I have no statutory function in the setting of electricity prices, whether in the regulated or non-regulated parts of these markets. Responsibility for the regulation of the retail electricity market is a matter for the Commission for Energy Regulation (CER), which is an independent statutory body. Since 4 April 2011 prices in the electricity retail market have been fully deregulated and accordingly the CER no longer sanctions or approves electricity prices in the market. Business and domestic customers can as a result of deregulation avail of competitive offerings from a number of electricity supply companies.
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 CER 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. The CER publishes its decision on the total amount of the PSO as a result of these calculations annually for the purposes of determining the amount of the PSO to be charged for the forthcoming year starting 1st October. In August 2012 the CER published its decision paper on the PSO levy for 2012/2013, which came into effect on 1st October 2012. A total PSO levy of €131.2m has been calculated for 2012/13, of which €47.4 million of the cost is attributable to renewables (i.e. just over one third of the PSO). The PSO levy amount per customer is estimated by the CER for the coming year to be €27.82 per domestic customer (€2.32 per month), of which approximately €9 per annum would be attributable to renewable energy on this basis. This is among the lowest costs to consumers for the support of renewables in any EU Member State.
It is the case that the development of renewable energy in Ireland is lowering our exposure to the volatile fossil fuel imports market in the long run and that the existing feed-in tariff reflected in the PSO levy is essential to support this development.
Under Directive 2009/28/EC Ireland is required to achieve a legally binding renewable energy target by 2020 and as part of the Directive, each Member State was required to produce a National Renewable Energy Action Plan for submission to the European Commission setting out how the target would be achieved.
Ireland’s target is 16% overall, with a minimum of 10% in the transport sector. The target has to be met across heat, electricity and transport, which each represent approximately one third of our energy consumption.
At end 2011, 6.5% of Ireland’s energy consumption was from renewable resources and a further 9.5% is required in the next 8 years if Ireland is to meet its target. This will require a significant expansion in renewables. In terms of the electricity sector, Ireland’s intention is to meet a large proportion of the national target (40%) through onshore wind, which is cost effective to the electricity consumer. A decision was taken earlier in 2012 to pursue onshore wind over offshore wind in meeting Ireland’s national target in the first instance on cost grounds and in this regard a new feed in tariff scheme was introduced for onshore wind, while it was decided not to introduce a tariff for offshore wind.
A number of studies have to date been undertaken to examine the effect of renewables on electricity prices by various bodies including the ESRI, the Irish Wind Energy Association (IWEA) and jointly by the Sustainable Energy Authority of Ireland SEAI) and EirGrid. The ESRI and IWEA studies both looked at 2020, while the SEAI and EirGrid study looked at 2011. The SEAI and EirGrid study found that because wind reduces the cost of wholesale electricity when wind is available on the system, the effect of the PSO was cancelled out and the cost was effectively zero. While this is true for 2011, it is acknowledged that a significant amount of grid build and grid upgrading is required to achieve the 2020 target and the same might not hold true for 2020. The ESRI study found that wind is a hedge against high fossil fuel prices. In that regard wind also provides security of supply benefits along with climate and sustainability benefits.
My Department, together with the SEAI, CER and EirGrid, are conducting a joint study to look at the anticipated effect of renewables in 2020, taking into account the requirement to upgrade the grid.
