Energy Institute

What is the Public Service Obligation and what does it pay for?

The Public Service Obligation (PSO) is a levy on all electricity bills and is currently used to fund the costs of certain services that the Government deems essential to;

  • reduce our emissions of greenhouse gases to meet 2020 binding national targets for emissions reductions,
  • secure our supply of electricity, and
  • promote the development and use of indigenous sources of energy.

In essence, the obligation was designed to fund the cost of services that the market, left to itself, would not provide.

The policy approach in Ireland has been to use our domestic peat to create employment and have a secure domestic source of electricity, to exploit our natural wind resources to decarbonise our electricity system and reduce our emissions, and have sufficient plant built (like Tynagh) to make sure we had enough electricity at times of high demand (during the boom) when no additional capacity was coming on stream 1 .

To ensure these services continue to be provided, peat-fired power generators and generation from renewable sources receive guaranteed prices for the electricity they supply, or in case of Tynagh its fixed costs.

One element of the PSO is the price support for electricity from renewable sources such as wind, biomass and landfill gas. To incentivise companies to start building wind farms in Ireland, the government offered a guaranteed minimum price for wind under the Renewable Energy Feed-in Tariff (REFIT). The cost of the REFIT price guarantee is also included in the PSO 2 . Ireland is not alone in this as almost every country across Europe has a support mechanism to encourage wind farm and other renewable energy development 3 (Fig. 5, Fig. 6).

Figure 5. RES-electricity support per unit of gross electricity produced in 2012

CEER (2015) Status Review of Renewable and Energy Efficiency Support Schemes in Europe in 2012 and 2013. Available Online

  • RES electricity support per unit of gross electricity produced (€/MWh)

Figure 6. Diversity in renewables support schemes in Europe

Klessmann, C. (2014) Experience with RES-E support schemes in Europe. Presentation Available Online

Wind generators are paid a top-up when the wholesale market price for electricity falls below the minimum price they were guaranteed. This cost of providing this top-up (about half of one per cent of the electricity bill in 2014) is recouped from the electricity customer. The size of the guarantee to wind and other renewable energy generators will continue to grow and approximately double as we approach the 2020 targets of 40% renewable energy sources in electricity supply.

While the amount of electricity from renewable sources and hence the guarantee will grow, the actual cost of that guarantee will depend on the wholesale price of electricity.

In a high gas price scenario the cost of the guarantee could be low. However as the level of wind increases on the system, the wholesale market price of electricity is driven down and payments to wind generators will increase on that account.