I will refer to electricity and gas prices, beginning with a summary of the electricity price drivers in Ireland at present. Some 60% of the price of electricity is made up of the wholesale price of electricity in the single electricity market. That market is regulated on an all-island basis by the committee comprising the utility regulator in Northern Ireland, the CER and an independent member. The biggest cost driver in our wholesale market pertains to gas but it is also fair to say that PSO is a factor in terms of the wholesale price of electricity.
The second major component of electricity prices comprises the networks, a monopoly. That represents approximately 30% of the price. This cost aspect is regulated by the CER. In this area, capital expenditure in terms of the rolling out of networks, both at distribution and transmission levels, is a big cost driver.
The final element determining electricity prices concerns the competitive supply side, that is, the cost of running supply businesses and other associated costs and margins. That represents approximately 5% to 10% of the price of electricity. In this area, given that we no longer regulate the price of electricity in the market, our focus is on customer protection.
The next slide serves to illustrate the weighting the various fuels have in the wholesale market. Members can see that the wholesale market is very much dominated by gas, first and foremost. Some 50% of the power comes from that fuel. It is followed by coal, which results in 19% of the power. Renewables constitute a large proportion, with 16% of the power being from wind.
The first graph I have made available to members illustrates neatly the very strong relationship between the price of gas and our wholesale market price for electricity. The two track each other very closely and have done so pretty much since the market was established. The following graphs illustrate that there is generally a trend of increasing prices for electricity across Europe. Ireland is broadly following the trend but our industrial prices are generally above the EU average and our domestic prices, while closer to the EU average, are none the less above the EU average although slightly below the euro area price.
There are three broad gas price drivers.
The first, which makes up 50% of a typical gas bill, is the actual cost of the gas itself. That cost is linked to the wholesale price of gas in Great Britain, the market from which we access our supplies. That wholesale price is pretty much outside Ireland’s control. Another factor is the euro-sterling exchange rate. For example, while there was a rise in wholesale gas prices in 2013, this was offset by the exchange rate which went in Ireland’s favour.
The second major component of gas prices is the cost of networks, both transmission and distribution. Most of these costs are fixed. In this area, falling demand is a key factor. As these costs are largely fixed, where there is falling demand, those revenues have still to be recovered. This was a key factor in the price determination in 2013. Between 8% and 10% of the gas price is related to supply costs.
Bord Gáis Energy originally requested a 5.43% rise in residential tariffs. This would have been in excess of 7% were it not for a decision the commission took on transmission tariffs that knocked some millions of euro off the process. More demand is a key driver of the price rise which we ultimately sanctioned and which came to 2.04%. The transmission and distribution pipes need to be there to meet demand, particularly during cold spells in the winter, and they need to be paid for. With falling demand, the average unit price of those pipes rises. We recognise that an average rise of €16 in gas bills is significant but we have sought to exercise the maximum constraint through our examination of costs. Across Europe, gas prices have tended to rise but Irish gas prices still compare favourably with the EU average and the eurozone average.
We continue to see switching rates in both the electricity and gas markets at 11% and 17% respectively. These rates are reasonably good by European standards. One of the key drivers to this reasonably healthy level of switching is the fact that the process is easy and free. This has allowed people to exercise choice, 250,000 in the electricity market and 110,000 people in the gas market in 2012.
We recognise that in these difficult times people are struggling with meeting bills. As a result, we have put in place various measures to support the overall system whereby if people fall into arrears they can be supported. We have seen a fall in the level of disconnections and we have seen a strong roll-out of pay-as-you-go meters. This is an area we are continuously reviewing. An accreditation system has been established to allow price-comparison websites to be launched. We have set out minimum service levels suppliers must provide in the cases of disconnections. Disconnections are a last resort. There is no reason for a person in financial difficulty to be disconnected as a pay-as-you-go meter is available to them. We are actively engaging with stakeholders such as St. Vincent de Paul and the Money Advice and Budgeting Service, MABS, to promote the roll-out of these meters, as well as working with local authorities to ensure the message is disseminated among their housing tenants. We have worked with the networks business to ensure the roll-out is as efficient as possible. Installation rates have improved significantly compared to 12 months ago.