Tuesday, 16 June 2015

PSO Levy: wind energy prevents consumers from seeing a large reduction in energy bills this winter

Increases in wind capacity and lower wholesale prices have shoved PSO Levy back up close to last year's levels.

On Friday, the proposed 2015/16 PSO Levy paper was published. In January, this blog predicted that the PSO would have to rise this year, due to lower gas prices and this has come to fruition :

Lower wholesale prices. The benchmark price, which is the estimated wholesale System Marginal Price (SMP) in SEM for the 2015/16 levy period, is €53.52/MWh, down approximately 6% on the €57.17/MWh used to determine the levy for the current PSO period. A lower wholesale price for next year results in the PSO plant 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. The lower estimated wholesale price for next year is reflective of a trend in the SEM since the first half of 2014 of lower spot prices, related to lower gas prices;

We have also added more wind which needs to be funded through the PSO. The cost of supporting renewables, mostly wind, has risen from €94 million to €174 million :

More renewables. An estimated 2,080 MW of renewable generation, mostly wind,will be supported by the PSO next year. This is 206 MW, or 11%, more than the 1,874 MW supported in the current PSO period, hence driving-up the levy

Last year, wind received supports of € 313,260 per MW from the PSO¹. This year it has gone up to
€ 386,400 per MW due to the lower gas prices², a 23% increase.  Absolute madness - when the price of fuels go down, consumers have to pay more. 

However, due to reductions elsewhere we are not seeing the full impact of these increases this year. This should begin to bite next year. For this year, the PSO Levy has actually gone down by 9% due to the "security of supply" gas plants having their support cut by € 68.5 million and other reductions (including Cfds, R-Factors, admin and inflation) of € 41 million.

The chart below shows where the PSO Levy has gone in the past few years :

We can see that for the first time renewables, mostly wind, has overtaken peat and is now the largest recipient of the PSO Levy - 57% of the levy is going to renewables for the year 2015/16.

So if wind is receiving € 386,000 per MW this year from the PSO, what will future PSO increases look like ? The IWEA announced yesterday that circa 250MW of wind would have to be added each year by 2020. So that means that the PSO Levy will have to be increased by € 96.5 million per year for the next four years. That's a total increase of € 386 million - well over double the proposed PSO Levy for this year of € 304 million.  Thats a lot of money to spend on infrastructure that cannot replace a single traditional power plant in the country and requires large scale grid upgrades. Contrast this with subsidizing biomass which can replace the existing coal power station at Moneypoint and does not require additional grid infrastructure.

We are often told that we are small island, last on the gas pipelines, and therefore cannot expect low electricity prices. But back in the 90s, we had lower energy prices that the UK. The fact is that it is the Irish government who keep electricity prices high, not the Norwegians or the English.

Responses to the PSO Proposal Paper can be sent to jlynch@cer.ie by 3rd July 2015.

¹ 138MW of new wind generation required € 43.23 million (94.3 less 51.07) from PSO last year. So    € 43.23m / 138MW = €313,260 per MW

² 206MW of new wind generation required € 79.6 million (173.9 less 94.3) from PSO this year. So    € 79.6m / 206MW = €386,400 per MW

1 comment:

  1. The PSO charges and REFIT rebates are a simple wealth redistribution mechanism to which the public remains oblivious. The blog above illustrates this to perfection.