Paul Coghlan (Fine Gael)
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I welcome the Minister of State.

John O'Mahony (Fine Gael)
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I thank the Cathaoirleach, the Leas-Chathaoirleach or whoever was responsible for selecting this Commencement matter. I welcome the Minister of State for what is his first debate on a matter in which I have been involved. I also congratulate him on his appointment.

I was contacted by a number of businesses about the public service obligation, PSO, levy, which it is proposed be increased by approximately 36% from October. A Government levy on the electricity bills of commercial and domestic users, it is used to subsidise the use of renewable energy sources, which is laudable, and peat-burning power plants. However, the levy has been increased by 226% since 2010.I think there were small decreases at some stages - perhaps there was one last year - but this year's increase is one of the biggest.

I will put this in context. I was contacted by representatives of a quarry in the Minister of State's constituency. At the moment, the quarry is paying €5,520 a month, or €66,240 a year, as part of the levy. If this increase goes ahead in October, the quarry's new payment will be approximately €7,500 a month, or €90,000 a year. The annual increase will be €23,000. That is just an example of what will happen if this increase is sanctioned. We are talking about small businesses that pay rates and various other charges, rather than the businesses that are availing of the 12.5% corporation tax rate. It is impossible for them to budget or plan ahead.

As the Minister of State knows, Irish electricity prices are among the highest in Europe. A large increase in the PSO levy would exacerbate that imbalance. As the small businesses to which I refer are providing jobs, it is clear that issues like job creation, job security and the competitiveness of Irish companies in Ireland and abroad are at stake here. Companies that export are currently having to deal with the outcome of the Brexit referendum in Britain. The weaker sterling is causing its own problems. If this additional issue arises, these companies will have more difficulties.

Is it proposed that this increase will go ahead? I am aware that there was a consultation period and all of that. I am calling for this to be looked at again in the context of all the issues I have mentioned. I refer particularly to the effect it would have on small businesses. I appreciate that both commercial and domestic users would be affected by this increase, but in raising this matter today I am thinking particularly of job creation.

Seán Kyne (Galway West, Fine Gael)
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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.

John O'Mahony (Fine Gael)
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I thank the Minister of State for his reply. I suppose the reality of what he has said is that the PSO levy increases when prices decrease. That drives people crazy. In other words, the benefits of price decreases are wiped out by something else. While I understand perfectly the point made by the Minister of State about the independence of the CER in setting the levy, I suggest that if an issue here is affecting jobs and competitiveness, it needs to be approached. It is important for that point to be made to energy regulator when he is making his decision.

When I served as Chairman of the Joint Committee on Transport and Communications, the current Minister, Deputy Naughten, who was not a Minister at the time, raised this point with the energy regulator. I expect him to take an interest in it now. I would like the Minister of State to ask the Minister whether he intends to raise these concerns again so that they will be taken into account when the final decision is being made in October.

Seán Kyne (Galway West, Fine Gael)
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I thank the Senator for his comments. I will liaise with the Minister, Deputy Naughten, on this issue and I will ask him to liaise with the CER. I accept that there is uncertainty about issues pertaining to the levy. This is associated with factors outside our control that relate to the global market for energy. A number of factors are applying upward pressure to the PSO levy, including the lower Single Energy Market and wholesale market prices. As I have said, the wholesale market price is 20% lower than the price used to calculate the current 2015-16 PSO levy. That creates a major complication.

I reiterate that a lower wholesale price means that the payment to companies engaged in the PSO increases. In addition, there are more renewables. The REFIT scheme supported 2,080 MW of renewable generation in 2015. It is estimated that 2,943 MW of renewable energy, mostly wind energy, will be supported by the PSO next year. As this is 863 MW, or 41%, more than the level supported in the current PSO period, it is driving up the levy. The CER estimates that all renewables account for approximately €334 million of the total of €444 million. While there are a number of complicating factors, they are predominantly based on the lower gas prices in the present market. I will discuss the concerns raised by Senator O'Mahony with the Minister, Deputy Naughten. In particular, I will ask him to liaise with the CER on the impact this is having on small businesses.