Latest rise in the levy to support renewables is considered a ‘rate shock’ by some in industry
The Irish Government is facing growing pressure to end a costly system of supports for the renewable energy industry that has drawn criticism from some major employers in the Republic, including Kerry Group and multinationals Microsoft and Intel.
From next October, all homes and businesses in the State will be faced with an increase in their electricity bills when the Commission for Energy Regulation (CER) raises its public service charge by €76 million to €400 million to cover the growing cost of supports for the wind industry.
The extra charge, called the Public Service Obligation (PSO), is levied on all electricity users in the Republic. The cash raised supports wind power, other renewable energy and peat-fired electricity generators. As a result, the €400 million raised will be passed on to companies operating these plants, including State-owned ESB and rivals SSE Airtricity and Viridian.
Government policy supports the development of renewable energy through a number of schemes, which guarantee prices to wind farms and other companies that generate electricity from “green” sources. This is because, under EU directive, the State has to ensure that 16 per cent of all energy needs are met from renewables by 2020. To achieve that, 40 per cent of electricity has to come from these sources. Failure to meet the targets could result in heavy fines.
The charge is underpinned by legislation and the CER renews it every October following a consultation with the industry and those that are going to have to pay it.
Barring 2015, when the PSO dipped, the commission has increased it every year since 2011. Figures show that the levy due to be imposed from next October is more than four times the €92 million collected under the scheme in 2011.
Two things drove this year’s increase. First, the charge is designed to bridge the gap between the actual wholesale cost of electricity and the prices guaranteed to the generators. Thus, as the fall in oil and natural gas prices drove down the wholesale price, the PSO rose.
The second factor is the growth of the renewable sector. Companies generating electricity from “green” sources, the bulk of which are wind farm operators, are always the biggest beneficiaries, thanks to the schemes that underwrite the prices that they are paid for the energy that they produce.
Overall, they will share €277 million of the €400 million total collected from consumers and business over the 12 months from October. This compares with €181 million under the current levy. Of this, the wind industry will receive €269.7 million. According to the commission, this is down to the rate at which the industry grew over the last year.
“An estimated 2,814 mega watts (MW) of renewable generation, mostly wind, will be supported by the PSO next year. This is 694MW, or 33 per cent, more than the 2,120 MW supported in the current PSO period, hence driving up the levy,” the regulator states in a document detailing the increase.
The net result of this will be that everyone will have to pay more for their electricity from next October. The charge imposed on each home will rise to €6.02 a month from €5.01. The cost over 12 months will be €72.28, 20 per cent more than its current level of €60.09.
The CER’s figures show that businesses will pay more than €253 million of the €400 million total. Small firms will have €21.18 a month added to their bills from October – 18.5 per cent more than what they pay at the moment. They will each pay a total of €254.16 towards the public service obligation over the 12-month period. Their overall share of the €400 million will come to €42.6 million. […]
In a submission to the CER before it arrived at its final decision, tech giant Microsoft, which employs 1,200 people in the Republic, said this penalises large energy users who are holding energy capacity in reserve to meet anticipated growth.
The multinational also points out that the rate at which the PSO has increased over the last five years represents a “rate shock” for large energy users and “puts the Ireland energy market at a disadvantage”. In a similar vein, Irish food and ingredients giant, Kerry, which employs 4,000 people here, warns that the charge will damage its competitiveness.
“Much of our business needs to compete in non-Irish, and in many cases, global markets. These are not costs which will be levied on our non-Irish competitors,” says senior manager Garvan Sweeney. “Many of our international competitors will benefit from a decrease in wholesale electricity costs without a corresponding rise in PSO.”