decision paper - cru ireland · 2020. 7. 31. · the new pso levy rate from 1 of october 2020 to 30...

An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities

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Decision Paper

Reference: CRU/20/086 Date Published: 31/07/2020 Closing Date: N/A

An Coimisiún um Rialáil Fóntas

Commission for Regulation of Utilities

Decision Paper Public Service Obligation Levy 2020/21

www.cer.ie


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Executive Summary

The Public Service Obligation (PSO) levy is charged to all electricity final customers in Ireland.

It is designed by the Irish Government and consists of various subsidy schemes to support its

national policy objectives. This year the PSO levy is entirely related to renewable electricity

supports and is key in enabling Ireland to meet its national targets in terms of the generation

of electricity from renewables and aligns with the CRU’s vision of achieving a secure, low

carbon future.

Government policy determines the level of subsidy provided to generators supported under

the PSO, with the CRU’s primary role being the calculation of the PSO levy. Specifically, in

accordance with Government policy, the CRU’s role is to calculate the PSO levy annually

based on support rates that are set by Government, and to help ensure that the scheme is

administered appropriately and efficiently. The CRU has therefore prepared this Decision

Paper (CRU/20/086), which sets out the PSO levy to apply to electricity customers from 1

October 2020 to 30 September 2021.

The CRU has calculated that a PSO levy of €393.13 million will be required for the 2020/21

PSO year. This represents an increase of €216.66 million (123%) on the 2019/20 levy of

€176.46 million. This increase is less than that published in the Proposed Decision of 8 June

2020 (CRU/20/061), in which the indicative PSO levy for 2020/21 was €480.11 million, as

illustrated in the graph below.


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The decrease in the PSO levy since the Proposed Decision is due to an increase of 15% in

the forecast benchmark electricity price for the 2020/21 PSO year from €46.86/MWh to

€53.66/MWh. This increase in the forecast benchmark price between the indicative PSO levy

and the final PSO levy was driven by an increase in the forward prices of the key commodities

that determine the price of electricity i.e. gas, carbon and coal. The CRU notes that such a

change in the 2020/21 Benchmark Price over a relatively short period highlights the inherent

challenge that exists in accurately forecasting electricity prices. As outlined in Section 4.5, in

Q4 2020 the CRU will be consulting on ways of reducing volatility in the PSO levy, including

options to improve the methodology by which these forecasts are made.

The key drivers in this increase in the 2020/21 PSO levy (relative to the 2019/20 PSO year)

are:

− The R-factor: The PSO levy calculation for each year is an estimate of the expected

cost of the government subsidy to generators. This estimate is then

adjusted/reconciled once the actual costs are known. These adjustments are called R-

factors. There is a significant increase in the R-factor that was applied in calculating

the forthcoming levy (2020/21 PSO levy) compared to the R-factor applied in

calculating the current levy (2019/20 PSO levy). The R-factor (from the year 2017/18)

applied in calculating the current 2019/20 PSO levy was -€185.93 million. This lowered

the 2019/20 PSO levy amount by €185.93 million. The R-factor (from the year

2018/19) applied to calculate the PSO levy for the forthcoming year (2020/21 PSO

levy) is €80.54 million. This is swing of €266.47 million.

− The Benchmark Price: The PSO levy calculation estimates the expected market price

for electricity for the forthcoming year (the Benchmark Price). The lower the expected

market price, the larger the subsidy that will be needed. There is a lower estimated

benchmark price of €53.66/MWh for the forthcoming (2020/21) PSO year, compared

to an estimated benchmark price of €57.37 for the current (2019/20) PSO year.

The graph below gives a history of the PSO levy over recent years, by outlining the total levy

and its constituent parts. As illustrated below, the 2020/21 PSO levy is a significant increase

relative to recent PSO years. With reference to the 2018/19 and 2019/20 PSO years, the CRU

notes that the PSO levy for these years was particularly low due to negative R-factors been

applied in the calculation of the PSO levy in both years. It is worth noting also that the PSO

levy for 2020/21 is entirely related to renewable electricity, whereas in previous years it would

have included other elements such as peat and security of supply.


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As noted in this decision paper, PSO levy payments are calculated on the basis of estimated

generation and estimated wholesale electricity market prices for the year ahead. These

payments are then adjusted for actual generation and prices through the R-factor. The CRU

will consider ways of reducing volatility in the PSO levy, including options to improve the

methodology by which these estimates are made. The CRU may also consider additional

methods to reduce volatility in the PSO levy (e.g. mid-year reviews). Some of these options

would require legislative amendments. The CRU notes the PSO levy is ultimately dependent

on wholesale electricity market prices and generation from renewables, which can fluctuate

from year to year. Therefore, it is not possible to fully remove the risk of volatility occurring in

the PSO levy and as such, similar fluctuations in the PSO levy will continue to be possible in

future PSO years.

From a customer impact perspective, the forthcoming 2020/21 PSO levy will result in a

monthly charge of €6.52 and €21.41 for domestic and small commercial customers

respectively. In comparison to the current 2019/20 PSO levy, this equates to a monthly

increase of €3.68 and €11.06 for domestic and small commercial customers respectively.

Customers in the medium/large commercial category will be subject to a monthly charge of

€2.78/kVA, which constitutes an increase of €1.56/kVA relative to current 2019/20 PSO year.

The table below summarises the impact of the 2020/21 PSO levy for each customer category.


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PSO Customer Category

Monthly Levy Amount (2019/20)


Year on Year Increase

Increase (%)

Domestic €2.84 / customer €6.52 / customer €3.68 / customer 130%

Small commercial (MIC < 30 kVA)

€10.35 /customer €21.41 / customer €11.06 / customer 107%

Medium/Large commercial

(MIC ≥ 30 kVA) €1.22 / kVa €2.78 / kVa €1.56 / kVa 128%

The allocation of the total 2020/21 PSO levy between customers is based on ESB Networks’

2020/21 PSO Cost Allocation Model. Within ESB Networks’ model, the total PSO levy is

allocated between each customer category based on the total peak electricity demand of that

category. For the 2020/21 PSO year, domestic customers are encountering a greater increase

in their PSO levy as their peak demand is expected to increase relative to the other two PSO

customer categories (i.e. Small commercial, and Medium/Large commercial).


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Public/Customer Impact Statement

The Public Service Obligation (PSO) levy is charged to all electricity final customers in Ireland.

It is designed by the Irish Government and consists of various subsidy schemes to support its

national policy objectives. This year the PSO levy is entirely related to renewable electricity

supports and is key in enabling Ireland to meet its national targets in terms of the generation

of electricity from renewables and aligns with the CRU’s vision of achieving a secure, low

carbon future.

For the PSO year starting 1 October 2020, the CRU has calculated that the PSO levy will

increase by 123% in total. The new PSO levy rate from 1 of October 2020 to 30 September

2021 is €6.52 per month for domestic customers. This means that each household will pay

€3.68 per month more on the PSO charge on their electricity bill than in the current 2019/20

PSO year. The PSO levy rates from 1 October 2020 to 30 September 2021 for small

commercial customers (where MIC <30kVa) is €21.41 per month. This means that each small

commercial customer will pay €11.06 per month more on the PSO charge on their electricity

bill than in the current 2019/20 PSO year. Additionally, the PSO levy rates from 1 October

2020 to 30 September 2021 for medium/large customers (where MIC=>30 kVa) is €2.78 per

kVa per month. The is an increase by €1.56/kVA relative to 2019/20 PSO year. The graph

below provides a breakdown of monthly PSO levy paid by each customer category since the

2011/12 PSO year.

From a customer impact perspective, the CRU notes that the annual PSO levy calculation

consists of an estimate of the cost of PSO payments to eligible suppliers for the year ahead

(to cover the additional costs they incur in purchasing PSO supported electricity generation)

and an adjustment to payments made two years previous once actual costs for that year are

known. These adjustments are called R-factors. The key upward driver of the 2020/21 PSO


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levy is the significant increase in the 2018/19 R-factor applied in calculating the 2020/21 PSO

levy relative to the 2017/18 R-factor applied in calculating the 2019/20 PSO levy.

The estimated wholesale electricity price (the benchmark price) is another key factor in

determining the PSO levy. There is an inverse relationship between the PSO levy and the

wholesale electricity price. This means if the wholesale electricity price is low, additional

money is required to be raised through the PSO levy to subsidise PSO supported generators.

This is because these generators receive less money from the wholesale market for the

electricity they produce. For the forthcoming 2020/21 PSO year, wholesale electricity prices

are estimated to be lower, which ultimately increases the 2020/21 PSO levy. The estimated

benchmark price for the forthcoming (2020/21) PSO year is €53.66/MWh, compared to an

estimated benchmark price of €57.37 for the current (2019/20) PSO year.

Given the correlation between the increase in the PSO levy and the decrease in the wholesale

market prices, the CRU notes that although an increase in the PSO levy will increase one fixed

charge element on electricity bills, variable charges (e.g. the unit rate) should in fact decrease.

The CRU expects this projected decrease in wholesale electricity prices in the forthcoming

PSO year to be passed on to consumers by electricity suppliers. The CRU emphasises that

savings on the variable aspect of the electricity bill can be gained through switching electricity

supplier and through energy efficiency.


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Table of Contents

Executive Summary .................................................................................................. i

Public/Customer Impact Statement ........................................................................ v

Glossary of Terms and Abbreviations ................................................................. viii

1. Introduction .......................................................................................................... 1

1.1 The Commission for Regulation of Utilities ............................................................................. 1

1.2 Purpose of this document ....................................................................................................... 1

1.3 Structure of paper ................................................................................................................... 1

1.4 Related documents............................................................................................................ 2

2. Background .......................................................................................................... 4

2.1 The PSO Levy ........................................................................................................................... 4

2.2 Legislation Governing the PSO Levy ........................................................................................ 6

2.3 State Aid Notifications ............................................................................................................ 7

3. Key Assumptions ................................................................................................. 8

3.1 Benchmark price ..................................................................................................................... 8

3.2 Capacity payment ................................................................................................................... 8

4. 2020/21 PSO Levy................................................................................................. 9

4.1 Total levy cost and generation capacity supported ................................................................. 9

4.2 Drivers of year on year change .............................................................................................. 10

4.3 Changes since the Proposed Decision ................................................................................... 12

4.4 Allocation of costs ................................................................................................................. 13

4.5. Historical PSO Levy Costs ..................................................................................................... 14

5. Key Comments Received .................................................................................. 17

5.1 List of Respondents ............................................................................................................... 17

5.2 Key Comments and CRU Responses ...................................................................................... 17

6. Cost breakdown of levy ..................................................................................... 23

6.1 Overview of support schemes ............................................................................................... 23

6.2. Publication of individual payments and Generation ............................................................ 28

6.3. R-factor ................................................................................................................................ 28

6.4. PSO CfDs .............................................................................................................................. 30

6.5. Change of PPA ...................................................................................................................... 30

6.6. PSO Monies Owed................................................................................................................ 30

7. Next Steps ........................................................................................................... 31

Appendix 1: Allocation of 2020/21 PSO Levy ...................................................... 32

Appendix 2: 2018/19 Benchmark Price ................................................................. 33

Appendix 3: PSO Monies Withheld in the 2019/20 PSO Year ............................. 34


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Glossary of Terms and Abbreviations

Abbreviation Meaning

AD Anaerobic Digestion

AER Alternative Energy Requirement

CfD Contract for Difference

CPI Consumer Price Index

DCCAE Department of Communications, Climate Action and Environment

DSO Distribution System Operator

DUoS Distribution Use of System

HE CHP High Efficiency Combined Heat and Power

HICP Harmonised Index of Consumer Prices

MEC Maximum Export Capacity

MIC Maximum Import Capacity

MWh Megawatt Hours

PPA Power Purchase Agreement

PSO Public Service Obligation

REFIT Renewable Energy Feed-In-Tariff

RESS Renewable Electricity Support Scheme

SEM Single Electricity Market

S.I. Statutory Instrument

TSO Transmission System Operator


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1. Introduction

1.1 The Commission for Regulation of Utilities

The CRU’s mission is to protect the public interest in Water, Energy and Energy Safety.

The CRU is guided by four strategic priorities that sit alongside the core activities we undertake

to deliver on the public interest. These are:

• Deliver sustainable low-carbon solutions with well-regulated markets and networks

• Ensure compliance and accountability through best regulatory practice

• Develop effective communications to support customers and the regulatory process

• Foster and maintain a high-performance culture and organisation to achieve our

vision

1.2 Purpose of this document

This document explains the Public Service Obligation (PSO) levy to apply to electricity

customers in Ireland from 1 October 2020 to 30 September 2021. This follows a proposed

decision paper (CRU/20/061 – “Proposed Decision”) which contained the preliminary

determination of the PSO levy for the 2020/21 PSO year.

1.3 Structure of paper

The remainder of this document is structured as follows:

Section 2 – Background: Provides detail on the PSO levy, and an overview of the legislation

governing the PSO levy and State Aid Decisions.

Section 3 – Key Assumptions: Provides detail on the benchmark price and the capacity

payment applied in calculating the PSO levy for 2020/21.

Section 4 – 2020/21 PSO Levy: Gives a high-level overview of the PSO levy in terms of total

cost and total generation capacity supported, as well as the allocation of the cost to different

customer categories.

Section 5 – Key Comments Received: Summarises main comments received to the

Proposed Decision, along with CRU’s responses to these comments.

Section 6 – Cost Breakdown of Levy: Provides a breakdown of the PSO levy in terms of the

support schemes and generation technologies that it supports.

Section 7 – Next Steps.


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Appendix 1 – Contains key data from ESB Networks’ model used to allocate the PSO levy to

the different categories of customer.

Appendix 2 – Compares the forecast commodity prices used in the calculation of the 2018/19

benchmark price with actual commodity prices in 2018/19.

Appendix 3 – Provides a breakdown by REFIT project of PSO monies being withheld in the

2019/20 PSO year under the CRU’s Withholding Mechanism.

Annex 1 – Lists audited outturn costs for 2018/19 PSO year and provides a comparison of

estimated verses actual generation for all REFIT projects in the 2016/17, 2017/18 and 2018/19

PSO years.

1.4 Related documents

• Electricity Regulation Act, 1999

• S.I. No. 217 of 2002 - Electricity Regulation Act, 1999 (Public Service Obligations) Order

2002 as amended

• S.I. No. 403 of 2018 – Amending S.I. No. 217 of 2002 for REFIT

Relevant EU State Aid Notifications and Clearance Decisions

• EC C(2001)3265, State aid n° N 6/A/2001 – Ireland, “Public Service Obligations imposed

on the Electricity Supply Board with respect to the generation of electricity out of peat”;

• EC C(2002) 5, State aid n° N 826/01 - Ireland, "Alternative Energy Requirements I to IV”;

• EC C(2002) 3, State aid N 553/01 – Ireland, “Aid to promote renewable energy sources in

Ireland” (AER V);

• EC C(2003)4488, State aid N/475/03 – Ireland, “Public Service Obligation in respect of

new electricity generation capacity for security of supply” (Capacity and Differences

Agreements (CADA));

• EC C(2007)4317, State aid N 571/2006 – Ireland, “RES-E support programme” (REFIT

1);

• EC C(2012)8, State aid SA.31236 (2011/N) – Ireland, “Renewable Feed In Tariff” (REFIT

2); and

• EC C(2011)7593, State aid SA.31861 (2011/N) – Ireland, “Biomass electricity generation”

(REFIT 3).

http://www.irishstatutebook.ie/1999/en/act/pub/0023/index.html

http://www.irishstatutebook.ie/1999/en/act/pub/0023/index.html

http://www.irishstatutebook.ie/2002/en/si/0217.html

http://www.irishstatutebook.ie/2002/en/si/0217.html

http://www.irishstatutebook.ie/eli/2018/si/403/made/en/pdf

http://ec.europa.eu/competition/state_aid/cases/134269/134269_423080_39_2.pdf




https://www.dccae.gov.ie/documents/REFIT%201%20State%20Aid%20571-2006.pdf

https://www.dccae.gov.ie/documents/REFIT%202%20State%20Aid%2031236%20(2011).pdf

https://www.dccae.gov.ie/documents/REFIT%203%20State%20Aid%2031861%20(2011).pdf


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Relevant CRU Papers

• CER/17/073 Decision on ESB Networks’ Updated PSO Levy Cost Allocation Methodology

• CRU/18/261 Addressing the Risk of Bad Debt to the PSO Levy

• CRU/19/094 Public Service Obligation Levy 2019/20 – Decision Paper

• CRU/19/126 Information Paper - Arrangements for PSO Invoicing and Collection

• CRU/20/012 Notification to Suppliers – Submissions to the CRU for the 2020/21 Public

Service Obligation (PSO) Levy

• CRU/20/019 Notification to Suppliers Certification of the PSO Levy, including the role of

independent auditors

• CRU/20/013 Arrangements for the Calculation of the Public Service Obligation Levy post

I-SEM Implementation.

https://www.cru.ie/wp-content/uploads/2017/07/CER17073-CER-Decision-ESBN-PSO-Cost-Allocation-Methodology.pdf

https://www.cru.ie/wp-content/uploads/2018/12/CRU18261-PSO-Withholding-Mechanism-Decison-Paper.pdf

https://www.cru.ie/wp-content/uploads/2019/07/CRU19094-PSO-Decision-Paper-2019-20.pdf

https://www.cru.ie/wp-content/uploads/2019/10/CRU19126-PSO-Invoicing-and-Collection-Procedures.pdf

https://www.cru.ie/wp-content/uploads/2020/01/CRU20012-PSO-Notification-to-Suppliers-2020-21.pdf

https://www.cru.ie/wp-content/uploads/2020/01/CRU20019-Notification-to-Suppliers-Engagement-of-Auditors.pdf

https://www.cru.ie/wp-content/uploads/2020/01/CRU2013-Decision-Arrangements-for-the-Calculation-of-the-Public-Service-Obligation-Levy-post-I-SEM-Implementation.pdf


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2. Background

2.1 The PSO Levy

The PSO levy is used to fund various schemes designed by Government to support national

policy objectives related to renewable energy.1

The PSO levy is charged to all electricity final customers2 in Ireland, and the proceeds are

used to compensate the:

i. additional costs3 incurred by market participants in generating or purchasing electricity

from PSO-supported generators4. In the case of in-market generators, these are the

additional costs over and above the revenues received from selling that electricity into

the market, and in the case of out-of-market generators, they are the additional costs

over and above the avoided cost of buying that electricity from the market; and

ii. administrative expenses incurred by suppliers, the Distribution System Operator

(“DSO”), i.e. ESB Networks, and the Transmission System Operator (“TSO”), i.e.

EirGrid, in collecting payment of the PSO levy.

Policy and terms associated with the generators eligible for support from the PSO levy under

the various schemes are set out in legislation and documents published by the Department of

Communications, Climate Action & the Environment (DCCAE), which have also been subject

to state aid approval from the European Commission. The CRU has no discretion over the

terms of the various schemes. The CRU’s role in relation to the PSO is to calculate the levy

1 Until 2016, the PSO levy supported security of supply policy objectives. The PSO levy also supported national policy objectives in relation to indigenous fuels through the Peat PSO Scheme. This scheme expired at the end of 2019.

2 In accordance with Electricity Regulation Act, 1999, final customer means “a person being supplied with electricity at a single premises for consumption on those premises”.

3 “Additional costs” as referenced in the 2002 Order does not define what is meant by such costs other than to state in Article 2(3) of the 2002 Order that they include costs incurred by the Board (i.e. ESB) in complying with its obligations under Article 5(1) and (b) (i.e. Public service obligations for Peat), Article 6A or 6B (i.e. Public service obligation for short-term peaking capacity), Article 6(C) (i.e. CADA), and the costs incurred by a supplier in complying with its obligations under Article 6D (i.e. Public service obligations for REFIT contracts). Under the CRU’s current arrangements for the PSO levy, the relevant market participants are not entitled to recover such additional costs, unless those costs are in accordance with the relevant State Aid Notifications, legislation and the terms and conditions of the relevant schemes.

4 Under PSO support schemes such as REFIT, this electricity is procured via Power Purchase Agreements (PPAs)

that suppliers (also referred to as off-takers) enter into with electricity generators.


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and payments in respect of supported generators in accordance with Government policy, and

to ensure that the scheme is administered appropriately and efficiently.

Before the start of each PSO year, which runs from 1 October to 30 September, the CRU

calculates the PSO levy for that PSO year based on:

i. An estimate, for the forthcoming PSO year, of the additional costs based on a forecast

of the cost of selling or buying from the market using a benchmark wholesale electricity

price (“the Ex-ante Benchmark Price”) as determined by the CRU, and an estimate of

the generation output determined and submitted to the CRU by the relevant market

participant.

ii. A reconciliation, for the preceding PSO year, of the additional costs actually incurred

or deemed to have been incurred, with the estimates made in advance of that PSO

year. Thus, for example, the PSO levy calculation carried out by the CRU prior to the

start of the PSO year 2020/21 includes a reconciliation of the costs actually incurred

or deemed to have been incurred during the PSO year 2018/19 with the estimates

made for the PSO year 2018/19 prior to the start of PSO year 2018/19 The resulting

reconciliation payments are known as “R-factors” or “R-factor payments”, and may be

positive or negative, depending on whether the actual costs incurred or deemed to

have been incurred are higher or lower than the estimates. Such differences arise

primarily due to differences between the estimated and the actual amount of electricity

generated, and between forecast and actual market prices.

The PSO levy is collected from electricity final customers by electricity suppliers. For

distribution-connected customers, the levy collected by electricity suppliers is passed to the

Distribution System Operator (DSO – ESB Networks) and then from the DSO to the

Transmission System Operator (TSO - EirGrid), while for transmission-connected customers

the levy is passed directly to the TSO. The TSO pays out the appropriate PSO amounts, as

instructed by the CRU, to the relevant market participants, being either suppliers purchasing

power from eligible generators under a specified PPA or, in the case of the Peat PSO Support

scheme, directly to the generator. Although in most cases the PSO levy is paid to the supplier,

generators receive support through the price specified in the PPA, which must be greater than

or equal to a defined minimum price.


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2.2 Legislation Governing the PSO Levy

Electricity Regulation Act 1999

Section 39 of the Electricity Regulation Act 1999, as amended (“the Act”), gives the Minister

the power to direct, by order, the CRU to impose obligations on holders of licences or

authorisations in relation to security of supply, environmental protection and use of indigenous

energy sources, including the collection of a levy from final customers. In accordance with

Schedule 2 of the Act, the calculated PSO levy is allocated annually across three categories

of electricity customer (i.e. Domestic Accounts, Small Accounts & Medium-Large Accounts)5

based on the maximum demand in respect of each category, as a proportion of the sum of the

three maximum demand figures. The attribution of the maximum demand in respect of each

category of electricity account is carried out by the DSO for each PSO year, in accordance

with Section 39 (5A) (b) of the Act. CER/17/0736 provides further details.

The 2002 Order

The Electricity Regulation Act 1999 (Public Service Obligations) Order 2002 (Statutory

Instrument No. 217 of 2002) (as amended) (“the 2002 Order”) sets out more detail in relation

to issues such as:

• PSO Calculations

• Duties of suppliers

• Duties of the DSO

• Duties of the TSO

• Duties of final customers

• Recovery of contract debt

The 2002 Order has been amended by successive S.I.s to provide for the recovery of

costs under the PSO for such schemes.

5 In accordance with Schedule 2 of the 1999 Act, Domestic Accounts means electricity accounts held by final

customers and identified by the DSO as liable for distribution use of system charges at the rate for urban domestic customers or the rate for rural domestic customers. Small Accounts means electricity accounts held by final customers which are not Domestic Accounts or Medium-Large Accounts, while Medium-Large Accounts means electricity accounts held by final customers which, in respect of each such account, the DSO certifies as having a maximum import capacity of not less than 30kVA. 6 Decision on ESB Networks’ Updated PSO Levy Cost Allocation Methodology.


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2.3 State Aid Notifications

The Government is required to notify the terms of each support scheme under the PSO to the

European Commission and obtain approval. The original State Aid Notification of November

2000 sets out the broad areas that may be covered by the PSO as listed in Section 39 of the

Act. These include security of supply through the use of indigenous fuel sources, as well as

environmental protection. Since the original notification, various Government support

schemes that are funded by the PSO have been notified to the EU Commission (e.g.

Alternative Energy Requirements “AERs”, Capacity 2005 plants, Renewable Energy Feed-in

Tariff “REFIT” 1-3) and have received state aid clearance.


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3. Key Assumptions

3.1 Benchmark price

The benchmark price is an average of the forecast wholesale market price of electricity over

the PSO year. It is used by the CRU to calculate the forecast market revenue of generation

plants supported under the PSO for the relevant PSO year, based on their estimated

generation. This forecast market revenue is subtracted from the guaranteed revenue of the

supported plants in order to determine the amount to be paid via the PSO levy. The lower the

benchmark price, the higher the top up required from the PSO levy and vice versa.

The benchmark price was calculated using a PLEXOS model of the SEM (SEM-20-004). The

benchmark price used in calculating the PSO levy contained in this decision paper is €53.66.7

The exchange rates and forward fuel and carbon prices used in modelling the 2020/21 PSO

year are from 7 July 2020, with the main determinant of the benchmark price being the forward

fuel prices. This benchmark price is higher than the benchmark price of €46.86/MWh used in

calculating the proposed PSO levy for 2020/21.

3.2 Capacity payment

The Final Capacity Auction Results 2020/2021 T-1 are available on the SEMO website8. The

CRU has used the results of this auction to determine capacity revenue remunerated to

generators for the purpose of the 2020/21 PSO calculation.

7 Any difference between the benchmark price applied here and actual wholesale prices, will be captured in the R-

factor for the 2020/21 PSO year, when calculating the 2022/23 PSO levy.

8Final Capacity Auction Results 2020/2021 T-1 Capacity Auction

https://www.sem-o.com/documents/general-publications/T-1-2020-2021-Final-Capacity-Auction-Results-Report.pdf


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4. 2020/21 PSO Levy

4.1 Total levy cost and generation capacity supported

The total PSO levy for the 2020/21 year, calculated based on the Benchmark Price and

Capacity Payments described in Section 3, is €393.13 million. A high-level breakdown of the

2020/21 PSO levy into its components is shown in Table 4.1.

Table 4.1: Breakdown of total 2020/21 PSO levy

Component Generation

Capacity Supported (MW)

Forecast Cost 2020/21 (million)

R-Factor 2018/19 (million)9

Total PSO support 2020/21 (million)

Renewables 3,891.2 €355.62 €66.88 €422.50 Peat - -€6.00 €13.66 €7.66

PSO CfDs — — — -€3.45

Admin — — — €0.72

Rebate10 — — — -€34.31

Total 3,891.2 349.62 80.54 €393.13

Additionally, Figure 4.1 provides an annual breakdown of the total PSO levy since 2011/12

and presents the overall trend in the cost of the PSO.

Figure 4.1: Historical Breakdown of total PSO levy

10 Rebate relates to PSO payments that were withheld from suppliers, by EirGrid, in the 2019/20 PSO year. This money is now being paid back to the PSO (refer to Section 4.2 for further details).


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4.2 Drivers of year on year change

The 2020/21 PSO levy of €393.13 million represents an increase of €216.66 million (123%)

on the 2020/21 levy of €176.46 million. A number of drivers are contributing to this increase,

principally the 2018/19 R-factor and a lower 2020/21 estimated benchmark price.

Downward Drivers on the 2020/21 PSO Levy:

i. Positive R-factor: The calculation of the PSO levy requires an ex-ante estimation of the

monies recoverable in a given PSO year by suppliers plus the calculation of the monies

that should have been recovered by such parties two PSO years ago (in this instance

2018/19). This latter calculation is referred to as the “R-factor”.

A 2018/19 R-factor of €80.54 million is being included in the 2020/21 PSO levy

calculation. The 2018/19 R-factor accounts for the difference between the PSO monies

paid suppliers in the 2018/19 PSO year, calculated ex-ante, and the actual PSO monies

owed to suppliers 2018/19 PSO year, certified ex-post. The R-factor for the 2018/19

PSO year is positive meaning suppliers typically under recovered in the 2018/19 PSO

year. This positive 2018/19 R-factor of €80.54 million is the main driver behind the

increase in the 2020/21 PSO levy. This constitutes a net increase of €266.47 million in

comparison to the 2017/18 R-factor of -€185.93 million.

ii. Lower Benchmark Price: The forecast benchmark price of €53.66/MWh is lower than

the benchmark price of €57.37/MWh used in calculating the 2019/20 PSO levy. This

has the effect of increasing the overall levy by approximately €44.44 million relative to

the 2019/20 PSO levy. This is because lower forecast market revenue increases the

amount required from the PSO levy to compensate suppliers up to the guaranteed rates

that they are obliged to pay to PSO supported generators.

Downward Drivers of the 2020/21 PSO Levy

i. Decreased Renewable Capacity: An estimated 3,891.2 MW of renewables will be

supported by the 2020/21 PSO levy. This is a slight decrease of 83 MW, or 2% less

than the 3,974.2 MW of renewable capacity supported in the 2019/20 PSO year.

Following the expiry of the Peat PSO Scheme, both Lough Ree and West Offaly plants

were eligible to claim REFIT 3 support for co-firing biomass with peat, up to 30% of

the plant capacity in any single year. This REFIT 3 support was subject to the granting

of planning permission by An Bord Pleanála for the co-firing of biomass at 30% of plant


11

capacity at both plants. ESB have not obtained planning permission at either plant. As

a result, ESB have not made an ex-ante submission to the 2020/21 PSO levy for either

of these projects. In addition to these two ESB plants, a number of other small REFIT

2 and REFIT 3 projects that made submissions to the 2019/20 PSO levy, have not

made submissions for the 2020/21 PSO year11.

ii. Expiry of Peat Scheme: The Peat PSO Scheme expired at the end of 2019.

Notwithstanding this, in a PSO submission made to the CRU in April 2020, ESB sought

to claim ex-ante costs of €25.8 million for the 2020/21 PSO year (included Dismantling

Costs, Environmental Provision Costs, Just Transition Costs & Rates). In a

subsequent submission received by the CRU in May 2020, ESB proposed treating

these costs as actual PSO costs. These costs were excluded from the CRU’s

calculation of the 2020/21 proposed PSO levy.

The CRU is currently working with DCCAE to determine whether such costs are

recoverable under the terms of the relevant State Aid Notification and the PSO

legislation. As a decision has not yet been reached on whether ESB’s aforementioned

costs are permissible under these terms, the CRU has therefore not included these

costs in the calculation of the 2020/21 PSO levy.

iii. Rebate: €34.31 million of a rebate is to be paid back into the 2020/21 PSO. The rebate

primarily relates to PSO payments that were withheld from suppliers, by EirGrid, in the

2019/20 PSO year in accordance with the CRU’s PSO withholding mechanism.

The 2019/20 PSO year is the first year in which the CRU’s withholding mechanism has

been implemented. PSO monies can be paid out to suppliers for generation projects

that have not energised. This creates a risk of bad debt within the PSO levy. In

accordance with the CRU’s withholding mechanism, ex-ante payments are withheld

from new REFIT projects until they have met a specific milestone in terms of

commencing generation. In the current 2019/20 PSO year, €34.19 million is being

11 The following REFIT 2 projects did not make ex-ante submissions for the 2020/21 PSO year: Gilmore

Clarke Electrical Ltd t/a EMCA (1/2/014), Devine & Associates (1/2/052), Devine and Associates Rathroeen Limited

(1/2/121), Tra Investments Ltd (1/2/129), B9 Power Ltd. (1/2/129). The following REFIT 3 projects did not a

submission of ex-ante estimated generation for the 2020/21 PSO year: Lough Ree Power (1/3/029) and West

Offaly Power (1/3/030).


12

withheld from suppliers that have made ex-ante submissions to the 2019/20 PSO levy

but have either failed to meet the required milestone in terms of that project

commencing generation or have provided proof of milestone later than their forecast

energisation date. A breakdown by REFIT project, of monies being withheld in the

current PSO year under the CRU’s Withholding Mechanism can be found in Appendix

3. The withholding of these monies under this policy has reduced the risk of bad debt

occurring in the PSO. 12

4.3 Changes since the Proposed Decision

The final 2020/21 PSO levy of €393.13 million represents a decrease of €86.98 million relative

to the proposed PSO levy of €480.11 million. The main change to the calculation of the PSO

levy for 2020/21 since the Proposed Decision is the benchmark price. The proposed PSO levy

was calculated based on a benchmark price of €46.86/MWh. Based on up to date forecasts

of the wholesale price of electricity for the 2020/21 PSO year, this benchmark price has been

revised to €53.66/MWh for the calculation of the final PSO levy. Figure 4.2 below graphs the

impact that changes in commodity prices had on the Final 2020/21 Benchmark Price.

Figure 4.2: The relative impact that changes in each commodity price had on the Final 2020/21 Benchmark

Price in comparison to the 2020/21 Indicative Benchmark Price.

The CRU notes that in the two-month period from May to July 2020, the 2020/21 estimated

Benchmark Price has increased significantly by €6.80/MWh (15%). This has been driven by a

substantial increase in commodity prices in that period. Such a change in the 2020/21

12 Addressing the Risk of Bad Debt to the PSO Levy (CRU/18/261)



13

Benchmark Price over that relatively short period of time highlights the inherent difficulty that

exists in the accurate forecasting of the electricity price.

4.4 Allocation of costs

The cost of the PSO levy is allocated across three categories of customer – Domestic, Small

Commercial (MIC < 30kVA) and Medium/Large Commercial (MIC ≥ 30kVA). The peak demand

associated with each category (based on standard load profiles, metered data and forecast

demand data) is determined by ESB Networks. The cost of the PSO levy is then allocated in

proportion to the ratio of these demand peaks.

For the 2020/21 PSO year, ESB Networks have updated their PSO cost allocation model,

using the most recent customer forecasts available. Further detail on the calculation of the

cost allocation is provided in Appendix 1. The proportion of the PSO levy of €393.13 million to

be allocated to each of the three customer categories are presented in Table 4.2.

Table 4.2: 2020/21 PSO levy charges by customer category.

PSO Customer Category



Year on Year Increase

Increase (%)

Domestic €2.84 / customer €6.52 / customer €3.68 / customer 130%

Small commercial (MIC < 30 kVA)

€10.35 /customer €21.41 / customer €11.06 / customer 107%

Medium/Large commercial

(MIC ≥ 30 kVA) €1.22 / kVa €2.78 / kVa €1.56 / kVa 128%

One of the factors influencing the scale of the percentage increase in the 2020/21 PSO levy

(across PSO customer categories) is the share of peak demand applied to each category of

customer for this period, as outlined below.

• Domestic Customers: For 2020/21, the updated forecast demand data resulted in an

increased percentage allocation (3.35%) of the total PSO levy to Domestic Customers.

In 2020/21 domestic customers accounts for 42.28% of peak demand, compared to

40.91% in the 2019/20 PSO year. This increases their share in the PSO levy relative

to other PSO customer categories.

• Small Commercial Customers: For 2020/21, the updated forecast demand data

resulted in a significant decrease in percentage allocation (-15.24%) of the total PSO


14

levy to Small Commercial Customers. In 2020/21 Small Commercial Customers

account for 10.23% of peak demand, compared to 12.1% in the 2019/20 PSO year.

This reduces their increase in the PSO levy relative to Domestic Customers.

• Medium & Large Commercial Customers: For 2020/21, the updated forecast demand

data resulted in a slight increased percentage allocation (1.00%) of the total PSO levy

to Medium & Large Customers. In 2020/21 Medium & Large Customers account for

47.49% of peak demand, compared to 47.02% in the 2019/20 PSO period. This

marginally increases their increase in the PSO levy relative to Domestic Customers

and Small Commercial Customers.

Another factor which impacts the year on year percentage change (across customer

categories) is the variation in the total number of customers for the Domestic and Small

Commercial categories and the total non-domestic Maximum Import Capacity (MIC) for the

Medium & Large Commercial category for 2020/21. The cost attributed to each category is

apportioned to the number of customers in the Domestic and Small Commercial and the MIC

for Medium & Large customers and determines the annual charge kVA.

According to ESB Networks’ 2020/21 PSO Cost Allocation Model, the number of Domestic

Customers in the 2020/21 PSO year will increase by 0.12% when compared to 2019/20. The

number of Small Commercial customers is estimated to decrease by 8.80%. The Medium and

Large customer category is expected to see a slight decrease with non-domestic MIC

decreasing by 1.08%.

4.5. Historical PSO Levy Costs

Each year the PSO levy consists of a combination of estimated ex-ante payments for the PSO

year ahead, and an R-factor adjustment/reconcillation for PSO payments made in the PSO

year two years previous. An estimate of the “true” cost of PSO support in each previous PSO

year may be calculated by taking ex-ante payments made in a specific PSO year and adding

the R-factor for that year that was subsequently calculated ex-post (e.g. the “true” cost of PSO

support in the 2018/19 PSO year may be calculated by combining ex-ante PSO payments in

that year with the 2018/19 R-factor subsequently calculated for that year for inclusion in the

2020/21 PSO levy). Figure 4.3 displays a comparisson of the “true” cost of the PSO levy and

the actual PSO levy in recent years.


15

Figure 4.3: Comparison of “true” and actual PSO levy costs13

The CRU notes that the actual 2018/19 and 2019/20 PSO levies were relatively low and not

reflective of the “true” cost of the government subsidy to renewable generators in those given

years. This was due to significant negative R-factors being applied in the calculation of the

PSO levy in both years. As detailed in Figure 4.3, the true cost of the 2018/19 PSO levy was

€404 million. This is much greater than the actual 2018/19 PSO levy of €209 million.

Over the past few years, and as illustrated in Figure 4.3, the “true” cost of the PSO Levy has

been generally trending upwards as the portion of our power generation capacity supported

by the levy has increased. This will likely continue to increase as we approach our 40%

renewable generation target and strive towards the Government’s target of 70% renewable

generation by 2030. The CRU notes that there is an underlying variability in the cost of the

levy as both market prices and level of generation will vary from year to year. When the “true”

cost of the PSO levy is compared to the actual PSO levy, it is apparent that this variability is

exacerbated by the inherent challenges in forecasting future prices and levels of renewable

generation, and then adjusting for actual results.

As indicated in Section 2.1, PSO levy payments are calculated on the basis of estimated

generation and estimated wholesale electricity market prices for the year ahead. These

payments are then corrected for ex-post through the R-factor. In Q4 2020, the CRU will be

consulting on ways of reducing volatility in the PSO levy, including options to improve the

13 The “true” cost of the 2019/20 PSO levy is not detailed in Figure 4.3 as the 2019/20 R-factor will not be known

until 2021. Similarly, the “true” cost of the 2020/21 PSO levy is not detailed as the 2020/21 R-factor will not be known until 2022.


16

methodology by which these estimates are made. The CRU may also consider alternative

methods to reduce volatility in the PSO levy (e.g. mid-year reviews). Some of these options

would require legislative amendments. The CRU notes however that the PSO levy is ultimately

dependent on wholesale electricity market prices which a can fluctuate from year to year.

Therefore, it is not possible to fully remove the risk of volatility occurring in the PSO levy and

as such, similar fluctuations in the PSO levy will continue to be possible in future years.


17

5. Key Comments Received

This section provides a summary of public responses received to the CRU’s proposed 2020/21

PSO Proposed Decision Paper (CRU/20/061), along with CRU responses to the key points

made.

5.1 List of Respondents

Respondents to the CRU’s proposed decision on the 2020/21 PSO levy are listed in Table 5.1

below. Two confidential responses were also received, which are not included in this list.

1) Aughinish Alumina Limited 2) Boliden Tara Mines

3) Bord Gáis Energy 4) Cement Manufactures Ireland

5) Fennell Public Affairs 6) Fergus Wheatly & Peter Brennan

7) Fingleton White 8) IBEC

9) Irish Hotels Federation 10) Irish Water

11) IWEA 12) Kore Energy

13) Listal Limited 14) Masonite Ireland Unlimited

15) Microsoft 16) Nevin Power

17) RE-Source 18) Society of St. Vincent de Paul

19) Transdev

Table 5.1: List of Respondents

5.2 Key Comments and CRU Responses

5.2.1 Economic & Social Impact

From an economic perspective, the majority of respondents highlighted the potential negative

impact that such a large increase in the PSO levy will have on the Irish economy. Specifically,

these responses indicated that the proposed increase as outlined in the proposed decision

paper (CRU/20/061) will have an adverse effect on the Irish economy in terms of investments,

employment and cost competitiveness.

Some respondents stated that Irish electricity prices are amongst the highest in Europe and

that the PSO Levy is an additional burden to doing business in Ireland. Many respondents

also expressed concern over the proposed increase of the levy during a time of economic

uncertainty due to the COVID-19 pandemic and Brexit, with some recommending that the

CRU reduce or suspend the PSO levy for the 2020/2021 PSO cycle.

From a social impact perspective some respondents were concerned about the large increase

of the PSO levy to be applied to the domestic customer category and believed the increase


18

would contribute to energy poverty. Respondents noted that the PSO is imposed on all

domestic customers at a flat rate which some view as a regressive tax that creates an

increased burden on low income customers and those in arrears. Two respondents also noted

that the PSO being imposed on all domestic customers at a flat rate also leads to low energy

users paying a comparatively higher PSO in proportion to their total electricity bill.

CRU’s Response

The PSO levy has been designed by the Irish Government and consists of various subsidy

schemes to support its national policy objectives. This year the PSO levy is entirely related to

renewable electricity supports and is key in enabling Ireland to meet its national targets in

terms of the generation of electricity from renewables and aligns with the CRU’s vision of

achieving a secure, low carbon future.

From a regulatory perspective, the CRU’s role regarding the PSO is to comply with legislation,

to calculate the PSO levy and to help ensure the PSO levy is administered appropriately and

efficiently. The CRU is not in a position to reduce or suspend the PSO levy. Furthermore, the

CRU does not have discretion regarding the magnitude of the PSO levy, as the CRU

calculates the PSO levy in accordance with the governing legislation.

Regarding the issue of the significant increases in the proposed 2020/21 PSO levy, the CRU

notes that there is an inverse relationship between the PSO levy and wholesale electricity

price. This means if the wholesale electricity price is low, additional money is required to be

raised through the PSO levy to subsidise PSO supported generators. This is because these

generators receive less money from the wholesale market for the electricity they produce.

Given the correlation between the increase in the PSO levy and the decrease in the wholesale

market prices, the CRU notes that although an increase in the PSO levy will increase one fixed

charge element on electricity bills, variable charges (e.g. the unit rate) should in fact decrease.

The CRU expects this projected decrease in wholesale electricity prices in the forthcoming

PSO year to be passed on to consumers by electricity suppliers.

5.2.2 Cost Allocation

Many respondents raised concerns in relation to the methodology used to allocate the cost of

the PSO. In particular, the use of MIC as the basis for allocating costs to medium/large

commercial customers was raised as a concern. The respondents were of the view that

allocating PSO costs in this way is not a fair or justifiable methodology as it does not reflect

actual energy consumption. Respondents noted that the current cost allocation methodology

acts as a disincentive for HE CHP, electric car charging infrastructure and for energy efficiency

as PSO charges based on MIC does not reflect actual energy consumption.


19

Respondents argued that applying a consumption-based charge to medium/large consumers

would provide a better incentive for these energy users to manage their consumption

proactively and better align with the climate action plan. One respondent, in favour of

consumption-based charging, also noted that some high energy users “use power in bursts”

rather than a steady flow. This respondent acknowledged that such consumption has an

impact on the grid but suggests these costs should be recouped through network charges

instead of through an unfair PSO levy.

Two respondents stated their belief that this cost methodology is particularly unfair to HE CHP

plants as these plants often have large MICs that are only utilised rarely for outage and

maintenance requirements. One respondent suggests that the PSO levy should be charged

based on net capacity i.e. MIC less Maximum Export Capacity (MEC). For plants which have

an MEC greater than their MIC, the respondent suggested that the PSO charge should reflect

years when the site is importing to ensure they also contribute to the PSO levy.

One respondent asked that consideration be given to the reliability of customer demand levels

during the COVID 19 pandemic before finalising the apportionment across customer

categories. The respondent noted that recent data during the COVID 19 pandemic may not

be reliable in terms of predicting domestic demand and peak demand volumes.

CRU’s Response

The legislation governing the PSO dictates that the CRU allocates the PSO levy on the basis

of kVA of MIC for medium/large customers. Specifically, the Electricity Regulation Act 1999

(Public Service Obligations) Order 2002, states that:

“The Commission shall make a final determination of […] 22 (v) the PSO Levy amount per

electricity account for Domestic Accounts and Small Accounts and the PSO Levy charge per

kVA of maximum import capacity for Medium-Large Accounts”

The CRU does not have any discretion to revise the legislation that sets out the basis of the

allocation of PSO levy costs.

In the Proposed Decision, the CRU noted that due to the economic uncertainty resulting from

the COVID-19 pandemic, ESB Networks’ Indicative PSO Cost Allocation Model should be

caveated, as the customer number and peak demand estimates for the forthcoming 2020/21

PSO year may change. ESBN has subsequently submitted their updated Cost Allocation

Model reflecting more up to date data, including revised customers numbers and peak demand

estimates.


20

5.2.3 PSO Volatility

The majority of respondents expressed concern regarding the proposed rate of increase in

the PSO levy for 2020/21. Respondents also noted the year on year volatility of the PSO levy,

with one respondent asking that the monetary risk for customers and suppliers be mitigated,

especially considering the likely increase of renewables in the next decade.

One respondent acknowledged that accurate forecasting of power prices, commissioning

dates and wind volumes are difficult to predict. In this regard, the respondent noted that the

CRU has seen significant variance between estimate generation submitted by suppliers’ ex-

ante and actual generation submitted by supplier’s ex- post and suggests that improvements

to forecasting accuracy of generation volumes be considered.

One respondent welcomed the CRU’s suggestion of a mid-year review of the PSO, however,

suggested that the objective of such a review should be to inform affected parties of possible

swings year on year rather than changing the PSO levy mid- year. According to the respondent

a mid-year change to the levy would entail considerable implementation and testing costs.

Instead, the respondent suggests, the mid-year review should act as an indication to suppliers

and customers of the expected quantum of increases or decreases expected to arise in the

following PSO year. In their request for greater transparency, the respondent cited an example

in the UK where the Low Carbon Contracts (LCCC) that deals with renewable contracts

publishes a levy dashboard. This dashboard set out the assumptions of the levy forecasts for

three quarters after the levy year as well as in year tracking, which enables viewers to

determine whether the current levy, has been over or under recovered.

CRU’s response

PSO levy payments are calculated on the basis of estimated generation and estimated

wholesale electricity market prices for the year ahead. The PSO calculation methodology

entails reviewing, analysing and calculating data for two PSO years during each PSO cycle

i.e. ex-ante estimates for the forthcoming months and a correction of payments ex-post

through the R-factor.

In the coming months the CRU intends on consulting on ways to reducing volatility in the PSO

levy and will consider the issues regarding volatility raised by respondents in this consultation

process. However, the CRU notes that the PSO levy is ultimately dependent on wholesale

electricity market prices, which a can fluctuate from year to year. Therefore, it is not possible

to fully remove the risk of volatility occurring in the PSO levy and as such, similar fluctuations

in the PSO levy will continue to be possible in future years.


21

5.2.4 Policy

Many respondents noted their concern about the use of the consumer funded PSO levy as

the source of funding to support decarbonisation. Some respondents requested that policy

makers consider alternative source of funding (e.g. the exchequer) and noted that this was

particularly necessary due to the upcoming implementation of RESS, and the expected

increase in renewable generation in the coming years. Other respondents have called for a

moratorium on the increase of the PSO (and all other state-imposed charges) in light of the

economic impact of the COVID-19 pandemic.

CRU’s response

The CRU does not have discretion regarding changing, reducing or applying a moratorium to

the PSO levy. The CRU’s primary role is to calculate the PSO levy in accordance with the

governing legislation.

5.2.5 Consumer Price Index

One respondent supports the CRU’s proposed approach of maintaining the 2020 CPI flat at

0.9% and suggested an even lower rate for the final decision would be welcome at it would be

reflective of the current economic outlook.

CRU’s response

Given the economic uncertainty resulting from COVID-19 pandemic, the ESRI have not

published CPI forecasts for 2020. In the absence of CPI data published by the ESRI, the CRU

has decided to apply the Irish Central Bank’s projection for inflation in 2020, specifically their

projection of the Harmonised Index of Consumer Prices (HICP) of 0.1%. Further details can

be found in section 6.1 of this paper.

5.2.6 Withholding Mechanism

One respondent welcomed the reduced risk of bad debt occurring under the PSO due to the

implementation of the withholding mechanism and asked for confirmation that this mechanism

would also be applied to RESS Contracts.

CRU’s response

The Withholding Mechanism ensures that PSO payments are not made to a supply company

until the generation project from which they purchase electricity from has reached the

appropriate generation milestone, thereby reducing the likelihood that an ex-ante PSO

payment is paid where no actual PSO costs are incurred. The CRU intends to continue

applying this mechanism to all projects funded through the PSO levy including projects


22

receiving support under RESS. Details on the PSO Withholding Mechanism can be found here

“Addressing the Risk of Bad Debt to the PSO Levy” (CRU/18/261).



23

6. Cost breakdown of levy

6.1 Overview of support schemes

The PSO covers various subsidy schemes designed by the Irish Government. Table 6.1

provides a breakdown, by support scheme and technology type, the support rate that

generators will receive under the 2020/21 PSO.14

Table 6.1: PSO support rates for 2020 and 2021.

Support Scheme & Technology

2020 Support Rates (€/MWh)

2021 Indicative Support Rates (€/MWh)

AER

Wind 46.00 46.00

REFIT 1

Biomass 89.66 89.75

Hydro 89.66 89.75

Landfill 87.17 87.26

Large Wind 70.98 71.05

Small Wind 73.47 73.55

REFIT 2

Hydro 89.66 89.75

Landfill 87.17 87.26

Large Wind 70.98 71.05

Small Wind 73.47 73.55

REFIT 3

AD CHP > 500 kWe 139.07 139.21

AD CHP ≤ 500 kWe 160.47 160.63

AD (non-CHP) ≤ 500kWe 117.68 117.79

AD (non-CHP) > 500kWe 106.98 107.08

Biomass CHP ≤ 1500 kWe 149.77 149.92

Biomass CHP > 1500kWe 128.37 128.50

Biomass Energy Crops 101.63 101.73

Other Biomass Combustion 90.93 91.02

As stated in CRU/20/013, indicative REFIT Support Rates for the last 9 months of the

forthcoming PSO year are calculated by indexing the REFIT Reference Price for the first 3

months of the forthcoming year (as published by DCCAE) to an estimate of CPI published by

14 The CRU received 61 supplier submissions for the 2020/21 PSO levy year. 263 generation projects will receive REFIT support in the 2020/21 PSO year.


24

the ESRI in its Quarterly Economic Commentary. Given the economic uncertainty resulting

from COVID-19 pandemic, ESRI have not published CPI forecasts for 2020. In the absence

of CPI data published by the ESRI, the CRU has decided to apply the Irish Central Bank’s

projection for inflation in 2020, specifically their projection of the Harmonised Index of

Consumer Prices (HICP).

The Central Bank published its Q3 2020 Quarterly Bulletin on 3 July 202015. In this report, the

Central Bank made economic projections for various scenarios that look at a different levels

of impact of the Covid-19 pandemic on the Irish economy. In their baseline scenario, a HICP

of 0.1% is estimated for 2020. The CRU is applying this figure of 0.1% in its calculation of ex-

ante payments for the 2020/21 PSO year. Any difference between the projected rate of

inflation applied by the CRU in the ex-ante calculation of the 2020/21 PSO levy and the actual

rate of inflation is corrected for ex-post through the R-factor.

Table 6.2 provides a breakdown, by support scheme and technology type of the capacity

supported, and the ex-ante cost estimates covered under the levy for 2020/21. The individual

support schemes will be discussed in more detail in the sections that follow.

15 The Irish Central Bank's Quarterly Bulletin - July 2020

https://www.centralbank.ie/docs/default-source/publications/quarterly-bulletins/qb-archive/2020/quarterly-bulletin---q3-2020.pdf?sfvrsn=6


25

Table 6.2: Breakdown of ex-ante PSO payments and capacity supported by support scheme and technology

type.

Support Scheme & Technology

Ex-ante PSO

payment 2019/20

(€ million)

Ex-ante PSO payment 2020/21

(€ million)

% Change in Payment

Capacity supported

in 2019/20

(MW)

Capacity supported

in 2020/21

(MW)

% Change

in Capacity

AER

Wind €0.79 €1.40 76% 26.4 25.2 -5%

Sub-total €0.79 €1.40 26.4 25.2

Peat

Lough Ree €14.43 -€3.00 - 100.0 - -

West Offaly €16.97 -€3.00 - 150.0 - -

Sub-total €31.40 -€6.0016 250.0 0.0

REFIT 1

Biomass €2.30 €2.24 -3% 18.2 18.2 0%

Hydro €0.18 €0.21 18% 1.6 1.6 0%

Landfill €3.08 €3.23 5% 17.6 17.6 0%

Large Wind €84.86 €97.20 15% 1248.7 1248.7 0%

Small Wind €9.11 €10.79 18% 121.2 121.6 0%

Sub-total €99.53 €113.68 1407.3 1407.7

REFIT 2

Hydro €0.13 €0.04 -72% 1.1 1.4 24%

Landfill €2.18 €2.57 17% 12.9 12.9 0%

Large Wind €156.17 €185.62 19% 2187.5 2187.5 0%

Small Wind €10.04 €12.02 20% 128.0 125.3 -2%

Sub-total €168.52 €200.24 2329.5 2327.1

REFIT 3

AD CHP > 500 kWe €4.07 €4.52 11% 7.1 5.1 -28%

AD CHP ≤ 500 kWe €3.39 €4.03 19% 7.0 6.1 -13%

AD (non-CHP) ≤ 500kWe €0.14 €0.15 - 0.5 0.5 0%

AD (non-CHP) > 500kWe €0.00 €0.00 - 0.0 0.0

Biomass CHP ≤ 1500 kWe

€0.97 €1.38 43% 1.2 1.6 37%

Biomass CHP > 1500kWe €3.59 €3.86 - 9.9 7.6 -24%

Biomass Energy Crops €0.00 €0.00 - 0.0 0.0

Other Biomass Combustion

€48.51 €26.37 -46% 185.4 110.4 -40%

Sub-total €60.67 €40.31 211.0 131.3

Total REFIT €328.72 €354.22 7.76% 3947.82 3866.0 -2%

Total €360.92 €349.62 -3% 4224.2 3891.217 -8%

16 This negative payment relates to a forecast reimbursement of PSO severance costs to be paid by ESB in the 2020/21 PSO year. 17 A number of minor capacity corrections have contributed to the difference between the capacity supported in 2020/21 figures in Table 6.2, and those shown in Table 4 in the CRU’s 2019/20 PSO Decision Paper.


26

AERs

The technologies supported historically under the 15-year AER schemes included onshore

and offshore wind energy, small-scale hydropower, combined heat and power (CHP), biomass

(landfill gas), biomass-CHP and biomass-anaerobic digestion. Since the AER was launched

in 1995, six AER competitions have been held. The AER scheme is closed to new entrants

and the only remaining technologies actively supported under this scheme are onshore and

offshore wind energy. There is 1 project remaining under the AER scheme, with support for

this project due to terminate at the end of 2021.

The plants involved contract with Electric Ireland (ESB’s supply entity), which is then entitled

to compensation from the PSO levy if the revenue it receives for selling the electricity is less

than what it paid the renewable generators. Similarly, Electric Ireland returns money to the

PSO in the event of over-compensation. The ex-ante PSO amount for the 2020/21 PSO year

for the AER schemes is €1,370,000.

REFIT

The first Renewable Energy Feed-in-Tariff (REFIT 1) scheme was introduced in 2006, followed

by REFIT 2 and 3 in 2012. The REFIT schemes are designed to incentivise the development of

renewable electricity generation in order to help Ireland to meet its target of 40% of electricity

coming from renewable sources by 2020. The technologies covered under each scheme are

summarized in Table 6.3.

Table 6.3: Technologies supported under the three REFIT schemes.

Scheme REFIT 1 REFIT 2 REFIT 3

Technologies

supported

— Biomass

— Hydro

— Landfill

— Large Wind

— Small Wind

— Hydro

— Landfill

— Large Wind

— Small Wind

— AD (non CHP) > 500 kWe

— AD (non CHP) ≤ 500 kWe

— AD CHP > 500 kWe

— AD CHP ≤ 500 kWe

— Biomass CHP ≤ 1500 kWe

— Biomass CHP > 1500 kWe

— Biomass Combustion (non-CHP)

− Energy Crops

− Other Biomass

In contrast to the AER scheme, REFIT is open to all suppliers (not just Electric Ireland) to

contract with renewable generators. The compensation streams under the REFIT scheme are

paid to electricity suppliers in exchange for entering 15-year Power Purchase Agreements

(PPAs) with renewable electricity generators.


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The ex-ante PSO amount for the 2020/21 PSO year for the REFIT schemes is €354.22 million.

This represents an increase of €25.52 million (7.7%) on the €328.7 million support for these

contracts included in the 2019/20 PSO levy year. The REFIT generation capacity supported

under the PSO is in the 2020/21 PSO year is 3,866 MW. Of the PSO payments to be made in

2020/21 under REFIT 1, 95% is to wind generators. Under REFIT 2, 99% is to wind generators.

Under REFIT 3, 65% of the payment for 2020/21 is to generators in the category Other Biomass

Combustion.

Peat

PSO support for Lough Ree and West Offaly under the Peat PSO Scheme, expired at the end

of 2019. As stated in Section 4.2 of this Decision Paper, the CRU received a cost submission

from ESB for the 2020/21 PSO year.

The CRU is currently working with DCCAE to determine whether such costs are recoverable

under the terms of the relevant State Aid Notification and the PSO legislation. As a decision

has not yet been reached on whether ESB’s aforementioned costs are permissible under

these terms, the CRU has therefore not included these costs in the calculation of the 2020/21

PSO levy.

Summary of support schemes

The breakdown by technology of total ex-ante PSO cost and generation supported under the

2020/21 levy for AER, REFIT and peat is shown in Figure 6.1, with similar categories grouped

together. As there are different support rates for the different technologies, the breakdown by

cost differs from the breakdown by generation supported.

Figure 6.1: Breakdown of ex-ante cost and generation supported by technology type under the 2020/21 PSO

levy.


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6.2. Publication of individual payments and

Generation

In the 2019/20 PSO Decision Paper CRU, the CRU published actual outturn payments made

in respect of individual REFIT project for the 2017/18 PSO year. These amounts were the

audited outturn costs submitted by suppliers, and approved by the CRU, for the 2017/18 PSO

year, as part of suppliers’ 2019/20 PSO submissions. The CRU is continuing with this practice

for the 2020/21 PSO levy, and the relevant information is available in Annex 1.

To facilitate further transparency on the calculation of the PSO levy (and as notified in Section

5.5 of the CRU’s 2020/21 PSO Notification - CRU/20/012), the CRU is publishing the following

information, in addition to actual outturn cost for the 2018/19 PSO year.

i. The R-factor associated with each supply company for the 2018/19 PSO year.

ii. Historical generation data provided by each supplier, which compares their

submitted estimated generation quantities against actual outturn generation

(broken down by PPA contracted generator).

A list of actual PSO costs and the associated R-factor for each individual supplier in the

2018/19 PSO year is provided in Annex 1. A breakdown of submitted estimated generation

quantities against actual outturn generation for each individual REFIT project in the 2016/17,

2017/18 & 2018/19 PSO years is also provided in Annex 1.

6.3. R-factor

The ex-ante estimate of costs associated with each of these schemes for 2020/21 constitutes

the main part of the total PSO levy. In addition, the settlement of the ex-ante estimate

component of the 2018/19 PSO levy, based on actual outturn costs and market revenues,

must be included. The 2018/19 R-factor, included in the 2020/21 PSO levy, accounts for the

difference between the costs and revenues estimated for 2018/19 ex-ante and the actual costs

and revenues for 2018/19 certified ex-post. Further detail on the methodology used in

calculating the R-factor can be found in CRU/20/013.

A positive R-factor of €80.54 million has been included in the calculation of the proposed

2020/21 PSO levy, due to an under-recovery of monies in the 2018/19 PSO year. The

breakdown of the R-factor by support scheme is shown in Table 6.4.

https://www.cru.ie/wp-content/uploads/2020/01/CRU20012-PSO-Notification-to-Suppliers-2020-21.pdf


29

Table 6.4: Breakdown of R-factor by support scheme

Component R-Factor 2018/19 (€ million)

REFIT €66.51

AER €0.37

Peat €13.66

Total €80.54

The key reason for the positive 2018/19 R-factor is the difference between the 2018/19

estimated benchmark price calculated by the CRU and the actual market prices that occurred

in the 2018/19 PSO year. Average wholesale electricity prices in the 2018/19 PSO year were

approximately €56.83/MWh. An ex-ante benchmark price of €61.17/MWh was calculated for

the 2018/19 PSO year. The 2018/19 benchmark price was calculated using the CRU’s SEM

PLEXOS model.

The CRU observed a decrease in gas and coal commodity prices between those used to

model the 2018/19 benchmark price and actual market prices that occurred in the 2018/19

PSO year. Comparing the 2018/19 forecast commodity prices used to model the benchmark

price and actual 2018/19 commodity prices, on average, gas prices decreased by

approximately 26% and coal prices decreased by approximately 22%. The CRU observed an

increase in carbon prices of 55% compared to those used to calculate the 2018/19 benchmark

price.

Gas price is the key determinant in setting wholesale electricity prices. While a significant

increase in carbon prices was observed compared to those used to model the 2018/19

Benchmark Price, the 26% decrease in gas prices, compared to those used to model the

2018/19 benchmark price, had the net effect of producing lower wholesale electricity prices

than expected. Lower market prices resulted in PSO plants receiving less market revenue

than anticipated. The overestimation of the 2018/19 benchmark price (relative to the outturn

price) resulted in an under-recovery of revenues through the 2018/19 ex-ante payment. This

under-recovery of PSO payments will be remedied through the 2018/19 R-factor.18

Actual generation by REFIT supported plant for 2018/19 was -15.9% lower than the estimated

generation submitted for the year. In recent years, the CRU has observed significant variance

between estimated generation submitted by suppliers to the CRU and actual generation

18 Refer to Appendix 2 for summary of the forecast commodity prices used in the calculation of the 2018/19

benchmark prices, relative to actual commodity prices in 2018/19.


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submitted by suppliers ex-post. This has led to volatility in the PSO levy. Given recent volatility

associated with R-factor payments, the CRU will be consulting on this issue in Q4 2020.

6.4. PSO CfDs

PSO related Contract for Differences (CfDs) were offered by ESB Power Generation up to the

end of 2019 (see SEM-11-020 for further details). These were forward contracts for

dispatchable generation, supported under the Peat PSO Scheme. The total difference

payments resulting from these CFDs is €3,446,000 owed by ESB Power Generation, to the

PSO levy. This reflects Day Ahead Market prices for the 2018/19 year that were lower on

average than the strike price.

6.5. Change of PPA

The CRU has been notified by DCCAE of three REFIT projects that will be changing supplier,

effective from 1 October 2020. These projects are:

• Tierney Farms (1/2/144)

• Glencarbry Windfarm Limited (1/2/089)

• Ballycumber Wind Farm Ltd (1/2/213)

DCCAE has notified the CRU that Statkraft Markets GmbH will be the PPA off-taker for Tierney

Farms, effective 1 October 2020 and that ElectroRoute Energy Supply Limited will be the PPA

off-taker for Glencarbry Windfarm Limited and Ballycumber Wind Farm Ltd effective from 1

October 2020.

6.6. PSO Monies Owed

In accordance with the PSO Invoicing and Collection Procedures, in the case were a supplier

has a net negative PSO payment, this amount is to be paid to the TSO (EirGrid) on a monthly

basis. The CRU notes that in the current 2019/20 PSO year, one supply company with a

negative PSO payment is not paying the monthly PSO amount invoiced to them by EirGrid.

The recovery of the PSO monies owed is currently being pursued by EirGrid (in accordance

with its statutory responsibilities) and is being monitored by the CRU.

With reference to the 2020/21 PSO year, the CRU’s calculation of suppliers’ 2020/21 PSO

payments, indicates that 4 supply companies will owe monies back to the PSO scheme.


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7. Next Steps

The PSO levy charges, as set out in Section 4.4 and Appendix 1 of this decision paper, are to

be applied to the electricity bills of all customers by their electricity suppliers for the year 1

October 2020 to September 2021.

PSO payments will only be made in respect of generation projects that have been included in

the calculation of the PSO levy as published in this decision paper and that are listed in the

forthcoming S.I. amending the 2002 PSO Order.

Between the publication of this decision paper and the making of the S.I., the CRU will continue

to liaise with the DCCAE regarding eligibility of REFIT projects for inclusion in the 2020/21

PSO.


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Appendix 1: Allocation of 2020/21 PSO Levy

Allocating 2020-21 PSO

Individual Peak

% of Individual

Peak

PSO Allocation

Total Mkt Cust Nos Mid Year

(excl PL a/cs i.e. DG3)

Total Non-domestic mkt MICs

Annual Charge

Monthly Charge

Monthly Charge

€m kVA € per Cust

€/kVA Monthly €

Domestic Profile 2,333,483 42.28% 166.22 2,123,274 78.29 6.52 € per

Customer

Small Profile 564,407 10.23% 40.20 156,463 256.96 21.41 € per

Customer

ie. non-domestic (excl PL) <30kVA Medium & Large Profile 2,621,016 47.49% 186.70 5,592,323 33.39 2.78 €/kVA

TOTAL 5,518,906 100.00% 393.13

Number of months to recover charge 12

The monthly PSO Levy amount to be charged to Domestic Customers in 2020/21 PSO year is €6.52 per month. The monthly PSO levy to be

charged to small commercial customers in the 2020/21 PSO year is €21.41 per month. The monthly PSO levy to be charged to medium/large

commercial customers in the 2020/21 PSO year is €2.78/kVa per month. The total PSO levy to be paid over the 2020/21 PSO year by each final

customer is the applicable monthly PSO Levy amount detailed in Table 4.2, multiplied by 12.


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Appendix 2: 2018/19 Benchmark Price

The Benchmark price for the 2018/19 PSO Levy was €61.17. The actual average market price

was €56.83, which is approximately 7% lower than forecasted. The reason for this decrease

is due to the volatility of commodity prices in 2019, with reduced gas prices pushing down the

average market price. As can be seen from Table 1, commodity prices moved considerably in

2019. There was an average of 26% decrease in the price of gas, and a 55% increase in the

price of carbon credits.

Table 1: FORECAST VERSUS ACTUAL COMMODITY PRICES FOR PSO BENCHMARK PRICE.

Figure 1 below graphs the impact each commodity had on how the actual wholesale electricity

market price deviated from the forecasted benchmark price.

Figure 1: Impact of commodity volatilities on 2018/19 Benchmark Price

Forecast Actual % Change Forecast Actual % Change Forecast Actual % Change

Q4 18 62.22£ 64.99£ 4% 94.60$ 92.87$ -2% 15.20€ 20.99€ 38%

Q1 19 66.56£ 48.22£ -28% 91.93$ 75.97$ -17% 15.55€ 22.26€ 43%

Q2 19 51.55£ 31.67£ -39% 88.30$ 57.41$ -35% 15.55€ 25.48€ 64%

Q3 19 48.76£ 27.74£ -43% 85.97$ 58.54$ -32% 15.55€ 26.92€ 73%

Average -26% -22% 55%

Gas Price (p/Therm) Coal Price ($/Tonne) Carbon Credits (€/Tonne)


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Appendix 3: PSO Monies Withheld in the 2019/20 PSO Year

As detailed in Section 4.2, €34.19 million is being withheld from suppliers that have made ex-ante submissions to the 2019/20 PSO levy for new

REFIT projects but have failed to meet a specified milestone in terms of commencing generation. In the event that proof of milestone is provided

after a REFIT project’s forecast energisation month, part of that project’s ex-ante payment is withheld on a pro-rated basis. If proof of milestone

is not provided for a REFIT project, that project’s full ex-ante payment is remains withheld.

Table 2 provide a breakdown, by REFIT project, of the total monies being withheld by the CRU in the 2019/20 PSO period, under the CRU’s

Withholding Mechanism. Further information on the CRU’s withholding mechanism can be found in the CRU’s paper entitled “Addressing the

Risk of Bad Debt to the PSO Levy” (CRU/18/261),

As detailed in Table 2, there are 9 projects that have not yet provided Proof of Milestone in the current 2019/20 PSO year. 7 of these projects

have made ex-ante submissions for the 2020/21 PSO year. Each of these projects are marked with an Asterix in the Supplier Name column in

the Table 2. Ex-ante PSO payments will be withheld from these REFIT projects in the 2020/21 PSO year, under the CRU’s withholding

mechanism, until Proof of Milestone is provided. Lough Ree Power and West Offaly Power did not make ex-ante submissions for the 2020/21

PSO year.



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Table 2. A breakdown by REFIT project of the PSO monies being withheld in the 2019/20 PSO year under the CRU’s Withholding Mechanism.

Supplier Name REFIT Project Name REFIT

Reference Number

Forecast Month of

Energisation

Month in Which Proof of Milestone

Submitted

Withheld Monies Released in

2019/20

Monies Remaining Withheld

Derrysallagh Supply Limited Derrysallagh Windfarm Limited 1/2/102 Oct Nov €2,112,272 €192,025 ElectroRoute Energy Supply Limited Aerie Renewables Ltd. 1/2/185 Oct Nov €372,658 €33,878 ElectroRoute Energy Supply Limited Enros Wind Farm Limited 1/2/239 Oct Mar €121,382 €86,702 ElectroRoute Energy Supply Limited Powercon Wind Energy Limited 1/2/241 Oct Jan €171,289 €57,096 ElectroRoute Energy Supply Limited Black Lough Windfarm Limited 1/2/216 Oct Jan €856,739 €285,580 ElectroRoute Energy Supply Limited Three Trees Wind Project Limited 1/2/240 Oct Jan €308,320 €102,773

ESBIE T/A Electric Ireland Ltd Lough Ree Power 1/3/029 Jan Not Provided - €10,619,456 ESBIE T/A Electric Ireland Ltd West Offlay Power 1/3/030 Jan Not Provided - €14,274,919 ESBIE T/A Electric Ireland Ltd Oweninny Power Windfarm Phase 1 1/2/130 Oct Nov €7,057,969 €641,634 ESBIE T/A Electric Ireland Ltd Grousemount Wind Farm 1/2/125 Oct Nov €7,353,351 €668,486

*Naturgy Limited Dreenacreenig West Wind Farm Ltd. 1/2/110 Oct Not Provided - €248,767 *Naturgy Limited Glanpower Ltd 1/3/013 Oct Not Provided - €3,588,362 *Naturgy Limited Glasha Hydro 1/2/077 Oct Not Provided - €122,013 *Naturgy Limited Sandford Energy Ltd 1/3/018 Oct Not Provided - €200,709 *Naturgy Limited B9 Power Ltd. 1/2/223 Dec Not Provided - €66,540 *Naturgy Limited John Sheridan 1/3/046 Oct Not Provided - €170,410 *Naturgy Limited Alt Turbines 1/2/020 Oct Jan €160,528 €53,509

SSE Airtricity Seahound Wind Developments Limited 1/2/107 Oct Nov €919,312 €83,574 SSE Airtricity Mauricetown Wind Farm Limited 1/2/127 Oct Mar €576,513 €411,795

*Stacks Energy Supply Limited Barna Wind Energy (B.W.E.) Limited 1/2/199 Jan Not Provided - €2,149,075 Statkraft Markets GmbH MC Renewable Energy 1/2/204 Oct Jan €23,770 €7,923 Statkraft Markets GmbH Wind Power Consultants 1/2/096 Oct Dec €26,412 €5,282 Statkraft Markets GmbH Winter Winds Limited 1/2/188 Dec Jan €1,115,888 €123,988

decision paper - cru ireland · 2020. 7. 31. · the new pso levy rate from 1 of october 2020 to 30...

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