Electricity prices set to go up by 20%

Electricity prices are likely to rise by about 20 per cent next year as the ESB faces fuel price increases well ahead of forecasts.

The ESB has submitted a range of revenue projections to the Commission for Energy Regulation (CER) and a formal announcement will be made in October. An increase of 20 per cent is likely, sources have indicated.

A newsletter circulated this week by the regulator shows the ESB's annual fuel bill climbing from €800 million to €1.1 billion. The document says this fuel bill is much higher than expected and the deficit will need to be made up when tariffs are set for 2007.

The regulator and ESB yesterday declined to comment on what the likely increase would be, but it is understood an increase of at least 20 per cent is likely.

Private electricity companies also badly need a price increase so they can move their charges up in line with ESB rates.

An ESB spokesman said the company was not immune from international trends, but could limit rises to a certain extent by its portfolio of fuels - the company burns oil, coal, gas and peat. While oil and gas have risen hugely in the last year, the price of coal has actually fallen by 8.4 per cent. Most ESB plants do not burn coal, but Moneypoint is coal fired.

The CER newsletter says: "Trends in international fuel prices, which have a direct impact on the prices for gas and electricity charged to customers, indicate that significant price increases will be requested by the regulated companies, ESB and Bord Gáis.

Fuel makes up about half the cost of generation of electricity. According to figures produced by the CER gas prices in 2006 have been around 41 cent a therm, but this will probably rise to 60 cent per therm in 2007. In relation to oil the CER figures suggest a 47.8 per cent rise between now and 2007.

The regulator also has a role in setting standing charges for electricity. These are one-off charges for connecting to the electricity system. While customers are able to change their usage of electricity, the standing charges impact on customers even with low electricity usage. The Government is currently campaigning to get householders to be more energy efficient and the National Grid has a scheme to get businesses to reduce demand.

While business and consumer groups are likely to be angered by any further electricity price rises, the other main concern of recent years, security of supply, is now less alarming.

Two new power plants at Tynagh in Co Galway and Aughinish Alumina have come into commission and a new plant is being built by Viridian at Huntstown, north Co Dublin. Private sector companies will also be pleased to see the National Grid being hived off from ESB into a new company called EirGrid which was set up at the weekend.

ESB remains the largest player in the domestic sector, but only has 65 per cent of the overall electricity market by volume.