Today the SEM Committee confirmed a delay to the start of I-SEM, with the new electricity market now scheduled to commence on Monday 1 October 2018 [1]. This four month delay has primarily arisen due to significant delays and issues in the development of central market operator systems. The I-SEM represents a critical modernising step for the industry ahead of smart meter initiatives and increased renewable penetration. Ireland will not be able to achieve a secure decarbonised energy system in the near future without I-SEM. ElectroRoute expects to be one of the largest trading partner in the new market and will play a vital role in enabling many independent power producers and other market participants to access the wholesale markets. ElectroRoute has been working hard with our clients, SEMO and other stakeholders to ensure readiness for the May go-live date and will ensure this momentum is maintained so that our clients are market-ready well in advance of the new go-live date. Stay tuned for further Insights on the implications and oportunites this delay creates. In the meantime if you would like to discuss the implications of I-SEM or how ElectroRoute can support your business, please get in touch at clientservices@electroroute.com  

References

[1]: Link to announcement from the SEM Committe: https://www.semcommittee.com/news-centre/i-sem-project-market-update

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What is wind dispatch down?

Due to its current status in the SEM as a price taker with priority dispatch, wind generation is typically dispatched to its availability provided it is possible to do so without compromising the secure operation of the system. However, at certain times it will be necessary to reduce the level of wind generation (dispatch down) to continue to operate the system securely. There are many reasons which could lead to wind generation being dispatched down, these reasons can broadly be divided into either constraints or curtailment events.

• Constraints – Constraints refer to events where generation is dispatched down due to localised network reasons and where only a subset of wind generators can contribute to alleviating the issue.
• Curtailment – Curtailment refers to events where generation is dispatched down due to system-wide issues and dispatching down the generation of any or all wind generators can alleviate the issue.

It is important to distinguish between constraint and curtailment events since a wind generator’s compensation for being dispatched down could vary depending on the type of event. While wind generators with firm access currently receive the market price for volumes dispatched down due to both constraint and curtailment events, from 2018 volumes dispatched down due to curtailment will no longer receive market compensation. Additionally, a wind generator supported through either the REFIT or NIROC schemes will receive these support payments based on its metered generation, i.e generation after curtailment. Curtailment therefore represents a volume risk impacting a wind generator’s revenue.

Dispatch down in recent years

Dispatch down has increased in recent years driven primarily by increases in curtailment as wind capacity continues to increase and with it the level of wind penetration. However, despite record levels of wind installation in 2016 and outages on both interconnectors throughout the year (interconnectors generally facilitate greater levels of wind generation without the need for curtailment), there was still a decrease in dispatch down levels.      

What caused the lower dispatch down levels in 2016?

There are several factors which influence dispatch down of wind but one of the most important factors is the level of available wind output across the year, in other words how much does the wind blow. The average wind load factor in 2016 was 27%, much lower than in previous years (the average of the past six years is approximately 30%). With less wind generation across the year there will generally be less times when wind needs to be curtailed for system security reasons (for example to ensure the SNSP limit isn’t breached) and consequently less dispatch down of wind.    

Future Outlook

Undoubtedly, the continually increasing levels of installed wind capacity on the system will exert upwards pressure on the levels of wind dispatch down in the coming years, potentially counteracted by further increases in the SNSP limit as EirGrid and SONI continues to move towards the targeted SNSP limit of 75% through the DS3 programme. The introduction of I-SEM next year should also help reduce wind dispatch down as implicit market coupling replaces current interconnector scheduling arrangements between the SEM and GB. Today in the SEM, interconnector flows are scheduled by interconnector users in restrictive morning trading gates, which can sometimes result in inefficient power flow and power being imported while wind is being dispatched down. In I-SEM, interconnector flows will be scheduled by market coupling algorithms which will ensure that power always flows to the more expensive market. This should result in greater exports to GB during times of high wind generation, thereby reducing the need for dispatch down of wind generation.

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  In the early hours of Monday, the 9th of December, Ireland saw the first negative EP2 System Marginal Price in 5 years as prices plummeted to -€84.96/MWh for three half hour periods. A rapid increase in wind generation, as seen in the graph below coincided with a low demand period stemming from particularly mild weather conditions for this time of the year. The full availability of both Irish interconnectors, as well as significant exports of wind to GB were still not enough to keep prices in the positive bracket as TSO actions had to be taken to ensure the stability of the system.   Keep an eye out for the next installmentof ElectroRoute Insights as we dig deeper into this event. In the early hours of Monday, the 9th of December, Ireland saw the first negative EP2 System Marginal Price in 5 years as prices plummeted to -€84.96/MWh for three half hour periods.

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  On 23rd May 2016 the SEM Committee announced that the DS3 System Service competitive auction process planned to take effect from October 2017 will be delayed by one year. The first auction will now take place in the first half of 2018, with the revised date of delivery of the services, October 2018. The initial auction design was proposed by the SEM Committee in December 2015 and was met with negative reaction from industry participants, particularly due to the complexity of the auction, the commitment model and investor uncertainty. Subsequently the Regulatory Authorities held a workshop in April where industry participants provided feedback on the proposed design and provided alternative approaches to the auction process with perspectives on the design given from conventional generators, demand side units, the wind industry as well as new entrants and new technology. This decision comes at the same time as the deadline for the DS3 Interim Arrangements tender which passed on the 25th of May. The interim arrangements are now expected to run for two years although it is unclear whether another tender process will take place for the second year of interim tariffs. Even though the DS3 programme is not specifically part of the I-SEM, it is a setback to the overall transition into the new electricity market. The delay comes as a big blow to new entrants in particular for whom DS3 System Services is a key revenue stream and leads to further misalignment with the first Capacity Auction.

DS3 Competitive Auction  

Auction design is a critical workstream in the DS3 System Services development. The auction design is a single, uniform, pay-as-cleared price, sealed bid auction for System Service products. Complexity comes from the fact that it is an auction for a contract to supply a package of System Services, rather than each service. Bids will come in the form of packages of products from each provider therefore a simple merit order is not applicable. One of the key frameworks of the auction design that adds intricacy is that a provider will be paid depending on their availability to supply a System Service. Availability is defined as payment for the volume of the service that has been made available by a System Service contract holder in that trading period regardless of the TSOs real-time requirement for that service. The new auction design must be carefully constructed to facilitate new investment while also taking advantage of the benefits from increased competition.

Next Steps

The SEM Committee is currently considering the appropriate next steps and scope for the auction design, in light of the arguments put forward by respondents and the emerging complexity in interactions with the I-SEM workstreams. “The SEM Committee will adopt a pragmatic and flexible approach when setting the scope of the first auctions in order to ensure a competitive process is carried out in 2018, with the potential for further development of that process in subsequent years.”1 The next stage of the DS3 Programme is expected to be the Qualification Trials which will be used to establish the mechanisms by which the characteristics of new technologies and new fast products i.e. FFR, FPFAPR, and DRR can become “Proven” and “Measurable”. A separate OJEU tender process will take place, with trials expected to commence from Q1 2017. The SEM Committee have said that they will liaise with the TSOs to produce and publish a new programme to take account of this decision and to ensure this new programme is aligned with the CRM process and the I-SEM project plan. If you are interested in discussing the services ElectroRoute can offer to maximise generator revenue through DS3 please contact the Client Services team for further information.    

References:

1:https://www.semcommittee.com/news-centre/ds3-system-services-notification-delay-auction-design

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  A tender was announced by the Irish TSO EirGrid which is set to be the first step in the transition to the new DS3 System Services Arrangements. The Central Procurement Process which will select the projects eligible to compete for DS3 System Services contracts, will open to industry on April 18th 2016 in anticipation of the Interim Regulated tariff going live in October of 2016. This is compulsory for all providers wishing to receive the interim regulated tariff for the delivery of System Services products and further compete in the competitive auction process. The Central Procurement notice will go out to tender on the Official Journal of the European Union (OJEU). Providing Units have 37 days to submit bids for a contract to supply 11/14 System Services to the TSO for the period of 1st October 2016 to 30th September 2017. Potential service providers will be required to detail their ability to deliver the DS3 services through a procurement exercise which will be the subject of further stakeholder engagement at the Bidders Forum which will take place on the 27th of April. Each Provider Unit must have an existing HAS contract, or show demonstrated experience of product provision in order to prove compliance. Bids after the deadline of 25th May will not be considered. Based on this approach the total pot available for System Services could potentially increase by approximately €20m, up from the current pot of approximately €50m. A separate tender will be used to establish the mechanisms by which the characteristics of new technologies can become “Proven” and “Measurable”. Qualification Trials will be used to measure the quality of provision of “fast” services i.e. FFR, FPFAPR, and DRR. Technology trials during the interim period will be open to all generators to prove the measurability of the fast services. Trials will also take place for new technology (storage, batteries, DSU etc) to prove their ability to provide all 14 products. It is expected that the maximum capacity of new technology projects for this trial will be 10 MW and a minimum set at 100 kW. Payments for both trials will be limited and are not expected to exceed €3m over the 2016/17 tariff year. The Qualification Trials will provide a great opportunity for new entrants to prove capability and measurability before the DS3 enduring arrangements beginning October 2017. If you are interested in discussing the services ElectroRoute can offer to maximise generator revenue through DS3, please contact the Client Services team for further information.  

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