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SEM Chart of the Week

2019

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One step beyond: First T-4 auction results

James Goldsmith
James Goldsmith Senior Consultant (Ireland)

The CRM T-4 Capacity auction is one of the new procurement processes being rolled out in SEM that will determine the future make up of the generation portfolio. The other auctions that will have an impact over the coming year will be the DS3 capped procurement and the Renewable Electricity Support Scheme (RESS) auction, when that does occur.

The provisional results delivered 7,412MW of derated capacity procured for 2022/23, with all constraints being satisfied. In total there was 710MW of new capacity delivered, 173MW of this coming from Demand Side Units (DSU).

The clearing price was €46,150/MW (£43,030.26/MW), up from €40,645.66/MW or £36,890/MW in December’s T-1 capacity auction. The result suggests that a new-build plant may have set the price, based on previous T-1 capacity auctions. This will give a total of €342 million in capacity payments for that delivery year, which is about €200mn shy of capacity payments in the previous SEM.

This week’s chart considers these results to see what interesting questions this raises as we move forward in this new world of competitive auctions.

Beginning to feel the heat

One of the key aspects of the CRM in SEM is how the auction interacts with the constraints in the network infrastructure – Northern Ireland and Dublin are particularly constrained.

The impact of these constraints was felt most severely on 24 January, where a lack of diverse generation options, limited network integration and interconnection now being set by EUPHEMIA drove sky high imbalance prices.

The results of this auction will do little to quell fears of a repeat episode in the future. Of the 710MW of new-build, the majority will be constructed in Dublin, perhaps hinting to a wider economic Dublin focus or that regulatory intervention created a route to market for plant in that region. In October 2018, the CRU directed EirGrid to make grid connection offers to successful plant in this T-4 auction.

The locational results break down as follows:

  • Northern Ireland – 13.8MW
  • Dublin – 526.27MW
  • Rest of Ireland – 169.8MW

While this is a welcome result in terms of the capacity outlook for Dublin, it does raise questions as to the integrity of the Northern Irish system. 447MW was unsuccessful in Northern Ireland suggesting that the debate over capacity may rear its head there again. The ability of the SO to incentivise infrastructure development evenly across the market may also come under scrutiny.

This is the heavy heavy

At first glance it appears the heavyweight players in the Irish energy sector have come out on top in this round.

ESB has been the only company to successfully receive any 10-year contracts in this year’s auction – 489MW worth. In the absence of a more detailed breakdown of the results, it can be inferred that the majority of these contracts would appear to be OCGT plants in the Dublin area.

As interesting an outcome as it is, on reflection it is perhaps a predictable one. ESB has a number of the large grid connections in the Dublin area and owns plenty of land for industrial use in an area in high demand for new capacity.

Rock steady beat

As is customary in these auctions across Europe, it seems that there is a cohort of demand-response units that have been successful in securing one-year deals. There has been 173MW of successful new-build DSR in this auction, bringing the total demand-side involvement in the CRM to just above 600MW about 8% of the market. The further growth potential of this market will be interesting to watch over the next few years.

Again, it was the heavy hitters that have won out, with ENEL X (EnerNOC) picking up the majority of demand side contracts this time out with the most units to receive a contract: 133MW of the 173MW total.

Move your feet

So, what does this tell us about the future of the electricity sector in Ireland? It tells a familiar story that has been heard across Europe recently. New technologies are proving adept at providing an increasing amount of capacity on the system, the size of the growth of this sector will no doubt taper at some point but shows no sign of pulling the brakes just yet.

It tells us flexible gas generation in constrained areas appears to be able to build a business case. In an environment in which an increasing amount of baseload generation will be provided by renewables, up to 70% by 2030, a flexible generation asset may be an auction winner.

It also tells us that wind is due to play an increasing part of our energy mix, if we didn’t know that already. The successful 44.5MW of new wind, implies 500MW of nameplate capacity seeking to use the CRM as an element of their route to market. The location(s) of that capacity on the network and whether it is onshore or offshore will make for interesting reading.

The results show that the capacity outlook in SEM seems to be evolving, with flexible plant growth in parallel with wind growth. There is yet to be a massive shock in this area, but time will tell if this will be the case in years to come.

Download this week’s SEM Chart of the Week

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