Catherine Murphy (Kildare North, Independent)
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Question 81: To ask the Minister for Communications, Energy and Natural Resources the way he justifies his decision to change from the alternative energy requirement scheme, in which the contracted projects contributed to the public service obligation levy fund when the wholesale price of electricity exceeded the contracted price, to the system under the wind REFIT scheme in which the electricity supply companies receive the benefit; and if he will make a statement on the matter. [25176/11]

Catherine Murphy (Kildare North, Independent)
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Question 82: To ask the Minister for Communications, Energy and Natural Resources the reason the wind REFIT scheme requires generators to enter into a contract with an electricity supply company; the reason these supply companies receive a 15% balancing payment; and if he will make a statement on the matter. [25178/11]

Catherine Murphy (Kildare North, Independent)
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Question 83: To ask the Minister for Communications, Energy and Natural Resources the way he can justify allowing electricity supply companies, under the wind REFIT scheme, to receive all the upside when the wholesale price of electricity increases, while at the same time imposing a public service obligation levy on the electricity consumer here; and if he will make a statement on the matter. [25179/11]

Pat Rabbitte (Dublin South West, Labour)
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I propose to take Questions Nos. 81 to 83, inclusive, together.

The first support scheme introduced in Ireland to support electricity from renewable sources was called the 'Alternative Energy Programme' or AER, which was launched in 1996. It was a programme based on competitive tendering and was funded through the PSO levy. Over the course of the programme, there were 6 tender competitions held. The Programme was designed to support a variety of technologies including onshore and offshore wind and biomass. As the schemes were put in place before the electricity market was liberalised, the contracting party for all of the generators in the AER scheme was the Public Electricity Supplier (PES) ESB. Under the terms of the scheme, ESB was required to enter into Power Purchase Agreements with bidders who were successful in AER. ESB was not allowed to profit from its role in the Programme.

The AER scheme had modest success in encouraging new renewable generation during the course of a decade, with over 500MW of new renewable generation building out under the scheme. One of the acknowledged issues with the scheme was that bidders often bid prices too competitively, such that while they were successful in the competition, they did then not ultimately end up developing the project, as the prices they had bid were too low to obtain finance or have a reasonable rate of return, particularly if there were any delays in building their projects. The tender process was unsatisfactory as it delivered a low level of actual build out from the listed projects.

Under the 2001/77/EC Directive, Ireland was assigned a renewable electricity target of 13.2% by 2010 and the rate of build out of AER was such that the target would not be reached. Following extensive public consultation and consideration, it was decided that in order to reach the 2010 targets, a new scheme was necessary to deliver the build rate required to meet the renewable electricity directive target level. Experience across Europe clearly showed that feed-in tariffs were proving the most successful of the options available to Member States in terms of encouraging new build. It was for that reason that the REFIT scheme was introduced.

The REFIT scheme achieved its goal, in that at the end of 2010, Ireland had succeeded in surpassing its 2010 target by a small margin. REFIT was announced in 2006 and obtained state aid clearance in 2007. Given our extremely challenging legally binding renewable energy targets for 2020, a scheme that can sufficiently incentivise new renewable generation is crucial going forward.

By the time the REFIT scheme was announced, there had been significant liberalisation of the electricity sector. ESB as the dominant domestic electricity company had to reduce its share of the market and REFIT was therefore designed around developers entering into a Power Purchase Agreement with any supply company in the market.

Under the terms of REFIT, the supplier and generator enter into a Power Purchase Agreement, the terms of which are a matter of commercial negotiation between both parties. REFIT is paid to the supplier on the basis of the terms and conditions of the scheme and relevant legislation and the supplier then pays the generator on the basis of the commercially negotiated Power Purchase Agreement (PPA.)

It is not true to claim that in REFIT the supplier retains all the benefit, including any market payment above the REFIT payment. That would be a matter for negotiation in the PPA and the generator is free to negotiate with all suppliers in the market to obtain the best PPA deal possible. Similarly while a 15% payment was introduced to compensate suppliers in the REFIT scheme, it is a matter for negotiation in the PPA what element of this, if any, is payable to the generator, who is free to negotiate with all suppliers on the market to obtain the best deal.

In the State Aid clearance for REFIT in 2007, DG Competition inserted a clause whereby a generator, despite having a 15 year off-take contract, could leave the contract and go to the open market either by agreement with the supply company or by serving twelve months notice. This clause enables generators to go directly into the market themselves if there is any prolonged 'upside' available in the market. The reason generators do not avail of this clause en masse, is that the electricity wholesale price has proved to be extremely volatile over the last few years, in particular falling significantly around the time of the economic slowdown.

A balancing payment for suppliers was introduced in the design of the REFIT scheme in order to ensure that suppliers are compensated for acting as an intermediary in the REFIT scheme on behalf of generators and for dealing with the intermittent nature of much of the generation and fluctuations in the market payment that may not be offset by REFIT payments in the year in which they are incurred.

New renewable electricity generation is supported in every Member State and is necessary to underpin delivery of the European Union's ambitious renewable energy and climate change targets. It also displaces imported fossil fuels in our electricity generation and improves our overall security of supply. In Feb 2011, EirGrid and the Sustainable Energy Authority of Ireland published a study entitled "Impact of Wind Generation on Wholesale Electricity Costs in 2011". Key messages from that study show that: The wind generation expected in 2011 will reduce Ireland's wholesale market cost of electricity by around €74 million. This reduction in the wholesale market cost of electricity is approximately equivalent to the sum of Public Service Obligation (PSO) costs, estimated as €50 million, and the increased constraint costs incurred, due to wind in 2011.