Why do other European countries have cheaper electricity?

The gap between Irish and other European electricity prices is made up of higher costs here and lower costs in comparator countries.

The power needs of Ireland’s rapidly growing economy from 1996 to 2008 were met by substantial investment in new generation, transmission and the renewal of the distribution network. The servicing costs of this investment added to the cost of electricity in Ireland. The running costs of Ireland’s electricity system are higher because it relies heavily on a relatively expensive fuel (gas) and Irish wage rates are well above average in the EU. This combination of investment, fuel and wage rates tended to increase electricity costs in Ireland.

Some European countries have natural resource advantages that reduce their generation costs. Norway, Sweden and Austria have large hydropower resources because their geography is suited to the building of dams and hydroelectric plants ¹.  As there is no fuel involved, once the cost of the dam has been met the marginal cost of hydropower is very low.

Our natural resources of hydropower at Ardnacrusha on the Shannon together with the hydro-stations on the Erne, Lee and Liffey were harnessed and exploited fully to provide the backbone of our original electricity system. With the sustained growth of our electricity system these now only account for about 2.5% of our electricity needs ².

In the wake of the second oil crisis of 1979 some countries invested heavily in alternative technologies such as nuclear and now enjoy the benefits of the low marginal cost of nuclear power production. France and Belgium have achieved low running costs and prices as a result of historical investment in nuclear power – France gets 75% of its electricity from nuclear plants ³. However, Germany, France, Belgium and Sweden have all committed to phasing out their existing nuclear fleet.
The Netherlands has large reserves of natural gas that facilitated the efficient production of electricity from an easily accessed indigenous resource.

The UK relied heavily on indigenous coal supplemented by nuclear power and gas to meet its electricity base load requirements. The UK underpinned its “dash for gas” with North Sea gas.

What differs in Ireland is our high reliance on imported gas and the rapid expansion of our electricity demand between 1995 and 2008. As a result, the marginal cost of non-renewable power production in Ireland is relatively high, as are the debt servicing costs of recent investment in a modern but underutilised generation fleet. Gas-fired generation sets the wholesale electricity price on the Irish market. The price of electricity generated from natural gas in Ireland is also higher because our gas is more expensive than in Britain for example. EU countries that are as dependent on imported oil or gas like Cyprus and Italy have comparable electricity prices to Ireland ⁴.

Ireland’s small size means that our scale of power generation has capital, running and regulation costs that make the costs of generating electricity higher. We do not benefit from the economies of scale that larger and in some cases more densely populated countries like the Netherlands, Germany and the UK. The dispersed nature of our population required more power lines with greater infrastructural costs ⁵.

The lack of feasible alternative primary energy sources favoured natural gas at a time when it was cheap, quick and efficient to use. The rapid expansion of the economy drove investment to the point where the two combined to ensure that for a time Ireland’s electricity prices moved from being among the lowest to one of the highest in the EU.