Power prices are about to be hiked for everyone to pay for more renewable energy

ELECTRICITY PRICES COULD jump by almost €20 a year for residential customers and €65 for small businesses as a tax used largely to fund renewable energy development looks set to rise.

In a consultation document published today, the Commission for Energy Regulation (CER) proposed a more than 35% increase in the Public Service Obligation (PSO) levy during the 2016/2017 period.

The PSO is a subsidy charged to all electricity customers that is mainly used to fund the development of renewable energy and peat. The rate is set at the start of October and runs until the end of September the following year.

The tax is expected to take in just over €325 million during the 2015/2016 year. The bulk of this, €181 million, will be spent developing renewable energy while €122 million will be spent on peat.

It is proposed that the levy be raised to take in €441 million during the 2016/2017 year, which runs from 1 October until the end of September 2017.

The CER has calculated that if the new rate comes into effect, the PSO will cost domestic customers an average of nearly €80 per year – up from around €60 in 2015/16.

Small business customers would be expected to pay an average of almost €280 annually, up from around €215 the year before. It is anticipated that large, commercial users would pay around 35% extra for their consumption.

The average price for household electricity in Ireland was the third-highest in the EU in the second half of last year, according to the latest figures from Eurostat, although the share that came from taxes and levies was relatively low compared to many other countries.

Power tax

Despite the proposed increase, the PSO levy will still make up a relatively small percentage of most people’s bills. The average household is currently spending about €1,900 a year on electricity, depending on the provider.

The CER said that the levy is set at a proposed rate and is likely to change between now and the decision date of 1 August due to several factors, such as changes in the wholesale price of electricity.

The energy watchdog gave a few reasons for the proposed increase. The first was a fall in wholesale electricity prices, which are down by about 28% compared to last year.

Because wholesale prices are down, the electricity being produced by companies supported through the PSO is less valuable, which means that they need more support from the levy to make up the difference.

The second reason is an increased drive towards renewable energy. Just under one-third of Ireland’s electricity is produced by renewables, mostly through wind turbines, however this figure needs to rise to reach 40% by 2020 in order to meet targets set out by the European Commission.

Most of Ireland's renewable energy is provided by wind turbines

It is proposed that renewable support through the PSO would rise from €181 million to €334 million. A CER spokesman told Fora that the 2020 targets are a factor behind the proposed hike.

There were also some factors pulling the price of the levy down, such as the fact that several traditional power plants, such as the Tynagh gas plant in Galway, were being supported through the PSO to the tune of €47 million for “security of energy supply”.

Although these plants will no longer receive support through the levy, the increased spend on renewables more than offsets the savings.

Last year the CER proposed a PSO rate of just under €305 million, which was then revised upwards slightly to €325 million. The commission has the final say on what rate will be set.