What determines the price of electricity in Ireland?

The price at which generators supply electricity to the Irish wholesale electricity market is the biggest cost in the price of our electricity. The resulting wholesale price is about 55-60% of the cost of electricity for most customers¹. Wholesale electricity prices in Ireland are sensitive to the price of gas from which we get up to half of our electricity in Ireland (46% in 2014)².

The second biggest element of the price of our electricity is the cost of the electricity transmission and distribution system which is about 30% of the electricity price for most customers.
The remainder of the price is made up of supplier charges, government taxes and levies that relate to security of supply and renewable energy.

Thus, the cost of electricity in Ireland is made up of:

• Electricity generation and Supplier charges which are open to competition,
• Transmission and distribution charges that are regulated by the Commission for Energy Regulation (CER),
• Public Service Obligation (PSO) which is a levy calculated by the CER as required by Government policy,
• Taxes that are set by Government.

Electricity generation is what it costs to produce the electricity, including energy input, operating costs, overhead costs and profit for the generation company;

Transmission and distribution include what it costs to provide the wires and operate the system that transports electricity to homes and businesses across the country;

Supplier charges are to cover the cost of metering and billing;

The PSO is a levy on all electricity customers to pay for certain services that the Government believes are essential to a sustainable electricity system (renewable energy, security of supply). The PSO levy meets any extra costs associated with the guaranteed prices for electricity from some peat-fired power plants in the midlands, and electricity sourced from renewable sources, including electricity from wind power³.

For small businesses, generation (60%) plus transmission and distribution (29%) of electricity make up almost 90% of the price of electricity, as illustrated below (Table1.)⁴

Residential customers pay more than business customers. They are liable for VAT at the reduced rate of 13.5% and incur higher supplier charges to meet the extra costs of supplying and billing small customers⁵.

The importance of competition, regulated services and policy in determining prices is shown in Table 2 above and Figure 1 below.