The changes heralding new era for electricity
The electricity market across the island of Ireland will change its commercial systems next Monday, October 1. The all-island Single Electricity Market that — with minor stresses — has served electricity users well will start to trade as an I-SEM: an Integrated Single Electricity Market.
Customer charges will remain as they are today but the relationships between generators, suppliers and the structure of payments between them will go onto a more complex bidding and supply structure which gives better incentives to use capacity more efficiently.
Inter-day markets and day-ahead markets are the new language, following EUwide policy changes. Understanding the change-over is for the professionals. In Northern Ireland the most conspicuous announcement — awaited any day now — is the fate of the two large generators at Kilroot.
The bid by AES to keep them operating after October 1 was unsuccessful. AES has now sought regulatory permission to take them out of commission. The longer term future of Kilroot Power Station is yet to be decided. Clarity is expected in the next few days.
Jenny Pyper, Utility Regulator, explains the rationale: “We would not be introducing I-SEM if it was not an opportunity to introduce a more competitive market which will incentivise investment in new generators and a market which will make maximum use of renewable sources.
“The new ‘capacity remuneration mechanism’ crystallises some of the benefits as consumers will only pay for those genera- tors (producing electricity) which is needed to meet demand.
“There was a perverse incentive in the old market where older generators were incentivised, now we are only paying for those that we need.”
Pending the conclusion of the negotiations, Jenny Pyper rejects a claim that Kilroot is being forced to close: “There is no requirement to close for the two large units at Kilroot. They have asked for derogation from the grid code and we are working through that process.
“The I-SEM is set up so that we can ask whether there are any system reasons why units should, or should not, close and are there any other reasons why they are needed on the system. We are currently working through a derogation process to ascertain whether any of the AES units are required in the longer term management of the system. We want to bring this process to a conclusion within the next two weeks.”
Also hanging over the operation of the I-SEM is the outcome of the Brexit negotiations. I-SEM will be up and running before there is final clarity on Brexit. An agreed Brexit treaty might be expected to specifically endorse the new electricity arrangements.
If there is no agreed Brexit treaty, then in that unwelcome situation, there would be uncertainty.
“The final outcome of the Brexit deal will need to be factored into operational decisions that govern how I-SEM works. That is something that we will take forward in co-operation with our partners, the Irish Commission for the Regulation of Utilities.”
In a further addition to the complex questions on the development of the electricity sector, the regulator shows her frustration because of the delay in commissioning the now approved (by the planners) high capacity cross-border grid extension. “It requires a Ministerial decision. I am concerned that we do not have the benefits, nor a firm timetable, for that key piece of infrastructure which will bring benefits of about £10m each year in Northern Ireland.”
Jenny Pyper describes herself as a lonely regulator.
“My biggest concern is the absence of devolved Government. Time is passing without clear decisions on future investment. Everyone is very focused on the immediate problems like keeping the lights on and tariff increases. In the meantime we do not have any definite new targets for renewables and investment for the future. Everything is short-term and expedient. While we live with uncertainty, we are running the risk that consumers will end up paying more than they should.”
Not a happy situation!
Utility Regulator, Jenny Pyper