Unlikely energy prices will return to 2020 levels over coming months - CRU

It is unlikely that households will see energy prices return to the previous low levels seen in 2020 and 2021 over the coming months, a new report from the energy regulator has found.

But the research from the Commission for the Regulation of Utilities (CRU) does predict that gas and electricity customers should see some benefit from falling commodity prices during the final three months of this year and the first three months of 2024.

The study had been requested by the Minister for the Environment, Climate and Communications Eamon Ryan.

It also found no evidence at this stage of market failure around competition or customer choice in retail energy markets.

The review also identified no evidence of supplier windfall profits in the retail market sector, with four suppliers exiting the market over the past 18 months and three more who have 80% of customers either returning profits to customers or running at a loss.

The CRU concluded that retail prices are continuing to reflect underlying cost drivers, such as wholesale gas and electricity prices.

However, there has been a lag period in how these pricing changes were passed on to customers as a result of supplier hedging strategies, it said.

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This hedging led to a reduced impact on consumers when wholesale prices rose to high levels and remained volatile last year, the report found.

But this slow smooth increase is set to be mirrored in a similarly slow and smooth decrease, as wholesale prices drop back, it said.

"This market monitoring has shown the huge challenges that high prices have caused for customers, particularly in the terms of higher levels of debt in electricity and gas," said Commissioner Aoife MacEvilly.

"At the same time, the data has shown that the market is functioning and that hedging by suppliers has reduced the worst impact of the unprecedented volatility in global gas prices we have seen in the last 18 months".

"The CRU now expects that while prices may not reduce to their previous levels, customers should start to see some benefit of the falling prices," she added.

The research also found that while investment here in new energy networks and generation capacity in order to meet climate goals and increasing demand is adding to customers bills, it is in the best interests of consumers.

The report recommends a continuation of customer protection measures into this winter as well as more targeted measures to support those in debt.

It also suggests a wider promotion of existing protections, as well as to drive greater uptake of Time of Use tariffs.

The study also recommends that while Irish customers should fund investment needed to support the Irish market, when it comes to new infrastructure for exporting energy, then customer funding should be proportionate to any benefits they may receive.

The CRU has also commissioned a review of Irish energy costs from the Economic and Social Research Institute in order to better understand what drives prices here compared to elsewhere.

Speaking on RTÉ's Morning Ireland, Aoife MacEvilly said the CRU has been tracking retail costs and prices over the last 18 months.

"Looking ahead, what we're seeing is that while prices are now coming down and may continue to a certain extent, some of those underlying costs are remaining high and are not going to allow prices to return to the levels we saw before the crisis began," she said.

"Wholesale gas prices, while they've come down from the extreme highs we saw in 2022 are still more than double the level that we would have seen prior to the crisis, so that in itself is going to create a higher cost for suppliers in offering their customers," she added.

Ireland is also undergoing a transformational change in its energy sector, she pointed out.

"We're investing in vital infrastructure to upgrade our system to provide a secure transition. So, for security of supply to manage demand growth to decarbonise electricity, we're investing in networks, generation capacity, interconnectors, storage, all of this investment, that's vitally needed, but also adds to bills," she explained.

Aoife MacEvilly also said the commission does not have a role in monitoring or regulating hedging and there are a lot of different ways that suppliers hedge.

"They can buy gas contracts in the UK, they can invest in renewable capacity in Ireland and there are many ways in which they can hedge. It's quite different and it's really at the heart of a commercial strategy for a supplier," she stated.

Ms MacEvilly said future EU legislation will give energy regulators across the bloc a role in looking at supplier resilience and part of that may look at hedging.