The Commission for Regulation of Utilities (CRU), which regulates firms generating and supplying electricity and gas, has stated that there is no evidence that energy companies are failing to pass on the dramatic declines in wholesale gas prices to users. While some business leaders and politicians have expressed impatience that large price cuts in wholesale gas on the continent and in Britain are not being reflected in the bills paid by businesses and households, the CRU has said that gas suppliers are under scrutiny as the price of wholesale gas falls. However, industry observers have noted that hedging or buying supplies for future months locks in higher prices for some time.
Gas is a key fuel to generate power on the all-Ireland grid, even as demand for heating falls with the rise in spring and summer temperatures. This is because, at the end of the Atlantic storm season, relatively little power is generated by wind farms during the summer months. The price of wholesale gas has fallen dramatically since spiking to record levels last July, as Europe bulked up storage and despite ending its once huge dependence on vast amounts of relatively cheap Russian gas supplies. Wholesale prices have continued to fall through the winter and early spring months.
The prices of wholesale continental gas had fallen back to levels of January 2022, a month before Russia invaded Ukraine. At €35.75 per megawatt hour, the contract for wholesale gas for delivery in June had tumbled by 57% since the start of the year, according to futures markets. To secure supplies and to hedge or insure against future price spikes, wholesale buyers such as generators typically pay a premium to buy gas for delivery in future months. But the contract for wholesale gas for delivery in November, although trading at a higher price of €42.40 per megawatt hour, has also fallen sharply since early January, by 46%.
The prices paid for UK natural gas prices from the North Sea, where Ireland draws the bulk of its gas to generate electricity across the island, are influenced by continental European markets. Prices on the UK Natural Gas Futures Markets have also fallen sharply. The CRU has welcomed the falls in wholesale gas and electricity prices and continues to encourage customers to switch suppliers whenever possible. However, it has stated that, due to hedging, it will likely take time for retail prices to reflect the declines in wholesale prices “until we have seen sustained and further reductions in wholesale prices, and the impacts of hedging work through”. The regulator added that this will vary from company to company, based on their current hedging and retail price positions.
It is important to note that gas prices remain up to two times higher than historic norms. The CRU has stated that, due to supplier hedging, the majority of customers were protected from the worst impacts of the volatility and extreme high prices of 2022, where gas prices peaked at more than 10 times the historic norms. The regulator has said that it will continue to monitor the situation and ensure that energy companies are passing on the savings from lower wholesale prices to their customers.