Why is electricity in Ireland so expensive?

Irish electricity prices are the second most expensive in the EU, according to data from Eurostat. And we’re more expensive than non-EU countries such as Norway, Switzerland, the UK, and Iceland too.

And when you look at the net price of electricity, before governments have added on any taxes and levies, electricity prices here are over 70% above the EU average and more expensive than anywhere else.

So why is electricity in Ireland so dear? 

Before we try answer this question, let’s take a look at what makes up a typical electricity bill.

Makeup of a typical electricity bill

Let’s say you get an electricity bill in the post for €100.

Here’s the makeup:

c. €40 to €50 - fuel generation costs 

Around 40% to 45% of the price we pay for electricity is for the fuel that’s been used to generate it. So think of the cost for the gas, coal and oil that has been burned or the cost for buying electricity from the wind farms. Though in recent years, given high gas prices, this has gone up to around 50% or more at times.

c. €30 to €35 - network tariffs 

The electricity network in Ireland is made up of the transmission network (or grid) and distribution network, managed by EirGrid and ESB Networks respectively.

The transmission network consist of the large wires and pylons that move electricity from a power plant to the various substations nationwide whereas the distribution network carries electricity from the substation into people's homes. 

All suppliers must pay EirGrid Transmission Use of System (TUoS) charges (or tariffs), while the charges suppliers pay ESB Networks to distribute electricity to our homes and businesses are called the Distribution Use of System (DUoS) tariffs. 

Our TUoS and DUoS tariffs are around the third highest in the EU and combined make up about one-third of a typical household’s electricity bill and ultimately these tariffs are passed through by energy suppliers to all customers in their bills.

Speaking recently to reporters in Ireland, Kadri Simson, the EU's energy commissioner, said: "System costs in Ireland seem to be significantly higher than the rest of Europe.” 

c. €9 - Government charges 

The Government adds on VAT (13.5% - though reduced for a limited time to 9%) to our electricity bills as well as the PSO levy.

Until recently government taxes added around 17% to Irish household's electricity bills, compared to an EU average of 36%. Though this has reduced over the past few years as governments all over Europe eased taxes and levies on energy to try help consumers. 

c. €6 to €8 - supplier 

Finally, around 6% to 8% of your bill goes to your supplier to pay for its overheads and profits.

Now we know what makes up an average electricity bill, let's look at the reasons why it's so high.

1. Lack of indigenous fuel sources 

Ireland doesn't have a huge supply of its own fuel to generate electricity. 

While we have the (rapidly dwindling) Corrib gas field, over 70% of our gas has to be imported from the UK (some of which in turn gets imported via Norway).

And we don’t have any indigenous supply of oil or coal - with most of the latter coming from Russia until very recently.

In almost all instances, countries which have to rely heavily on imports for their fuel, face higher prices.

2. Over reliance on fossil fuels

Ireland still has a large reliance on fossil fuels to generate electricity. 

Although around 40% of our electricity now comes from renewable sources, mainly wind and solar, the rest is generated by burning gas, coal and a small amount of oil. These fuels are often volatile in price and as mentioned, most of them have to be imported.

Other countries with cheaper electricity rely far more on nuclear energy or have better developed renewable energy infrastructure. 

3. Our location 

As a small island on the edge of the Atlantic, there’s an added cost in getting fuel into Ireland.

Ireland is at the very very end of a long European gas pipeline that stretches all the way east into Russia and north into Scandinavia and there are usually charges every time gas crosses a country's network.  

So by the time it gets to us, tariffs and charges have been tacked on.

4. Weakly connected grid

Our island location also means we have a weakly connected grid.

We don't have connections with many other countries meaning we can't import a huge amount of cheaper electricity from abroad. We have only one interconnector with the UK at present.

Although the interconnector we’re currently building with France (The Celtic Interconnector) will hopefully improve things when it comes online in 2027 as it will allow us to tap into generally cheaper French electricity.

5. Our dispersed population 

Ireland has a relatively small and dispersed population with a large number of rural, one-off homes. 

This means a disproportionately high investment is needed in our electricity grid compared to other countries and this puts upward pressure on prices.

In Ireland about 30% of the price households pay for electricity goes towards the management and upkeep of the network (i.e network tariffs as discussed above). One of the highest rates in Europe. 

6. Investment in renewables

​​Ireland’s level of renewable energy output has increased hugely in recent years and consumers often wonder why this hasn’t led to more downward pressure on electricity prices. 

Wind is 'free' after all, no?

It’s a controversial and complex topic but we need to remember that renewable energy isn’t free. It’s far cleaner and better for the environment of course, but it costs money to build the turbines, solar panels and hydroelectric plants, convert the wind, sun and water into electricity and then distribute this energy into people’s homes.

And in Ireland, this seems to cost way more than many other European countries. 

For example, Conall Bolger, chief executive of the Irish Solar Energy Association, said the average cost for every unit of solar power generated in Ireland is more than double what it is in Spain, largely due to the big fees Eirgrid charges for connecting renewables to the grid.

Also, a lot of wind energy in Ireland gets wasted as the grid can't handle it all. This then forces wind farms to charge more for the power they can produce and sell.

And without getting too technical, renewable energy creates very different demands on the electricity network than fossil fuels and the two don't mix well together, meaning generating more renewable energy requires big investment in the national grid.

And this isn’t going to change in the near future. 

Indeed, under the Government’s Climate Action Plan, up to 80% of Ireland's electricity is to be generated by renewables by 2030, with most of this to come from wind and solar. 

But for this to be possible, there needs to be considerable investment in the national grid.

Depending on which approach is taken, that could cost between €500mn and over €2bn. 

And this money will most likely be recouped through higher TUoS/DUoS or network tariffs (which we discussed above). Which in turn will be passed on to consumers.

Once the proper investment has been made, renewable energy has the potential to reduce Ireland’s electricity costs. But this is well over a decade away.

Both Iceland and Norway, for example, which are world leaders in renewable energy and have been investing in it long before we have, have significantly cheaper electricity than we do. Electricity in Iceland is about 50% cheaper than ours while in Norway it’s about 30% cheaper. 

7. Data centres  

Ireland is an attractive destination for data centres primarily due to our cool climate - data centres create a huge amount of heat and need to be cooled, which is far easier and cheaper to do in a moderate climate. However our competitive corporate tax rate and central geographical location between the US and Europe also helps, as does government policy, which until recently has been hugely accommodating of data centres locating here.

There are currently over 80 data centres operating here, with the vast majority of these located in Dublin, which is the largest data centre hub in Europe. And there are over 20 more either under construction or with planning permission.  

In most countries data centres only use a small amount of the country’s overall electricity so they don’t have a huge impact on prices. That's not the case in Ireland. 

According to a 2020 study by the European Commission, on average data centres accounted for 2.7% of Europe's electricity consumption in 2018. This is expected to rise to 3.2% by 2030. However, in Ireland this figure currently rests at 21% for 2023, and is expected to rise to 30% before the end of the decade, highlighting data centres’ unparalleled demand on the electricity grid here.

The pressure from data centres has led to fears of blackouts in recent years and meant we've had to procure high-cost, high-emission emergency generation to help meet demand and this is putting upward pressure on prices. 

You can read more about how data centres are impacting on Ireland's electricity costs here.

8. High cost of living 

Suppliers' wage costs, business overheads and rent all get factored into the price we pay for electricity too. And as we know these costs are higher in Ireland than in many other countries.

Admittedly, this doesn't have a huge impact on prices given these costs make up less than 10% of the average bill but it's another contributing factor nonetheless.

9. Inefficiencies 

For various reasons Irish power plants are generally smaller than those in other countries. 

This means they can't benefit from the same economies of scale and efficiencies that plants in other countries do. This in turn leads to more expensive electricity.

10. Anti-competitive behaviour?

In recent times, ESB, which generates around 40% of the country's electricity, has been accused of using its dominant market position to keep prices high. 

In 2019, the company got a contract to build nine new power plants, which were due to start generating much-needed electricity between October 2022 and September 2023. The new power plants should, in theory, have reduced the price of electricity by alleviating the mismatch between supply and demand.

Four are on the way, but the ESB now says it can't fulfil the contract for the other five for various reasons.

When the ESB bid for the contracts in 2019, it sought payments of €46,150 a megawatt, far below the €138,450 per megawatt that the company itself told regulators was viable.

That prompted claims from some, including Fianna Fáil TD, Barry Cowen, and competitors, primarily the Independent Electricity Suppliers of Ireland (IESI), that the State organisation’s own bids deterred anyone else from taking part in the 2019 auction.

The ESB has denied all allegations and said that allegations about its prices “appear based on limited understanding of how the energy market works”.

However with prices here 60% above the EU average before tax, it's clear something is wrong with Ireland's electricity system. Whether that's due to antI-competitive behaviour, inefficiencies with generating electricity, or a combination of all the reasons listed here, is up for debate. 

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