Households will have to wait months for electricity and gas prices to fall.
Despite wholesale gas costs coming back to pre-Ukraine war levels, consumer energy prices are unlikely to fall this year, but will stabilise, a range of experts have said.
This is likely to come as a disappointment to consumers angry that electricity and gas prices have doubled in the past year-and-a-half.
The yearly cost of electricity for a typical household is now €2,000.
Consumers have been hoping the fact that wholesale gas prices have dived on international markets would lead to price cuts.
Wholesale gas is used to generate around half of the electricity used in this country.
Europe’s benchmark gas prices are down 25pc so far this month.
Energy researcher at University College Cork, Dr Paul Deane, said so-called “spot wholesale gas prices” have been falling dramatically. They are now lower than they were before Russia invaded Ukraine.
Spot price is the price to acquire an asset immediately.
But the prices charged by energy companies to households are based on futures prices, which is called hedging.
The futures price is an agreed-upon price in a contract – called a futures contract – between two parties for the delivery of the asset at a specified time.
He said spot prices have fallen due to a relatively mild winter and the ability of European states to build up storage of wholesale gas. But energy suppliers are locked into futures contracts.
He does not expect consumer prices to reduce in the medium term.
Dr Niall Farrell of the Economic and Social Research Institute (ESRI) said: “Energy companies buy their gas ahead of time, so they may be locked into high prices from deals made earlier in 2022. It takes time for price changes to filter through to retail prices.
“As a rule of thumb, spot prices tend to reflect short-term fluctuations. Futures prices are more reflective of long-term trends. It is these long-term trends that are important for setting retail prices.”
He said consumer prices may have stabilised but he does not expect consumer price cuts any time soon.
Daragh Cassidy of price comparison site Bonkers.ie said it is unlikely households will see any decrease in the cost of their gas and electricity for a few months at least, saying: “Although wholesale gas and electricity prices have fallen in recent months, they still remain at elevated levels.”
He said that at one stage during last summer, the price of gas was up by well over 1,000pc on a yearly basis on wholesale markets.
And last March the wholesale price of electricity in Ireland was up by over 400pc compared to the year before.
“So, when we hear of falling prices we need to remember that it’s on the back of prices which were at record highs to begin with,” Mr Cassidy said.
He said people need to remember that the price households pay for their gas and electricity is usually an average price of the cost of energy on wholesale markets over the course of around a year or two, as suppliers buy most of their energy months or even a year in advance through hedging.
This is to ensure security of supply and to ensure households are not faced with extreme swings in the price of their energy on a weekly or monthly basis.
“However, a downside of hedging is that falls in the price of energy aren’t immediately passed on either,” Mr Cassidy said. Due to hedging, there will need to be a sustained reduction in the price of energy on wholesale markets for several months before bills are cut for consumers.
“But hopefully 2023 will see no further gas or electricity price hikes at least. And the outlook is better than it has been for several months,” said Mr Cassidy.
Eoin Clarke of comparison site Switcher.ie said wholesale gas prices are falling, but this is not easing household budgets just yet, with the cost of living still troubling many.
“There’s no guarantee that energy bills will drop soon, but by scaling back some daily routines and swapping everyday appliances, you could save €850 per year,” he said.
Mr Clarke said these savings could be realised by running one less washing machine cycle per week, reducing shower time from 15 minutes to 10 minutes per day, swapping an electric cooker for smarter appliances like a slow cooker or an air fryer, and using a laptop instead of a desktop computer.