In Ireland, about half of our electricity is generated using natural gas. Because of this, the wholesale cost of electricity is closely tied to the international market price for gas.
This leads to the important question of why the price you pay as a customer can be higher than the “wholesale price” you see in the news. Suppliers work to protect customers from the extreme volatility of the electricity market, where prices can spike dramatically based on global events. Instead of passing on these daily shocks, suppliers use a strategy called hedging — buying energy months in advance at a fixed, known price. This is the primary tool used to provide customers with stability.
This creates a “smoothing” effect.
- When daily wholesale prices fall (as seen on the news), the customer price may be higher for a time because it reflects the energy bought up to two years previously.
- This same mechanism, however, is what protected customers from the very worst of the price spikes, cushioning households from the full impact of the market shock.
It’s also important to remember that the “energy cost” is only 55% of the total market cost. Your final bill must also cover all the fixed, non-energy costs of delivering power, including network transport (Transmission & Distribution) , ensuring supply (Capacity), and other system charges.