Post-Covid the Irish economy has recovered much more strongly than might have been expected. However, one major problem has been the surge in inflation and the resulting impact on living standards. Initially triggered by rising wholesale energy prices and the fall-out from Covid disruption, these pressures subsequently spread more widely. As inflation now starts to ease, the state of competition in various parts of the economy will be vital to ensure that consumers get the best deal possible.
One key area is energy prices. The market is dominated by a few key players and – typical of former monopolies – is dominated by one big company, the ESB’s Electric Ireland and a few other later entrants. Many of the smaller operators departed due to the 2022 squeeze in wholesale markets.
Now, as wholesale prices fall well below their 2022 peaks, it is welcome that a new player – Yuno Energy – is entering the Irish domestic market . Yuno is a subsidiary of Prepaypower, the existing pay-as-you-go provider, but it is targeting the mainstream billpay market. Irish electricity prices are among the highest in the EU and extra competition can help to bring them down.
The energy market worked during the crisis to the extent that supply was maintained and the full impact of the spike in prices was not passed on to consumers and business. But the crisis also underlined the historic high level of prices here. And as wholesale prices fall, retail costs here have been very slow to follow suit.
Given the high level of regulation in the market, there are questions raised by the events of the last year about how it is structured and how rules and prices are set. But in the shorter-term, we need to know more about the hedging strategies of the major firms and why prices here have seemed slower to fall than elsewhere. Government and regulators need to find a way to provide more transparency. For now, indications from the regulator that prices will finally start to fall soon are welcome, because it seems that in the energy market the consumer is all too often the one to pick up the tab.
Competition is also lacking in another regulated area – banking. The departure of KBC and Ulster Bank is having an impact, particularly in terms of deposit rates on offer to savers. State savings products are also offering poor returns.
For the major banks, a key issue is that they are overflowing with deposits that they don’t need, at least in terms of providing funding for new lending. However, they are now getting a decent return on this money from the ECB, which is boosting their profits. And so the returns they pay to depositors need to be higher and action is needed immediately. As with the energy market, the suspicion is that the market for banking is a bit too cosy and lacking in competition. Here, as well, some disruptive new competition would be useful.