Seán Kyne (Galway West, Fine Gael) | Oireachtas source

I thank Senator O'Mahony and congratulate him on his nomination to the Seanad. I am taking this Commencement Debate matter on behalf of the Minister, Deputy Naughten. I thank the Senator for giving me an opportunity to comment on this important issue.

While the calculation of the PSO levy is technically and strictly a matter for the CER, which is independent in this function as it is in its other statutory functions, I welcome this chance to discuss the levy. It has been proposed that the PSO levy for 2016-17 will be €441 million, which would equate to less than €7 per month for domestic consumers. The levy, which is charged to all customers, is designed to compensate suppliers for the additional costs they incur by meeting their obligations to purchase electricity from renewable sources and indigenous sources and to ensure security of supply.

The existence of the PSO is vital if we are to deliver on our renewable energy targets, ensure security of supply and support hundreds of jobs in the midlands that are associated with the peat industry. The PSO has supported the connection of over 2,000 MW of renewable energy to the electricity grid. It will continue to support the development of renewable energy so that we can meet our target of boosting renewable penetration by 40% by 2020. Recent studies have shown that Ireland has one of the lowest per-unit supports for renewable energy in the EU. The biggest driver for the proposed increase in the levy is the lower predicted wholesale market electricity price, which is currently estimated to be approximately 28% lower than it was last year. This results in lower predicted market income for the PSO plants. Therefore, a higher levy is required to cover the allowed costs.

The lower wholesale electricity price is currently being driven by lower international gas prices. This drives up the PSO levy. These reduced gas prices help to reduce the wholesale cost of electricity that suppliers pay. This should enable suppliers to reduce their retail prices and offset the PSO levy increase. Electricity prices are deregulated. The CER will continue to actively monitor suppliers and the retail market generally. While the support of renewable electricity generation adds to the PSO levy and to 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.

Like the Senator, I am concerned about increases in the electricity costs of industry, households and the small businesses he has mentioned. It should be noted in the context of the proposed increase that as the wholesale electricity price is falling, this should be passed on to electricity customers, thereby acting as a counterweight to the increase in the PSO levy. In recent months, a number of electricity suppliers have announced price reductions on their standard tariffs. Most suppliers offer significant discounts to new customers. I urge all domestic and commercial consumers to seek the best-value offer available to them.

The reductions in the market that are available to customers outweigh the PSO levy increase. As the increased levy is partly driven by lower wholesale electricity prices, I expect all suppliers will reduce their prices. It is worth noting that the current decision is a proposed decision by the regulator. The CER may use a revised figure for the wholesale electricity price in the final decision paper if forecast fuel prices change for 2016-17. A final decision on the PSO levy for 2016-17 will be published before 1 August next. Changes in the forecast wholesale price will affect the amount of the PSO levy, increasing it if the forecast wholesale price decreases and reducing it if the wholesale price increases.