Written answers

Wednesday, 29 September 2010

Department of Communications, Energy and Natural Resources

Energy Prices

11:00 pm

Photo of Paul KehoePaul Kehoe (Wexford, Fine Gael)
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Question 1543: To ask the Minister for Communications, Energy and Natural Resources if he will respond to a matter (details supplied). [31689/10]

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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Public Service Obligations (or PSOs) are imposed to achieve national energy policy objectives which would not otherwise be delivered by competitive energy markets. In line with EU and national legislation, PSOs have been imposed to support power generation from peat as an indigenous fuel supply for security of supply purposes, to support renewable generation capacity to reduce emissions and reduce dependence on imported fossil fuels, and to support the development of additional generation capacity when it was needed in advance of the introduction of the Single Electricity Market. In particular, two renewable electricity generation support mechanisms, REFIT and the Alternative Energy Requirement (AER), are included in the PSO.

Electricity consumers pay for the additional cost of all these supports through the PSO levy. Each year, the Commission for Energy Regulation (CER) calculates the estimated costs associated with implementing the various obligations and forecasts of electricity market revenues for the energy companies involved. Where such electricity market revenues are not sufficient to cover the cost of implementing the obligations, additional supports in the form of "top-up" payments are necessary and are funded by electricity consumers through the PSO Levy.

For the past few years, electricity market prices, and accordingly electricity market revenues, have been sufficiently high that additional "top-up" payments to support the obligations have not been required. With recent electricity market prices significantly lower than in recent years, the CER has calculated that additional supports totalling some €156 million will be required to cover the full cost of implementing the obligations (including the REFIT Scheme) over the 12 month period commencing October 1st 2010. This will mean a fixed annual charge of €32.76 for domestic customers from October 1st next.

It is important to note that in some years the benefits accruing from the operation of certain renewable contracts under the AER mechanism, which actually paid money into the PSO Levy fund, were used to offset the additional payments required by other more expensive supports, for example for peat generation. Accordingly in these years, the offsetting process resulted in all PSO costs being met in full without imposing a PSO Levy on electricity consumers. The PSO Levy calculation process is set out in secondary legislation in the Electricity Regulation Act 1999 (Public Service Obligations) Order 2002 (S.I. No. 217 of 2002). The CER adheres to this process in a transparent manner.

As regards REFIT specifically, it has been payable to supply companies with REFIT contracts since the 2008/2009 PSO period. As outlined in the National Renewable Energy Action Plan, REFIT is funded entirely from the PSO Levy and there is no intention to change this. Costs have been paid on an annual basis and have not been deferred. Since REFIT PSO costs, in the same way as the peat PSO, are determined in advance for a year on the basis of an estimated market price, there is a later, or "ex post" correction two years later (known as 'the R factor') to take account of actual market prices obtaining during the year. Such a correction, relating to the 2008/2009 year is included in this year's PSO, in the normal way.

The Government remains committed to ensuring that our renewables targets are delivered at as low a cost as possible while delivering on climate, competitiveness and energy security of supply objectives.

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