The European Commission said caps could be option for regions with no links to European grid
Price caps on energy for Irish consumers are being looked at due to the country’s isolated location and lack of European grid links.
The EU is examining ways to protect countries from swings in energy prices as it weans itself off Russian gas.
In a new paper, the European Commission said time-limited price caps could be an option to bring down energy costs in “regions with very limited interconnection capacity”.
Ireland and Cyprus are the only two countries in the bloc with no European grid links, an EU official said, hinting that a price cap could be given the all-clear here.
But the European Commission warned that price caps – which usually entail subsidies to energy suppliers or producers – can lead to higher demand, more pollution and “significant costs” for the state.
The commission also floated the idea of an emergency EU-wide price cap in the event of a complete shutdown of Russian gas supplies. But it warned that could “worsen the EU’s ability to attract” gas from alternative suppliers.
The EU’s announcement came as part of a wide-ranging package of measures designed to reduce the bloc’s dependence on Russian fossil fuels and boost renewables.
It includes €300bn in renewables investment, a higher 2030 renewables target, mandatory solar panels for industrial buildings and fast-track permits for solar, wind or green hydrogen projects.
The commission is also advising consumers to turn down their heating, use less air conditioning and cut back on car journeys to help “take money out of Putin’s pocket”.
EU vice-president Frans Timmermans also advised farmers to use less fertiliser.
“Yearly, €100bn goes into the pockets of Putin for the fossil fuel we’re buying there,” he said. “If we can really speed up the transition away from that, the money can stay in Europe, can help bring down the energy bills of European families and will not be used to finance this barbaric war in Ukraine.”
The price caps are expected to be discussed at a summit of EU leaders next week.
“Price caps just distort the market,” said Peter Brennan, managing director of energy consultants SmartPower.
“They do not lead to any increase in supply. Industrial users of energy who should dial down supply during a time of energy constraints are not incentivised to do that if the price is capped.” Spain has temporarily capped the price power plants pay for gas and coal on the wholesale market, unlike the UK, which caps customers’ bills.
Spanish electricity bills are directly linked to wholesale gas prices and can fluctuate wildly from month to month.
European wholesale gas prices have spiked to more than six times what they were last year due to rising post-pandemic demand, bad weather and the war in Ukraine.
Gas powered around half of all Irish electricity in 2021, rising to 52pc last month.
Ireland imports more than half of its gas from the UK, via two pipelines connected to Scotland. While the UK is not dependent on Russian energy, the war in Ukraine and subsequent sanctions on Russia have had a knock-on effect on prices.
Irish households are set to pay an extra €800 on their electricity bills this year as a result. But even before the recent price hikes, Irish consumers were paying €254 more than the EU average for electricity each year, according to Eurostat – the fourth most expensive in the EU and the most expensive when taxes and levies are taken out.
Daragh Cassidy of price comparison site Bonkers.ie told the Irish Independent recently that the net price of electricity here is 60pc above the EU average, suggesting there are “huge inefficiencies in the generation of electricity in Ireland”.
The lion’s share of Irish electricity bills (around 40pc) is determined by wholesale energy costs – the price suppliers pay producers for the fuel they use to make electricity. But around a third of electricity (and gas) bills are determined by the cost of grid connection, infrastructure and distribution, managed by ESB and EirGrid.
Conall Bolger, chief executive of the Irish Solar Energy Association, said part of the reason that electricity is so expensive in Ireland is because it costs more to connect renewables to the grid.
The total average cost for every unit of solar power generated in Ireland is more than double what it is in Spain, Mr Bolger said – €73 per megawatt hour compared with €32.
“There is no reason our energy transmission should cost as much as it’s currently costing us,” he added.