Wholesale electricity prices are falling as the cost of gas drops and the impact of renewable energy increases, according to a new report.
Independent supplier Naturgy says in its annual review and forecast that businesses' energy costs fell in 2019, aided by a record 40 per cent drop in gas prices, prompted by increased supplies of the fuel.
About 60 per cent of the Republic’s electricity is generated by burning natural gas, so a fall in the fuel’s price helps cut the cost of producing power.
Naturgy’s reports states that in the final quarter of 2019, wholesale electricity prices averaged €41.81 a mega watt hour (a megawatt hour provides enough energy to power about 1,000 homes for an hour), 42 per cent less than the same period in 2018.
Keith Donnelly, Naturgy's billing, commercial and pricing manager, said the current outlook was for electricity costs to fall in the new year, as forward prices are linked to natural gas.
However, he points out that periods of cold or stormy weather could push gas prices back up.
Mr Donnelly also noted that continued falls in the wholesale price could lead to an increase in the public service obligation (PSO) that the State levies on all electricity users.
The monthly charge, €2.84 for households and €10.35 for small businesses, funds the guaranteed prices paid to renewable energy generators such as wind and solar farms.
“With power prices relatively low and, all things being equal and market conditions continue into the new year, the PSO levy in 2020/2021 may need to be increased as renewable support prices are higher than current market prices,” he said.
Increases in the supply of wind-generated electricity also helped ease prices at different periods during last year, Naturgy’s report shows.
Windy days
Megan Nolan, operations team lead, said the company's analysis showed that on windy days, electricity prices fell sharply.
On the 50 windiest days since the new market came into effect, wholesale electricity prices averaged €38.57 a megawatt hour. On the 50 least windy days, the price almost doubled to €65.60 MWh, she said.
Regulators and national electricity grid manager Eirgrid oversaw changes to the wholesale market in late 2018 that were designed to favour more efficient, cheaper, power generators.
As the new market came into effect, the difference between the price of wholesale electricity and the cost of generating it using natural gas widened.
However, Mr Donnelly said this “spark spread” is narrowing as participants are used to the new marketplace, meaning that forward prices should drop.
