Sunday, 25 January 2015

PSO Levy set to soar this year

As pressure mounts on Energy suppliers to cut bills (some cuts have this week been announced), consumers will be expecting to see some extra change in their pocket in the coming months as some of the reductions in gas and oil wholesale prices are passed on. But there will be a sting in the tail come July.  Each July, the Energy Regulator (CER) calculates the PSO Levy required for the coming year, which begins in October. The PSO Levy recovers some of the costs for wind, peat and idle gas plants. Last year saw a rise in the PSO Levy of over € 100 million, mainly due to lower gas prices.

The PSO levy of €335.4 million for 2014/15 compares with €210.9 million allowed for the current 2013/14 PSO period. The biggest drivers for the year-on-year increase are as follows : 

Lower wholesale electricity prices. The estimated average wholesale electricity price in the all-island Single Electricity Market (SEM) for the 2014/15 period is €57.17/MWh. This is down circa 11% on the €64.28/MWh used to determine the levy for the current PSO period. A lower wholesale price for next year results in the PSO plants needing more PSO money to cover their allowed costs, to offset the lower money they are predicted to receive from the market. This applies across-the-board for renewables, peat and security of supply plants supported by the PSO. It is the biggest single driver of the rise in the levy. The lower estimated wholesale price for next year is reflective of a trend in recent months in the SEM of lower spot and forward contracting prices, related to lower gas prices; [extract from CER PSO Decision Paper  2014/2015]

And the trend since July was one of even lower gas and oil prices, that nobody, let alone the CER, could have foreseen. While we dont use much oil in electricity generation, oil is used in the extraction and transportation of gas so it does have a knock on effect on gas prices. So the CER will have no choice but to increase the € 335 million PSO levy even further next winter completely reversing and most likely exceeding the measly price cuts introduced by energy suppliers. The suppliers of course, it goes without saying, will pass the PSO Levy hike on to consumers, while at the same time, their power generating arms will pocket most of the portion of the PSO Levy relating to wind (most wind farms in the State are owned by the big Energy suppliers such as Energia, ESB, Bord Gais, Airtricity etc. Bord na Mona own the peat plants).

The current energy policy really resembles something from the Communist Soviet Union with the final electricity product incapable of reflecting market realities, rather shareholder interests.

Oil - To invest or not to invest ?

Meanwhile, Eddie O'Connor, CEO of Mainstream Renewables, recently stated in a blog

The fall in oil prices over the past few months has brought a huge measure of reality to energy investors. If production costs are higher than USD70 per barrel then their investment is wasted. Assets which can’t be sold for cost reasons are stranded and the companies which made the investments are in deep trouble. The investors who backed the companies could potentially lose everything.

 But back in 2009 he was warning about the impact of "peak oil" :

How much worse will the panic be when the truth is eventually accepted and we stare down the barrel of a gun at prices of US$200 – US$300 per barrel of oil and all other energies follow in price.

It looks like Prophet Eddie's predictions are about as reliable as his wind turbines.......

1 comment:

  1. Look at it this way: Ireland needs about 6,500 mw of firm generating plant with fixed costs and variable costs. It has about 9,800 mw including 2,000 of wind and the rest gas back up plant for wind with the same cost structure. We have about 50% capacity more then we need. The Public Service Obligation levy PSO is in the order of 5% on consumer bills. So who pays the remaining 45% for the surplus generating plant? The answer of course is its a hidden cost. I deal with this in video 3 " val martin ireland you tube"