From October 1st every electricity customer in Ireland will pay more because the Public Service Obligation Levy is going up. The PSO Levy, which is a subsidy to aid Irish sourced electricity generation, will go from from €27.84 to €42.87 per year, an increase of 54%.
Currently, most electricity customers see the PSO Levy on their bills as a charge of €4.64 every two months. This charge will increase to €7.15 from October 1st. When VAT is added, customers will actually pay €8.11 on each bill, or €48.66 per year.
The purpose of the Public Service Obligation Levy is to support certain types of electricity production which are usually more expensive that burning fuels like gas, oil and coal. The production types that receive money from the PSO Levy pot are peat burning generators, and renewables like wind and small-scale hydropower. The levy also helps to fund alternatives like biomass-anaerobic digestion – which is a way of making methane gas from stuff like sewage sludge and organic matter.
Ireland is heavily dependent upon imported fuel for electricity generation, and although imported fuels can be cheaper than those available at home, we have often been victims of extreme price volatility. One of the long term goals of the PSO levy is energy security and stability. In a nutshell, if the gas stops coming in from the UK pipelines, the hope is that we should be able produce enough electricity at home to keep the lights on.
The PSO Levy amount that suppliers must charge their electricity customers is determined by the Commission for Energy Regulation. The CER has determined that a pot of €210.9m is needed for the 2013 to 2014 period. This is an increase of €79.7m on the current levy.
As it becomes more expensive to generate electricity by burning imported fuels, electricity generated at home should become more competitive and less dependent on top-up funds from the PSO Levy. This was demonstrated in October 2011 when household gas prices went up by 22% and electricity prices followed suit with increases of up to 15%. The result was that the CER cut the PSO Levy by 41% from €37.20 per year to €21.94.
Here’s the thing though. If the PSO Levy is supposed to fall when energy prices go up, then it seems odd that it went up last year, and doubly so that it is it going up again this year.