The REFIT scheme, which guarantees a minimum price for certain classes of renewable electricity generation, is designed to underpin the business case for investors in the renewable generation sector. A key component of the scheme is the requirement for Power Purchase Agreements (PPAs) between renewable energy generators and suppliers. The PPAs create certainty for generators and incentivise suppliers to purchase renewable electricity.
Payments, including the 15% balancing payment, are made to the suppliers who enter commercially negotiated Power Purchase Agreements with generators of renewable electricity. Under a PPA, the supplier undertakes to purchase all the output from a renewable energy generator at contract prices which are fixed between the generator and the supplier at the commencement of each individual contract for 15 years, irrespective of the open market pool price.
The supplier also assumes the market interaction role between the individual generator and the pool market and incurs additional costs in respect of this which are also reflected in the balancing payment.
In designing the REFIT scheme, my Department concluded that in order to ensure suppliers' critical participation in developing renewable generation capacity in the liberalised electricity market, a proportionate balancing payment mechanism was necessary. There has been a steady increase in total capacity of renewable projects on the system since the introduction of the REFIT scheme.
The CER decision paper for the 2010/2011 PSO decision shows that for the PSO periods of 1st January 2007 to 30th December 2007 and 1st January 2008 to 30th September 2008,, the PSO levy was set to zero to be recovered in subsequent years because the amount to be collected each year was relatively small. It was considered that the administrative burden of collecting these levies would have been excessive. For the 1st October 2008 to 30th September 2009 PSO levy period, a negative PSO levy of €13.9m was determined based on a high forecasted benchmark price of €112.25/MWh. The PSO levy was set to zero because PSO legislation does not provide for a negative PSO levy amount. For the 1st October 2009 to 30th September 2010 PSO levy period, a small positive PSO levy was determined, which facilitated the PSO levy being set to zero.