Tomorrow (Friday 15 December) we will submit bids into Ireland’s new Capacity Auction process. The auction is taking place ahead of the implementation next May of the Integrated Single Electricity Market, or I-SEM as it is known, across the island of Ireland. This auction process concludes Friday and Provisional Results are expected to be notified to participating bidders, including SSE, on Monday next, 18 December.
So what is I-SEM, and what does this new Capacity Auction process mean for consumers, for generators, and for SSE?
Reform of the existing Single Electricity Market (SEM) and its transformation into I-SEM, a new wholesale electricity market arrangement for Ireland and Northern Ireland, has been ongoing for some time. The new market arrangements are designed to further integrate the all-island electricity market with European electricity markets, enabling the free flow of energy across borders. SSE has been fully involved in all stages of the new market design, working with regulators in Ireland and Northern Ireland to progress its implementation.
As under SEM, stations will continue to earn revenues for energy generated and provided to the system; capacity payments for being available on a half-hourly basis if called upon to maintain security of supply; and ancillary service payments for providing services that support stability, such as being able to ramp up or down quickly in response to system fluctuations.
The auction process is one of the key changes made to the capacity market design. Under the current SEM, all plants registered and trading in the market receive capacity payments based on their availability to the system; every MW receives a capacity payment for each half hour it is available at rates set by the Regulatory Authorities. In the new I-SEM market generators must bid in to an annual Capacity Auction to be awarded a capacity contract. The total volume of capacity to be auctioned has been decided by the Regulatory Authorities, considering analysis by the System Operators, based on their view of how much capacity is required to keep the system secure.
Winning contracts will be provisionally awarded next week on the basis of being able to make performance and availability commitments at the lowest cost to the System Operator – and thereby at the lowest cost to the consumer. Other contracts may also be awarded to plants that are of strategic importance geographically to support energy demand needs. The terms of these new capacity contracts provide that if a generator is not available when called upon, it will then be subject to substantial financial penalties.
That’s what makes tomorrow’s bid submission date such an important landmark in I-SEM implementation. And in reality, as there is surplus capacity at present, it means that some power plants will win capacity contracts and others may not.
Over the past ten years, we’ve built SSE’s generation presence in Ireland, proudly investing over €2 billion so far in growing our energy business here. As a result of that investment, we have an operational fleet of 2,000MW of thermal and renewable energy assets which, I’m proud to say, has produced over 4TWh* of generation output in the last 12 months to provide energy for our customers and to meet all-island demand.
Next week, we will know the Provisional Results of the auction, with those results expected to be confirmed at the end of January. Ahead of that, I would like to take this opportunity to thank everyone involved in this process, from the last number of years of market design through to the final bid submissions. I am also grateful for the hard work of those who maintain and operate our power plants – it is our dedicated teams at each plant that ensure that SSE plays its part in keeping the lights on for customers across the island of Ireland.
*Based on the 12 months to 30 September 2017.