CRU Publishes Interim Review on Competition Assessment and Retail Price Drivers in the Energy Markets

Elevated energy prices in Ireland are being driven by a number of factors including wholesale costs, Ireland’s network architecture, network investment in support of a secure low carbon transition and not by any underlying issues or failures in the competition model, a new report has found.

The interim report was published by the Commission for the Regulation of Utilities and carried out with input from the Competition and Consumer Protection Commission (CCPC) on the competition assessment elements.

The review was carried out at the request of Minister Darragh O’Brien and is intended to provide input to the work of the National Energy Affordability Taskforce (NEAT).

It provides a breakdown of each cost component that makes up a domestic tariff for electricity and natural gas customers. These components were tracked over time, illustrating their changing impact on customer bills.

The CRU assessed key indicators of competition in the energy retail market including barriers to market entry/exit, market share, market concentration, switching and renegotiation rates and margins.

The analysis found that retail prices follow wholesale market prices but with a time lag, stating that while hedging can provide greater certainty on retail prices and protect customers from immediate price shocks, it does not guarantee lower prices for customers, and any changes in wholesale market prices will eventually feed through to customer bills.

The interim report has also found that competition in the Irish retail electricity and gas markets is working and is generating meaningful rivalry as:

- Consumers can choose from a range of suppliers

- Switching rates of domestic consumers are high and above EU average

- Margins do not indicate that suppliers are making excessive margins.

- There is no evidence of significant barriers to entry.

Further work will follow in examining this area, with access to more granular data, including consideration of profitability in particular segments within the market.

Other findings include that switching rates are reasonably high, compare well to other European countries in the domestic electricity and gas sector, and that customers who engage in the market can secure significant savings. The switching rates for businesses did not compare as favourably and reasons for this lower level require further assessment.

At this point of the review process, data gathered to date from several suppliers indicates that margins remain relatively low and that supplier margins do not point to excessive profitability. Data shows that as costs and bills increased following the invasion of Ukraine in 2022, supplier margins moved into negative territory, impacted by large increases in the costs of operating their business.

As part of this program of work, the CRU will deliver a number of reports, including a wider and more detailed review of competition in the retail energy markets. The wider review will further examine supplier margins in more detail and analyse market segments. This will involve extensive data collection, including a customer survey to help understand customer perspectives on the market.

CRU Commissioner Jim Gannon said: “The CRU is committed to protecting and empowering energy customers by ensuring that they continue to benefit from a competitive market.

“The interim report published today provides a clear explanation of how energy prices are formed and an assessment of how competition is functioning in the retail market. The transparency it brings to cost components and pricing dynamics should provide a valuable contribution to the work of the National Energy Affordability Taskforce and provide an important analytical foundation for ongoing governmental policy work on energy affordability.

We welcome the findings of the report, which provide helpful clarity on energy competition and pricing and confirm that retail energy markets continue to operate competitively, while highlighting the opportunities available to customers to reduce their bills. A more detailed review of competition in the retail energy markets will be completed, providing further analysis of competition across the market.”

Brian McHugh, Chair of the Competition and Consumer Protection Commission, added: “The CCPC was pleased to provide input to the interim review of competition contained within the CRU’s Interim Report. The CRU and the CCPC are aligned on the conclusions of that review, which indicate that competition in retail electricity and gas markets is delivering benefits for active customers who renegotiate their tariff or switch supplier, and that elevated price levels are not driven by a lack of competition in the retail market. We agree that further work is necessary to understand how the market is performing for different customer types and the CCPC will continue to co-ordinate with the CRU as its review progresses.”

A copy of the CRU Interim Retails Review report can be found here.

The CRU encourages all customers to save money by shopping around. More information on how to do this can be found on the CRU website.