Jack Wall (Kildare South, Labour)
Link to this: Individually | In context

Question 38: To ask the Minister for Communications, Energy and Natural Resources if he will ensure that the financial costs to consumers associated with supporting peat and renewable energy on the power system, through the public service obligation, will not offset the benefits of a reduced energy price with more renewables on the power system over the medium to long term; the point at which wind energy will be considered a mature technology and the REFIT support mechanism be withdrawn; if he has engaged in any detailed analysis on same; and if he will make a statement on the matter. [44983/10]

Eamon Ryan (Dublin South, Green Party)
Link to this: Individually | In context

Public Service Obligations (or PSOs) are in place in Ireland and elsewhere to achieve national energy policy objectives which would not otherwise be delivered by competitive energy markets. In line with EU and national legislation, PSOs are in place 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 there are still the legacy arrangements from incentivising the development of additional generation capacity when it was urgently needed in advance of the introduction of the Single Electricity Market in 2007. At my request, my Department is conducting a review of the peat PSO levy with a view to mitigating the costs and improving its administration.

All Electricity consumers pay for the additional cost of 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 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.

The PSO levy is supporting the development of renewable electricity in Ireland. At relatively low cost by comparison with other EU Member States, the levy has already supported the connection of more than 1,400 MW of renewable energy mostly wind to the electricity grid. Renewable energy is reducing wholesale electricity prices at times of high wind by displacing higher cost fossil fuel generators.

Each customer's electricity bill is made up of four key cost components. These are the cost of generating electricity on the wholesale market, network charges, supply costs and the PSO Levy. There are now a number of suppliers actively competing for business in the retail electricity market. The Commission for Energy Regulation (CER) has recently deregulated electricity tariffs for business customers and set out the criteria for deregulation of the domestic market, which is likely to happen within the coming year. With price being a key consideration for electricity customers in choosing their supplier, competitive pressures will ensure that suppliers pass on to their customers any cost savings arising from wholesale electricity prices.

The CER has carried out a high-level analysis of the impact of wind generation on the wholesale electricity price for the current tariff year i.e. from October 2010 to end September 2011. This shows that Wind generation is reducing the all-island wholesale electricity price. This wholesale price reduction should be taken into account when quoting the cost of the wind-related PSO for this tariff year.

In this regard, €43 million is the extra wind-related PSO cost in Ireland for the current tariff year. Against this cost, CER modelling shows that the all-island wholesale electricity price (the System Marginal Price) reduces by 5% to 6% due to the wind that is expected to be dispatched during the tariff year. This reduction equates to a circa €80 million reduction in wholesale costs, to the benefit of all customers.

This figure is only an estimate for this tariff year only, and the figure is subject to significant variation if different assumptions of fuel and carbon prices are used or if the contribution from wind is lower than expected. The same uncertainty issue arises looking forward to 2020 when 40% of our electricity is planned to be from renewable sources (typically wind), but it is the case that wind will generally put downward pressure on the wholesale price. Wind provides a "hedge or insurance" against possible rising fuel/carbon prices into the future. The CER will continue to monitor the wholesale market to ensure that it is compatible with the planned increased levels of wind.

On the basis of experience to date with the feed-in system, the REFIT scheme is one of the systems best suited to promoting the production of electricity from renewable energy. This is confirmed by the European Commission which has highlighted that renewable energy feed in tariffs are considered to be the most effective form of support in terms of delivering greater renewable energy penetration at lower costs for consumers. The European Commission has confirmed that support systems are needed to deliver renewable energy competitiveness.

Ireland's feed in tariff system, REFIT, provides investment security for renewable generators by offering a floor price for certain technologies for electricity from renewable sources. Those accepted into the scheme enter into 15-year power purchase agreements with supply companies. Under the original feed in tariff scheme, applicants were accepted into REFIT up to 31 December 2009 and REFIT could be paid until 2025.

The Department is in negotiations with the European Commission to finalise the State Aid clearance for REFIT to enable projects to enter the scheme between 2010 and 2015 with a 15-year power purchase agreement thereafter. It is the case that technology and market developments and fossil fuel trends will inform any review of REFIT in 2015.