Breaking down the bill: where does the money you pay for electricity actually go?

Irish people pay more for their power than most other Europeans. But no matter how you weigh it, the actual electricity accounts for a far smaller share of your electricity bill than you think.

All in, electricity here costs families around 40 cent a kilowatt hour, the unit in which it sells to domestic customers. That is roughly the energy needed for a typical load in your washing machine. The EU average is 29 cent. Germany is the nearest to us at more than 38 cent.

But that 40 cent ends up going in multiple directions. Energy think-tank Trifecta Ireland estimates that costs other than the actual electricity consume 55 per cent of what Irish homes and industries pay every year.

Those costs range from the money required to get that electricity from power plants to customers to incentives for businesses to build those generators in the first place.

Consultancy Aurora Energy Research calculates that of the €1,583 that an average urban household paid in the 12 months to October 2025, €597, or 32 per cent, covered the price of the electricity, with two-thirds of the total going on associated costs.

Aurora bases its assessment on a home consuming 4,200 kilowatt hours a year, which is what the industry says a typical household uses over 12 months. Those figures pre-date price increases of between 8 and 11 per cent, depending on the supplier, which began to bite this summer. They will have pushed that €1,583 average past €1,700.

Surges in the price of natural gas, which is used to generate half of our electricity, was responsible for those hikes. The ongoing war between Russia and Ukraine has pushed gas prices higher as supply tightens.

But the other costs are creeping up also. Last year, regulators approved plans by national grid operator, Eirgrid, and ESB Networks to spend up to €18.9 billion between now and 2030 on improving the systems that get electricity from power plants to customers. That increase could add up to €1.75 a month to household bills.

More recently, industry watchdog, the Commission for the Regulation of Utilties (CRU), confirmed that emergency generators installed as a backstop against short-term electricity shortages would remain in place up to February 2029. Customers will pay €229 million for this. That scheme will have cost those bill payers €1.44 billion by 2029.

Liberalised

Over the last quarter of a century, the Republic has liberalised its electricity market, merged it with Northern Ireland’s, introduced increasing amounts of wind and solar as it shoulders a large part of meeting the State’s climate targets and shut ageing power plants, all while expecting it to meet increasing demand from economic and population growth.

The policies and strategies meant to deal with all of that have left the State with an increasingly complex system, says Conall Bolger, chief executive of Trifecta Ireland.

“The system we have now wasn’t planned, it sort of evolved rather than being planned, and it’s become unwieldy,” he explains. “We tried to make it do something that it wasn’t built to do.”

Part of the problem is the national grid itself. Stephanie Unsworth, Aurora analyst and author of the consultancy’s recent report on affordability, points out it was built “back in the sixties and seventies”. “Everything then ran on oil and gas,” she says.

At that time, it was a question of connecting power plants, that ran constantly, to where there was demand. It was not designed to link remotely located wind farms than run intermittently to distant cities and towns.

Alongside this, University College Cork academic Paul Deane told the launch of Trifecta’s report this month, electricity is distributed to customers through a large network of copper wire strung on timber poles. This is a legacy issue, according to Deane, who noted that there is enough copper wire in the Irish system to run four times around the globe.

The upshot is that national grid operator Eirgrid is often forced to tell power plants not to supply electricity, even when it is available, as bottlenecks in the system mean it cannot reach customers.

Wind farms, including those in Northern Ireland, are worst hit. This is a double whammy for consumers as alternative suppliers must switch on or increase output even though their power may be more expensive than that of the company unable to operate. Customers pay for this through something called “imperfection charges”, which the CRU says came to €790 million over the last 12 months.

Eirgrid says it is using new technologies to increase its use of renewables and to store power. Following initial trials, it has begun using “dynamic line rating” which allows more effective use of the grid. The State company points out that a planned €18.9 billion investment, approved last year, will tackle many of the problems.

Customers also face a bill of €550 million to support gas-fired power stations when they are on standby to back up renewables, but not supplying electricity, and so not earning money. These “capacity payments” are an incentive to encourage developers to build these plants in the first place.

Unsworth notes that many of the extra charges are the price customers pay as they foot the bill for integrating renewables into a system designed for fossil fuel. He does agree that the plans by Eirgrid and ESB Networks to invest in the system over the next four years should help.

Trifecta, funded by the family of industry veteran, Eddie O’Connor, focuses on providing affordable, secure and clean electricity. Its report, What Can Move the Needle on Bills Before 2030?, assesses ways of cutting costs to the consumer in the shorter term.

Its CEO, Bolger believes that we need to step back and look at all elements of the system in their entirety. He argues that the needs of consumers got lost while government and State agencies increasingly added complexity to the system. But cutting bills in the absence of a major overhaul remains challenging.

Deane told the Trifecta launch that, in some cases, cutting €10 from bills could require spending of €100 million on the system.

Trifecta proposes 17 smaller measures that it says should add up to greater savings. They focus on more efficient use of the grid that takes more account of customers’ needs. More electrification of heat and transport should help, the organisation says. This is because many of the “non-electric” costs are fixed, so spreading the burden across more customers cuts individual burdens.

Unsworth agrees that more electrification is part of the solution, but with a different emphasis. Instead of focusing on “crazy” renewables targets, she advocates building power plants to meet demand while incentivising electrification, which would still allow the Republic to meet its climate targets. Aurora calculates that taking this alternative approach would cost consumers 20 per cent less by 2035 than if we continue with our current mix of strategies.

How your electricity bill adds up

Generation: This is the cost of producing the electricity we use. It is generated by burning natural gas, or by wind and solar farms, along with contributions from other sources, including imports and hydroelectric power.

This amounts to a lower portion of bills than most people assume. A recent report by Trifecta Ireland calculates it at 45 per cent across the board. A breakdown of charges for a typical home by consultancy Aurora Energy Research shows it came to €597 out of a total annual average bill of €1,583, or around 38 per cent, in the 12 months to October 2025.

Network: This is the cost of getting electricity from power plants to homes and businesses. Basically, it goes through two stages. The national grid takes the electricity direct from power stations, and the distribution network takes it from the national grid and transmits it to customers’ premises. This cost is itemised as a standing charge on electricity bills, generally coming to around one-third of the total.

Aurora calculates that this cost its typical home €443 last year. Energy industry overseer, the Commission for the Regulation of Utilities (CRU) is currently reviewing how these costs are allocated across electricity customers.

Public Service Obligation (PSO): This pays for schemes that guarantee prices for power produced by renewable power plants. Two account for most of this charge. The first is the Renewable Energy Feed-in Tariff, which guarantees older onshore wind farms €72 or €75 per mega-watt hour for their electricity. If the market price falls below that figure, customers make up the difference through the PSO levy. If the market price is higher, the renewable power companies keep any surplus.

The second is the Renewable Energy Support Scheme, which pays wind and solar farms prices agreed at various auctions. Customers make up the difference if the market price falls short but get a rebate if the market price tops the guaranteed amounts.

The CRU recently set the PSO at €6.12 for each household in total for the coming 12 months, a sharp reduction on what they paid between October 2025 and this month. The charge is itemised on domestic bills.

Imperfection charge: This is one of two big items not set out on your bill. It is the cost of bottlenecks on the national grid that prevent it from transmitting electricity generated in one place to where the customers are located. In this situation, national grid operator, Eirgrid, instructs the power plant to reduce output. The market compensates the supplier for this. At the same time, the grid may have to instruct other companies whose electricity can reach those customers to step in. Those companies are also paid for their power.

Industry organisations have been highlighting this problem for a while. Most often, it hits wind farms in the west or other locations far from the greater Dublin area, where demand for electricity is greatest.

One significant bottleneck is the continued absence of a planned high-capacity power line between counties Meath and Tyrone. This prevents wind farms and other suppliers in the North from getting their electricity to the South. All electricity customers share this cost. Overall, CRU approved €790.24 million for imperfection charges over the last 12 months. Aurora calculates that it added €67 to individual bills last year.

Capacity payments: These are incentives to suppliers to build gas-fired power plants. Wind and solar power are not available all the time so our system needs gas plants that can be switched on or off quickly to back them up.

As these power stations do not run all the time, their owners cannot recover their costs simply by selling electricity, so they receive capacity payments for ensuring that they are available to supply power, even when they are not doing so. All electricity customers also share this cost. The CRU allowed €550 million in capacity payments over the last 12 months. Aurora says it cost the typical family €75 last year.

VAT and other costs: Domestic customers pay 9 per cent VAT on electricity, which would have come to €142.47 on the €1,583 that Aurora calculates a typical suburban Irish home for electricity last year. The consultancy estimates that the tax, along with supplier and market costs, accounted for €362 of that total, more than 20 per cent.