Why do we guarantee prices for some generators and not for others?
Another way of looking at the guarantees that the PSO funds is to see them in terms of a price risk that has been taken away from the investor to be carried by the consumer so that the system gets the electricity it needs but at a lower price to the consumer.
For example, with the assurance of the guarantee, investors in a wind farm know how much they will get for their electricity leaving them free to assess and carry the other site-specific risks themselves – such as that the chosen site may not be as wind rich as previously thought, or that the wind resource may be very low in some years depending on weather conditions. If the risk is lower, the cost of capital will be lower and the guaranteed price that is needed to incentivise the investment in wind can be lower as well. This is the logic of the guarantee.
Irish energy policy has successfully stimulated investment in onshore wind, landfill gas and to a lesser extent in biomass. The strength of the stimulus required was lowest for wind, next lowest for landfill gas and then followed by biomass combustion. The highest level of price guarantee was for high efficiency biomass fired CHP. The guaranteed prices for electricity from these qualifying sources are set out in the table below.