The Commission for Regulation of Utilities today published a proposed decision paper regarding the calculations for the Public Service Obligation (PSO) levy for the period 1 October 2020 to 30 September 2021.
The PSO levy is a subsidy charged to all electricity customers in Ireland and was originally designed by the Irish Government to support its national policy objectives related to renewable energy, indigenous fuels (e.g. peat) and security of supply. The proceeds are used to pay for the relevant costs incurred by supported electricity generators which are not covered by the market.
The PSO levy for 2020/21 is now entirely dedicated to renewable electricity supports and a key factor in enabling Ireland to meet its national targets in terms of the generation of electricity from renewables.
Following a review of the PSO cost submissions, the CRU’s initial calculation is that a PSO levy of €480.11 million will be required for the 2020/21 PSO year, which represents an increase of €303.65 million on the 2019/20 PSO levy of €176.46 million.
The CRU’s role is to calculate the PSO levy in accordance with Government policy and the governing legislation and to ensure that the scheme is administered appropriately and efficiently.
The PSO Levy had previously seen a year on year decrease due to higher wholesale electricity prices which reduced the levy to €209m in 2018/19 and €178m in 2019/20. The key drivers for this year’s increase was the expected lower wholesale market prices for the 2020/21 period and a reconciliation for the preceding PSO year (2018/19) forecasted “additional costs”.
PSO levy payments are calculated on the basis of the estimated generation required and the estimated wholesale electricity market prices for the year ahead. These payments are then adjusted, through the R-factor mechanism, to take account of the actual generation and wholesale electricity prices.
There was a significant increase in these adjustments in calculating the 2020/21 PSO levy compared to the previous two PSO Levy years, creating a swing or increase of €266.92 million from 2017/18.
In addition, the estimated wholesale electricity price is another key factor in determining the PSO levy, due to the inverse relationship between the PSO levy and the wholesale electricity price. This means if the wholesale electricity price is low, additional money is required to subsidise PSO supported generators. There is a lower estimated benchmark price of €46.86/MWh for the 2020/21 PSO year, compared to an estimated benchmark price of €57.37MWh for the current PSO year.
The proposed decision has been published today and can be found here Following this proposed decision, a final decision and PSO Levy of 2020/21 will be published before August 1, 2020.
Commenting on the proposed decision, Aoife MacEvilly, CRU Chairperson said: “The PSO Levy this year will be, for the first time since its inception, be purely dedicated to providing support to renewable generation as we approach our 40% renewable generation target. The cost of the Levy has been trending upwards, as the level of renewable electricity supported by the scheme has increased. However, there is a clear variability to the cost of the levy for each year, due to the volatility in wholesale electricity prices. While the CRU is fully aware of the impact of any changes to the charges on a customer’s bill, the proposed increase to a bill can be beaten by customers who renegotiate with their supplier or switch to a new provider where they could save over €300.”