland’s electricity generated by renewables by 2030, as well as the rollout of smart meters to customers across the country,” he said.

“In our second session, the Committee will discuss the impact of the unprecedented increase in wholesale gas prices, primarily caused by the war in Ukraine, on the cost of electricity supply in Ireland and the high bills faced by consumers.

“Members are particularly interested in hearing what Electric Ireland is doing to help its customers who have difficulty paying their bills, especially the most vulnerable people our community.”