Time to take responsibility for our electricity prices

Anyone opening an electricity bill in 2022 will notice a monumental price increase. The CSO revealed earlier this month that electricity prices had risen 22 per cent in a year, with several suppliers since announcing further increases.

The calls to accelerate the deployment of renewables at customer and utility scale are well made; this is the only option to free Ireland’s citizens from the tyranny of fossil(ised) markets. It is also the necessary step towards battling climate change.

Policymakers can protect citizens not only through installing solar panels but by reviewing the policy choices that shape the prices customers pay. Ireland is not completely the victim of international commodity markets; the inconvenient truth is that the effect of fossil fuels is compounded by local policy and regulatory decisions.

The data suggest a closer look is required. Latest figures from Eurostat show that Ireland has the fourth highest residential electricity prices in the EU. This cannot be explained away by international factors alone.

The price for trading dead dinosaurs to burn, or international wholesale energy prices, has been rising consistently since early 2021 and this naturally contributes to an increase in the prices householders and businesses pay.

Breaking down the bill

In 2020, those wholesale prices, which are heavily influenced by international markets, accounted for 38 per cent of the average domestic bill. The international influence on electricity prices will have increased this year, but the effect of domestic factors is significant.

Debate historically focused on VAT and the PSO levy. These are visible, being printed on our bills, but they are by no means the biggest factors. In 2020 they accounted for 16.2 per cent of our bills. A more fundamental and less transparent contribution comes from “network charges”.

These network charges comprised almost a third (31.8 per cent) of every home’s electricity bill, according to most recent estimates. These are the costs involved in moving power around the State on what is called the national electricity grid, as well as the costs of maintaining that grid.

These costs are domestic, are set by the State through the Commission for the Regulation of Utilities and are wildly out of line with our EU partners. These hit the bill twice, not just under network charges, but in the network-related costs that renewable generators pay.

The Renewable Electricity Support Scheme (RESS) is a cornerstone of Ireland’s climate action policy. This tool uses an auction to set a guaranteed price for renewable generators. The costs for this price are funded by Irish consumers, though when prices are high, the projects pay back to consumers.

Had Ireland been faster in our delivery as a nation, some of those projects would already be saving us money. The Energy and Climate Intelligence Unit in the UK forecasts that renewable projects will pay back £660 million (€790 million) over 18 months due to the higher wholesale price of electricity.

Network charges

Under the first Irish RESS auction, the total average cost for every unit of solar power (megawatt hour) generated is €73. In Spain the equivalent cost is less than half of this at €32. Madrid may be sunnier than Dublin, but this cannot justify such a difference. A big driver of the Irish cost are the network charges, up to €26, that solar operators may face for every unit they produce.

Irish people are paying more for their electricity than they need to and, crucially, they are paying a lot more for renewable electricity than should be the case. This is unconscionable in 2022 when the need to reduce our dependence on fossil fuels has never been starker.

Research by Afry, a consultancy specialising in sustainability, last year found that in a scenario where we ramped up delivery of solar by 2030, customers would receive an annual saving of €106 million by the mid-2030s. By reducing the costs inhibiting renewables, solar saves customers money and takes carbon out of our energy system.

There are other fundamentals worth considering. The design of our own electricity market has features that could be contributing up to €284 per household per year. These kinds of customer impacts need to be assessed.

The Government has introduced a once-off credit for electricity bills. While welcome for bill payers, it just papers over the cracks. Much heralded, it will have zero impact on the underlying causes of high electricity prices.

Ultimately, what is required is a commitment by Minister for Environment, Climate and Communications, Eamon Ryan to review the elements of policy impacting on the cost of electricity and the cost of renewables. Ensuring these cost elements are in line with our EU neighbours and the United Kingdom could help address increasing costs.

Promoting renewables will drive electricity prices lower. However, if we do not address the factors within our control, that transition will cost Ireland more than it should. That is not sustainable and is unfair on vast swathes of society. Ireland can do so much better.

Conall Bolger is chief executive of the Irish Solar Energy Association

Source: Irish Times