Windfall tax on energy companies may result in higher energy bills, ESRI warns

The ESRI warned that despite the soaring bills for customers 'taxing windfall gains in the generation sector only may therefore place some upward pressure on consumer prices'.

The ESRI has warned the impact of the introduction of a windfall tax in Ireland is “difficult to estimate” and may result in “upward pressure” on energy costs.

Calls for a windfall tax on energy companies have strengthened in recent months as many report record profits, while gas and electricity bills for consumers and businesses soar amid a growing cost-of-living crisis.

On Wednesday, Energia became the latest energy company to announce a price hike. This follows similar announcements from Electric Ireland, Bord Gáis Energy, SSE Airtricity and Prepay Power last week.

In its opening statement at the Oireachtas committee on budgetary oversight on Wednesday, the ESRI warned that despite the soaring bills for customers “taxing windfall gains in the generation sector only may therefore place some upward pressure on consumer prices”.

The ESRI said the potential gains from a windfall tax are “difficult to estimate”. It also stated: “There is evidence that some energy companies are using greater than expected profits on the generation side to offset losses on the supply side, which puts downward pressure on customer prices.” 

EU action

Speaking about recent developments in the EU regarding energy price caps, Dr Muireann Lynch, senior research officer at the ESRI, said: “It is preferable to move in tandem with the European Union in terms of electricity market design.” 

Her statement came following the European Commission’s announcement on Wednesday that it will propose a price cap on Russian gas, alongside measures including a mandatory EU cut in electricity use and a ceiling on the revenue of non-gas power generators.

Dr Lynch noted that Ireland’s supply of energy generated by wind power was having a downward impact on the price of electricity. 

She highlighted the importance of ensuring support for consumers remains on the monetary side, saying a recent report produced by the ESRI on energy poverty had revealed targeted cash payments through the fuel allowance offered the best support to consumers.

Soaring bills

On Wednesday, Green Party leader Eamon Ryan confirmed households across Ireland would receive another energy credit before Christmas to help with soaring bills.

This is in addition to the €200 reduction in energy bills the Government announced earlier this year.

Last week, a senior researcher with the ESRI warned that up to 43% of households could shortly be in energy poverty.

Senior researcher with the ESRI Niall Farrell said energy poverty was determined when a family spent more than 10% of its income on energy. That figure had been 29% earlier this year, but with the recent rise in energy costs, the figure was now at 43%.