Will a new provider in the Irish energy market lead to cheaper prices?

The arrival of Energia into the residential energy market this week is to be welcomed if only because increased competition tends to be a good thing for consumers. But anyone hoping for a price war which will see the cost of electricity and gas tumbling is likely to be disappointed.

Within hours of Energia declaring itself open for business on Thursday, Bord Gáis Energy announced it was increasing the cost of its electricity by just over 2 per cent. That is hardly the most convincing signal of a price war starting.

Energia claimed the average Irish household could save up to €300 by switching to it for both gas and electricity.

"We've already transformed the competitive landscape in the business electricity market and now we're bringing that competitiveness to the homes nationwide," said Gary Ryan, retail director of Energia.

And while savings of this scale are possible, consumers should always be wary of the two words "up to" when reading about possible savings and it is also worth noting that the company was comparing apples with oranges.

Discounted rates
When it talks of such savings it is comparing its discounted rates – used to entice new business – with the standard rates offered by its rivals. When its discounted rates are compared, however, to the discounted rates offered by Flogas, Airtricity and Electric Ireland, the savings are considerably more modest and, in some cases, non-existent.

The reality is that discounted electricity and gas have been available to hundreds of thousands of Irish consumers for years but most people have chosen not to avail of them.

Five years ago, Bord Gáis Energy entered the electricity market with a huge advertising campaign dubbed the Big Switch. For a time it worked and Irish consumers became very proactive in switching to it from the one-time monopoly, the ESB, which is now known as Electric Ireland.

More than one million people did not, however, switch and cumulatively, they spend more than €200 million a year more than they needed to between 2009 and 2012.

Then Electric Ireland was deregulated and started to compete more vigorously on price with Bord Gáis. It introduced discounted tariffs of its own but did not make them available to all its loyal customers but only those who asked to be put on the cheaper tariffs.

About one million people did not ask and they have been paying the higher standard rate unnecessarily since.