IIEA Report Nails It - PSO is not the full Renewable Energy story

A report launched today by www.iiea.com outlines the disconnect between actual and reuired pace of decarbonisation in the energy sector. Authored by Joseph Curtin, the report is available for free download at https://www.iiea.com/publication/power-transfer-2030-considering-pace-democracy-diversity-irelands-electricity-system-decarbonisation/

For me, the most insightful passage is:

"Policy is therefore largely determined on the potential impact of different levels of ambition on the PSO. This is understandable to the extent that the PSO is a very visible change on user bills. In October 2017, for example, it increased from €5.90 to €7.69 per month. These highly visible increases are projected to continue into the future in line with greater overall levels of renewables, and are often discussed by the media. However, the PSO-impact is the incorrect yardstick to assess policy because it is not what determines consumers’ bills, and it should not be confused with overall cost-effectiveness. SEAI and EirGrid research has demonstrated that renewables reduce the wholesale price of electricity. Thus far, these interactions (increased PSOs and reduced wholesale prices) have largely cancelled each other out, meaning that electricity bills have remained constant, or, put another way, renewables are cost-effective. Modelling work undertaken by the Renewable Energy Consumers and Producers (RECAP) suggests that greater levels of renewables deployment would lead to lower cost of electricity for consumers, even after the increased PSO cost is taken into account.

The problem is that more renewables drive PSO increases in two ways. The first is obvious: more feed-in tariff contracts necessarily increase the PSO. The second is more complex: because renewables have zero marginal cost of production, they drive down the wholesale price of electricity. The PSO is designed to make up the difference between the wholesale price and the pre-agreed strike price, so lower wholesale prices results in an increased PSO (but not an increase in bills). Unfortunately, when these factors interact with politics, the priority becomes to minimise the PSO impact, and this ultimately results in counteracting renewable ambition in a manner that is not in the interests of billpayers. 

On this basis, when it comes to pace, we can see that Ireland is currently on a less ambitious decarbonisation pathway compared to the four EirGrid scenarios. This is based around a concern over the PSO impact, which is often mistakenly associated with increases in consumers’ bills. This is an unfortunate association in the minds of the public, politicians and policymakers."

I was part of a RECAP delegation that presented to the Oireachtas Committee on Communications, Climate Action & Environment today and we made a similar point. Our presentation will be available online shortly, but in the meantime, the RECAP submission to the RESS consultation can be viewed at: Decarbonisation - A new Roadmap