The problem: too much renewable electricity

As is well known, Ireland’s Climate Action Plan includes the eventual delivery of 80% of the country’s electricity demand from renewable sources. This ambition is driving the large scale deployment of new renewable generation projects - primarily onshore wind and solar, but with firm plans for offshore wind.

The availability of excessive renewable electricity generation, i.e. wind, solar, from time to time, can potentially cause “physical congestion” on the electricity grid. This is typically resolved by the transmission system operator intervening to impose limits on this generation. Depending on how fast the Irish electricity grid can be reinforced and extended, this problem may get worse as Ireland moves towards its 80% renewables target.

Generate or compensate

The EU Clean Energy Package legislation enacted in 2019, requires compensation to be paid to the owner of a generation, energy storage or demand-response facility that is limited, by way of non-market based “redispatching”. This solves a problem of physical congestion.

As we previously noted as far back as March 2020, the SEM Committee, comprising the electricity regulators in Ireland and Northern Ireland, has been grappling with the local implementation of this compensation entitlement.

Redispatching is defined in European law as “a measure activated by one or several system operators by altering the generation and/or load pattern in order to change physical flows in the transmission system and relieve a physical congestion.” In implementing the compensation entitlement in Ireland and Northern Ireland, the SEM Committee has faced the problem of marrying this EU definition with related concepts that are already features of the Irish electricity market, such as:

• “Curtailment”: the reduction of generation for system-wide reasons, which has not been subject to compensation since 2018, and
• “Constraint”: the reduction of generation for localised network issues, which can be compensated under the rules of the all-island Single Electricity Market.

SEM Committee decision paper

The SEM Committee published, on 22 March 2022, a decision paper on the implementation of the EU compensation entitlement. The decision paper includes a number of separate decisions, due to the interrelated nature of many of the issues involved.

To summarise, the SEM Committee have decided that:

• “Redispatch” in the Single Electricity Market, insofar as the EU definition is concerned, does indeed cover both “constraints” and “curtailment”
• The incidence of constraints and curtailment shall continue to be allocated on a pro-rata basis within the relevant categories of generator
• All units will be compensated for constraints and curtailment through the Single Electricity Market – in other words, the existing arrangements for constraint compensation will effectively be extended to curtailment
• The payment of compensation for curtailment will not occur until tariff year 2024/25
• For “new renewable units”, the SEM Committee will continue to work with the transmission system operators to implement a number of changes to market systems, which would allow the differential application of constraints (market merit-based) and curtailment (pro rata). Until these changes are made, the current pro-rata application of both constraints and curtailment will continue.

A number of decisions have been deferred, including:

• The interaction between redispatch compensation and the various renewable electricity support schemes that operate separately in Ireland and Northern Ireland – these decisions will be made jurisdictionally

• How to implement compensation management frameworks at the electricity distribution system level, given that the distribution system operators do not currently have a significant role in dispatch

Conclusion

As the Irish renewable electricity generation fleet expands and puts pressure on existing transmission and distribution grid infrastructure, the availability of compensation for curtailment and constraint will continue to be a material element of the financial modelling of any proposed project.

The enactment of the EU Clean Energy Package in 2019, with its specific compensation requirements, introduced an element of uncertainty to the extent that it required the Irish and Northern Irish energy regulators to reopen the existing SEM compensation arrangements and, in particular, to explore the reinstatement of curtailment compensation.

The key takeaway for those planning new renewable projects is that an interim approach, based on the pro-rata application of curtailment and constraints, will be adopted until a merit-based approach to constraints can be facilitated.

For more information, please contact a member of our Energy team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.