Michael Kitt (Galway East, Fianna Fail)
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Question 38: To ask the Minister for Communications, Energy and Natural Resources if he will reverse the public service obligation levy. [6651/11]

Pat Rabbitte (Dublin South West, Labour)
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The Public Obligation Service (PSO) levy has been in place since 2001 and is the support mechanism for peat generation and the development of renewable electricity. The PSO also supports the output of two gas fuelled power plants built in 2005 to secure much needed generation capacity at the time. The levy is designed to compensate electricity suppliers for the additional costs they incur by purchasing electricity generated by the three peat stations and renewable energy sources. The levy has supported the connection of more than 1,400 MW of renewable energy, mostly wind, to the electricity grid over the last decade.

The Commission for Energy Regulation determines the PSO levy which is a charge on all electricity customers. Its legal basis and method of calculation are set out in the regulations made under the Electricity Regulation Act 1999.

In general terms the cost of the PSO levy to the consumer tends to be low or zero when gas and oil prices are high, as in these cases the market adequately rewards renewable and conventional generation including the peat stations. However, when fossil fuel prices fall, peat and renewable generators become less competitive and suppliers need to be compensated for purchasing their output. The significant fall in oil and gas prices over the last two years gave rise to the re-emergence of the PSO levy on all customers' bills from October 2010.

In line with the Programme for Government commitment to review and reform the PSO levy, I have firstly requested my Department to review the operation of the peat PSO to ensure that it is as cost efficient as possible. The bulk of the cost of the PSO levy currently derives from supporting the peat stations.

I have also asked my Department to confirm that the development of renewable energy, supported by the PSO levy, is being achieved in a cost effective way. Ireland already has the second lowest rates of renewable energy supports across Europe. It is also vitally important to guard against market and investor uncertainty by sending the message that supports for renewable energy will continue.

It is the case that the development of renewable energy in Ireland is lowering electricity prices to consumers in the long run and that the existing feed-in tariff reflected in the PSO levy is essential to support this development.