Pat Rabbitte (Dublin South West, Labour) | Oireachtas source

I apologise to Deputy Penrose and the House for missing my slot. I thank the Deputy for raising this important issue.

The PSO is charged to all domestic and business customers and is designed to compensate suppliers for the additional costs they incur by meeting obligations to purchase electricity from indigenous, sustainable and renewable sources, and to ensure security of supply. Its legal basis and method of calculation are set out in the Electricity Regulation Act 1999 and its operation is outlined in SI 217 of 2002. The cost of the PSO levy tends to be lower during periods when fossil fuel prices are higher. In these circumstances the market sufficiently rewards renewable and indigenous peat producers.

Deputy Penrose will be familiar with the most enduring function of the PSO, namely, to support employment in the peat sector in the midlands. The retention of hundreds of jobs in the midlands would not be viable without the PSO mechanism. Successive Governments have supported the PSO for that reason. A further legacy issue is the contract entered into in 2005 to ensure security of supply with Tynagh and Aughinish, at a time when the country was on a knife edge in terms of energy security. This is something we must guard against in the future. The existence of the PSO is vital to the delivery of our renewable energy targets. The PSO has supported the connection of around 2,000 MW of renewable energy to the electricity grid and it will continue to support the development of renewable energy so that we can meet our target of boosting renewable penetration to 40% by 2020.

Any call for a review of the public service obligation should consider the importance of delivering our policy objectives of increased renewables and ensuring security of supply. It is also important to have due regard for regulatory stability in the context of overall energy policy, as I point out in the Green Paper. The biggest driver for the proposed levy rise for 2014-15 is the lower predicted wholesale market electricity price, which is currently estimated to be around 10% lower than last year. This results in lower predicted market income for the PSO plants and, therefore, a higher levy is required to cover the allowed costs. The lower wholesale electricity price is currently being driven by the lower international gas prices in evidence since spring 2014. This drives up the proposed PSO levy but if these lower gas and wholesale prices are sustained for the coming months, it will help to reduce the wholesale cost of electricity that suppliers pay. This should enable suppliers to reduce their retail prices and potentially offset the PSO levy increase. Electricity prices are de-regulated and the Commission for Energy Regulation will continue to actively monitor suppliers and the retail market generally. While remuneration of renewable electricity generation adds to the PSO levy and customer bills, it should be noted that wind also tends to reduce the wholesale price of electricity because the operating cost of wind power is close to zero. Renewable generation therefore displaces fossil fuel generation. This is especially the case when fossil prices are high and associated thermal generation is expensive to run.

I am no less concerned than the Deputy about rising costs to industry and households alike. In the context of the increase in the PSO levy I have written to the Commissioners for Energy Regulation. As the main reason for the increase in the levy is a decrease in wholesale electricity prices, I have asked the regulator to be vigilant in its market monitoring function and to ensure that the reduction in the wholesale price of electricity is passed on to consumers. Otherwise I would expect the independent regulator to take further investigative action to discover why the deregulated market is not working competitively.

Finally, it is worth noting that the current decision is a proposed decision by the regulator. The regulator may use a revised figure for the wholesale electricity price in the final decision paper if forecast fuel prices change for 2014-15. The final decision on the PSO levy for 2014-15 will be published before 1 August. Changes in the forecast wholesale price will affect the amount of the PSO levy, increasing it if the forecast wholesale price falls and reducing it if the wholesale price rises. I urge anyone concerned to make a submission to the regulator on this draft decision by the deadline of 4 July 2014.

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