This week, JOE’s business and money columnist Simon Moynihan takes a look at the changing cost of home energy.
The coldest winter in living memory has seen a huge spike in the demand for gas as householders struggle to stay warm. The first of the winter bills are landing on mats across the country and customers are beginning to see just how much heating their homes through the cold and snow is costing them.
This increase in demand at home and in the UK has sent wholesale prices skyrocketing and suppliers are now paying over 30 per cent more for the gas they buy on the wholesale market than they were less than a year ago.
In the UK, energy companies have been busy cranking up prices throughout the winter to offset some of their increased costs, despite fierce criticism from consumer groups and the media.
Back home we’re a little more fortunate. The price of domestic gas supplied by Bord Gais is set by the Commission for Energy Regulation, so no matter how much it costs them to buy gas, they have to sell it to us at a price set by the regulator.
Last week, prices were up for review and the regulator announced that it would not be allowing a gas price increase. Given current market circumstances, this is great news for Irish householders and means that although we are facing huge gas bills, we are not being hit with the sort of price increases our UK neighbours are being forced to endure.
There are three domestic gas suppliers in Ireland but Bord Gais is the only one that is regulated. Flogas and Airtricity are able to set their own prices but they’ve been keeping them down and will probably continue to do so for the foreseeable future in a bid to win more customers from Bord Gais.
Now there are numbers where the zeros were and we’re expected to pay them.
With electricity prices it’s a similar story. Only the ESB is regulated and they have not been able to increase prices to keep up with wholesale costs or decrease prices to keep up with the competition. As a result, they are facing increased costs and they’ve lost nearly 40 per cent of their customers in the last two years. However, the regulator is planning to unshackle the ESB in the next few months and they are expected to come back fighting.
Word has it that the ESB will re-brand as Electric Ireland, will offer gas as well as electricity and is expected to set prices very low in an effort to win back electricity customers and attract new gas customers.
In the short term, all of this is good news for Irish households. Over the last year, the regulated cost of gas and electricity hasn’t budged and the onset of competition has actually given energy customers the chance to cut their bills by switching suppliers.
The fact is though, that the prices we pay for gas and electricity have quietly gone up for everyone. Householders receiving their winter electricity bills may notice that for the first time there is an actual charge on the PSO section of their bills.
This section has been on the bill for a couple of years, but has always been set to zero Euro. Now there are numbers where the zeros were and we’re expected to pay them.
So what the heck is it? Well, the Public Service Obligation levy (to give it it’s full name) is a tax of sorts that’s there to help indigenous energy generators compete against imported oil, gas and coal. Among other things, it assists green and peat-burning generators with the goal of putting more Irish generated energy into the grid.
The PSO will cost every household in the country an additional €2.73 per month on top of their electricity bills. What’s fascinating about levies like this is that they are also taxable. So when VAT is added to that, households will actually be paying a PSO of €3.10 per month or €37.20 per year. This levy will see the average annual ESB bill go from around €822 to €859 – an increase of 4.5 per cent.
Because so little gas is used during the summer, customers will only now be seeing the true impact of the Carbon Tax on their latest winter bills.
Gas customers are probably already aware that they are now paying a Carbon Tax. It was introduced in May of 2010 but unlike the PSO, it’s not a flat rate; it’s actually based on what you use. Because so little gas is used during the summer, customers will only now be seeing the true impact of the Carbon Tax on their latest winter bills.
The Carbon Tax is charged at just over a quarter of a cent per unit of gas used. It sounds like very little, but when you consider that the average household uses 13,800 units of gas per year, you can see that it really adds up. And just like the PSO, the Carbon Tax is taxable.
When VAT is added to the Carbon Tax on household bills, it works out at just under a third of a cent per unit of gas used (.314 cent to be precise). The taxed Carbon Tax will increase average Bord Gais bills from around €684 to €727 – an increase of €43 or €6.3 per cent.
So, despite the stability of prices for regulated gas and electricity in Ireland, and lower prices from the competition, the prices we pay to our suppliers have actually gone up.
Customers with a gas and electricity supply will see a combined increase of just over 5 per cent and customers with just electricity will see an increase of over 6 per cent.
Simon Moynihan is the joint founder and communications manager of Irish price comparison site bonkers.ie, which he established with David Kerr in November 2009. The site provides users with a free personal finance comparison service which helps them choose the most competitive broadband & home phone packages, electricity suppliers, savings accounts, current accounts, credit cards and personal loans.
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