One of the key strategies of any government when it runs into trouble is to buy time. This is often achieved by shunting the problem elsewhere and getting someone to “look into it”. Ideally, the inquiring body is an agency outside of government, giving a degree of distance. Governments generally hope that by the time the report is done the whole thing will have gone away.
And so, as reports circulated about home heating oil prices shooting up and prices at the pumps starting to rise due to conflict in the Gulf, Minister for Enterprise, Peter Burke, asked during the week for a report from the Competition and Consumer Protection Commission (CCPC). The body, according to the Minister’s statement, is “to urgently investigate claims from citizens who have raised significant concerns around price gouging and illegal practice in terms of home heating oil, petrol and diesel”. The statement adds that the CCPC has the power to fine companies up to €10 million or 10 per cent of turnover. The Government thus buys a bit of time.
This gives the impression of some kind of crackdown – with consequences. But it is really political PR. A statement from the CCPC itself, issued on Wednesday, shows why. The key phrase it contained was “there is no legal obligation on companies to set their prices at a level that consumers will consider fair”. There is no price control in the State and companies can set what prices they want, provided they do so “independently” – in other words that they don’t collude with competitors on what they will charge.
So what can the CCPC do? Two things. The first is to look for any evidence of collusion among firms in the heating-oil sector. This kind of probe usually takes a long time and requires the gathering of significant evidence. The second is to look at the trend in wholesale prices and what is being charged to consumers, and assess whether firms are profiteering somewhere along the line. This information could – if it uncovers anything – be used by the Government to embarrass the sector. But hiking prices is not illegal or breaching any regulations. There will be no consequences beyond – perhaps – some red faces.
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Operators in the sector point to the big increase in the price of the refined product used for heating oil – kerosene – on international markets. This is a smaller market than the world crude oil market and a scramble for supplies over the past week has sent prices sharply higher. This is reflected in the prices charged by some of the big wholesalers in Ireland, which have risen about 35 per cent, according to their websites.
The rush by retailers to pass this on to consumers suggests that they are setting the price based on the cost of refilling their own tanks, rather than the cost of the supplies already purchased. Will prices come down on the same basis? It is more complicated than the “price gouging” charge thrown around by Taoiseach Micheál Martin and Opposition figures in the Dáil.
The bigger picture is that oil price rises feed through quickly when trouble hits in energy markets. Gas price increases, on the other hand, feed through much more slowly to energy bills, as suppliers hedge their exposures by buying forward supplies. This acted as some protection during the inflationary shock following the Ukraine invasion.
Household energy bills have fallen back since the big increases after the start of the Ukraine war, but they still remain on average more than 40 per cent higher than at the end of 2021, before prices began to rise. And they are among the highest in the EU. This is an economic cost to Ireland, puts pressure on some households and means arrears levels on energy and gas bills remain elevated. The Government set up a taskforce last year to look at this energy affordability issue but, according to its website, it has only met three times. It did publish an interim report in advance of the last budget – which took some measures to help vulnerable households.
But a wider energy affordability strategy, which has been promised, has yet to emerge. So has a study promised in the programme for government on the way wholesale energy prices are passed through to consumers. The CCPC looks set to have an initial look at this now.
This work may have appeared less urgent as energy prices became more stable, but not having completed it now leaves the Government exposed. Pressure will increase further to reinstate the universal energy credits payable to all households. This would be a really bad idea, as a survey showed half of all households said they did not need the credits – which are very costly to the exchequer – to be able to afford their bill.
There are longer-term issues here, too. The cost of huge planned investments in the electricity network will feed through in the years ahead to consumer – and business – bills, as the taskforce report made clear. Charges such as this – not linked to wholesale prices – are making up an increasing amount of bills. In regulated markets, consumers often seem to take second place.
In the meantime the Holy Grail of “clean and cheap” renewable energy – cutting exposure to international markets – moves further away. Ireland’s offshore wind programme is, experts say, unlikely to be a factor in supply until 2032 or 2033.
The interim period, when consumers are paying for the network upgrades but still not getting the full benefit from renewables, will be long. Unless wholesale prices fall, this will leave many households under pressure and hit business competitiveness. The renewables share – largely due to onshore wind – is rising, but gas will remain the key factor influencing prices for the foreseeable future. And we have seen this week how volatile its wholesale price can be.
Ireland, as a big fossil fuel importer, will remain exposed to international swings. There is not much we can do about this. But as well as ensuring the longer-term network improvements and the delivery of offshore wind, the State needs to have a clear plan on how to help households that need it. It also needs to plan for how the complicated costs inherent in the system and its upgrade can be minimised, to help hold down prices. Ireland must control what it can. As we saw this week, reality can come and bite from international events and the punter ends up paying.
