The Commission for Regulation of Utilities has amended its proposal to decrease the Public Service Obligation Levy by 45% to a confirmed greater decrease of 56% from 1 October 2018. The Public Service Obligation levy is charged to all electricity customers and subsidises renewable energy generation, and peat and biomass power plants.
What is the PSO levy and why is it decreasing?
The PSO Levy is a government subsidy which supports renewable energy generation in Ireland and helps secure the nation’s energy supply.
Since last year, it has been charged at a rate of €92.28 (Ex. VAT) but according to the CRU’s initial calculations back in June; a PSO levy of €258.6 million was estimated to be required for the 2018/19 PSO period, which represents a decrease of €213.3 million (45%) on the 2017/18 levy of €471.9 million.
However, at the beginning of August the CRU updated the benchmark price forecast and completed its review of PSO cost submissions and the great news is, the results of its calculations allow for an even greater decrease of not 45% but 56%!
The CRU’s calculations found that a PSO levy of €209.19 million will be required for the 2018/19 PSO period, which represents a decrease of €262.71 million (56%) on the 2017/18 levy of €471.9 million.
This means that customers will see their annual levy charge decrease from €92.28 to €41.76 (Ex. VAT) from October 1st 2018.
So, why the decrease? You see, some renewable electricity generators are part of a scheme called REFIT and are guaranteed a certain minimum price for each unit of electricity they generate. But when wholesale prices are too low to meet this guaranteed price (as they were last year), the PSO Levy fund is needed to make up the difference. This is why we saw a 30% increase to the PSO Levy last year.
However, this year, as many electricity customers will already be aware, wholesale gas prices have risen considerably. Since the last PSO Levy review seven out of Ireland’s 10 energy suppliers hiked their prices in response to wholesale price increases late last year and eight out of 10 suppliers hiked their prices for a second time this summer.
So, though wholesale prices are higher, the upshot is that PSO Levy funding requirements go down.
Supporting renewable energy in Ireland
The PSO Levy has increased most years since it was first charged in 2010, and the overall increases correlate closely with the increase in renewable energy generation in Ireland.
In 2010, Ireland produced just 12% of its electricity from renewable sources. Today, Ireland produces more than 40% of its electricity from renewables with the bulk of that coming from wind generation.
This has also had a knock-on effect on Ireland’s need to import fossil fuels, particularly gas. Natural gas was used to produce 64% of Irish electricity back in 2010. By 2015, gas accounted for just 36% of the total generation which is an extraordinary shift in such a short space of time, and would not have been possible without the PSO Levy.
This year's decreases mean that the PSO Levy charge is at its lowest in five years, since the 2013/14 period.
The pros and cons of a PSO levy decrease
While price hikes are never greeted as good news by the public, at least we can look forward to a lower PSO Levy charge this coming year - something which affects all electricity customers, regardless of supplier.
When wholesale prices are high, less money is required to subsidise renewable generation because suppliers receive more money for the electricity that they produce meaning that the PSO levy decreases.
However, when wholesale prices are low, more money is needed to subsidise renewable generators and schemes that are supported by the PSO Levy, meaning that it increases.
The bad side of a lower PSO Levy means that electricity prices are likely to be higher or increase.
There’s nothing electricity customers can do about changes to the PSO Levy, but any increases to your supplier’s electricity prices can be easily offset by switching to a cheaper price plan today, or why not check out these tips on how to use less electricity and save money?