Breaking up with gas? It’s a bit more complicated.

25 July 2025

With energy prices in the spotlight, many people in Ireland have wondered how and why gas is setting the price for electricity when we have an increasing amount of wind power. 

A key part of the answer lies in something called marginal pricing. This is the system used to set electricity prices in Ireland and across the European Union. It is often misunderstood as meaning that the price of electricity is inextricably linked to the price of gas. It’s not quite that simple. 

Marginal pricing is the normal approach used in global commodity markets—from oil and grain to metals. It is designed to keep prices competitive, encourage investment and ensure supply when it’s needed most. 

What is marginal pricing? 

In simple terms, marginal pricing means the market price is set by the last, and typically most expensive, source of electricity needed to meet demand at any given time. 

Imagine you’re buying 100 tonnes of grain from various suppliers. One offers 60 tonnes at €200, another 30 tonnes at €220, and the last 10 tonnes at €250. To get your full 100 tonnes, you need to buy from the €250 supplier. Under marginal pricing, all suppliers get paid €250, because that’s the price needed to ensure the full demand is met. 

This approach rewards suppliers who offer lower prices, but it also helps to ensure that enough supply is available to meet demand, in real time, even during times of tight supply. That’s particularly important in electricity when there are currently limited options to store power. 

Commodity trading 

It’s important to understand this is not just how electricity is priced. Many other global markets use marginal pricing: 

• Grain markets: The global price of wheat often reflects the cost of the most expensive source needed to meet global demand.
• Oil markets: Prices rise when more expensive oil fields need to be tapped to meet supply.
• Metal markets: The price of copper or lithium is often set by the costliest producer needed to meet full demand. 

So, when people say electricity pricing is somehow unusual because it’s based on the cost of the “last” unit, they’re overlooking how most large markets work. 

How it works in Ireland – and Europe 

Gas generators tend to set the price in Ireland because of our current generation mix. In other EU countries it could be a gas or coal or nuclear or hydro unit setting the price depending on the different way they generate electricity. 

Caption: Ireland's electricity mix in 2024 from Green Collective. 

Ireland’s electricity market doesn’t operate by itself. It’s part of an integrated European electricity market. The rules for how electricity is bought and sold are shared to allow for fair competition, cross-border trade and energy security. 

That means Ireland can import electricity from our neighbours (currently only Britain but also France from 2028) when needed, and vice versa.  

But it also means that any major change to how prices are set, like removing marginal pricing, would have to happen at the European level. We can’t do it by ourselves without risking disconnection from the wider European market, which would increase costs and reduce reliability. 

Benefitting consumers 

Although at first it can seem like an odd system, marginal pricing brings real benefits: 

1. It keeps electricity affordable: Renewable sources like wind often bid in at zero or very low cost. Because the system rewards the most efficient generation, like wind, it encourages investment in new renewable energy.
2. It encourages efficiency and competition: All generators must offer competitive bids, which puts downward pressure on prices.
3. It ensures reliability: Gas-fired plants may not run often but they’re currently crucial for times when renewables can’t meet demand.
4. It reflects real conditions: Just like in other commodity markets prices go up when supply is tight and fall when it’s plentiful. 

How do wind farms help? 

The more wind energy we have, the less gas we need. Wind farms push the most expensive gas generators off the system, allowing newer and more modern gas plant, which provides power at a cheaper rate, to lower-priced gas plant to set a more affordable wholesale price for everyone. 

In June 2025, for example, the average wholesale price of electricity was €95.21. But on the days when we had lots of wind energy, this pushed expensive gas out of the market and the price fell to an average of €67.15. When there was very little renewable energy available, and we had to use much more gas generation, the average price rose to €115.06. 

So every single wind farm we build and connect to the grid helps to push the expensive gas generators out and helps lower prices for consumers.  

Fit for the future? 

Marginal pricing helps ensure electricity is available, fairly priced and increasingly clean. 

Yes, it means gas generators typically set the price but this is changing. As more renewables and storage come online, the number of hours when gas is needed to set the price is falling. 

As this trend accelerates it may become necessary to improve or redesign how the market operates to maximise the benefit to consumers from renewable energy. 

But if policymakers want to reform the system, they must do so in step with the rest of Europe, to ensure Ireland remains connected, competitive, and secure. Any major change to electricity pricing would need to be part of a wider EU-led market reform, not a standalone national move.