On 1 March 2013 the Single Electricity Market Committee (SEMC), the regulator of the wholesale market for electricity, published a key decision affecting all wind energy generators on the island of Ireland.
The decision (SEM 13-010) sets out the SEMC’s approach to the treatment of curtailment in tie-break situations and will have a significant impact on existing and future wind energy generators, their financiers and consumers up to 2018 and beyond. The SEMC also published the transmission system operators’ methodology for distinguishing between constraint and curtailment events (SEM Decision 13-011). This methodology will play a central role in the implementation of the SEMC’s decision on curtailment.
Increasing levels of wind energy
EU Renewable Energy Directive 2009/28/EC lays down binding 2020 national targets for the overall share of energy from renewable sources in gross final energy consumption. In order to meet these targets, Ireland and Northern Ireland will have almost 40% of the electricity consumption from wind by 2020; and it is estimated that an additional 3,000 MW of wind energy will be added to the 2,100 MW currently connected to the grid. Increasing levels of wind penetration pose technical challenges for the system operators of the single electricity market, in particular to ensure system stability and that the supply of electricity matches demand.
Dealing with excess wind energy
Article 16 of the EU Renewable Energy Directive 2009/28/EC requires that renewable sources of energy are dispatched in priority to other non-renewable sources. In situations where the supply of energy exceeds demand and there is no other basis (such as price) for dispatching down generators, a tie-break situation arises.
Transmission system operators’ methodology for distinguishing between constraint and curtailment events (SEM Decision 13-011) now provides that in tie-break situations where grid security issues can only be resolved by reducing the output of one or a small group of price taking generator units in a tie-break, then this will be deemed to be a constraint event. On the other hand, where grid security issues can only be resolved by reducing the output of any or all of the price taking generator units in a tie-break then such reduction will be deemed to be a curtailment event. While both constraint and curtailment result in a reduction of generator(s) output, whether a generator is subject to constraint or curtailment can have different financial consequences for the generators concerned and ultimately for consumers.
Criticism of previous SEMC decision on curtailment
In an earlier decision paper (SEM-11-105) the SEMC had proposed that generators would be curtailed by adopting a grandfathering approach based on firm access. This essentially meant generators with non-firm access to the grid would always be dispatch down before those with firm access. This approach was met with widespread criticism by the industry, as it was feared it would deter new generators with non-firm access from entering the market and potentially undermine the achievement of the 2020 renewable energy targets. In response to this criticism the SEMC withdrew its decision and entered into a second round of consultation, culminating in the publication of its revised decision (SEM 13-010) on the Treatment of Curtailment in Tie-Break Situations.
Treatment of curtailment in tie-break situations
From 1 March 2013 onwards SEM Decision 13-010 provides that all generators (both firm and non-firm) will be dispatched down on a pro-rata basis for the purpose of curtailment. The pro-rata approach has been welcomed by many industry stakeholders on the basis that it will provide for equal burden sharing across all wind generators, irrespective of whether their access is firm or non-firm. Reports indicate that wind generators with non-firm access could have experienced levels of 24% curtailment in 2020 if a grandfathering approach based on firm access was adopted. By applying a pro-rata approach it is estimated that curtailment will be significantly lower for all generators (both firm and non-firm); in the region of 4% for all generators in 2020.
The second element of the SEM Decision 13-010 in respect of phasing out dispatch and balancing cost (DBC) payments, has received a less positive industry response. The SEMC decision provides that generators with firm access will continue to receive DBC payments for curtailment but these payments will cease on 1 January 2018. Generators with non-firm access have no entitlement to DBC payments and will not be affected by this aspect of the decision.
It is clear that the decision to cease DBC payments from 2018 is aimed at protecting consumers, who ultimately pay for DBC payments through higher electricity bills. With higher levels of wind connecting to the grid in order to meet national 2020 renewable energy targets, the level of curtailment and DBC payments could potentially increase. The SEMC considered that ceasing payments from 2018 onwards struck an appropriate balance between delivering savings for consumers and providing generators with sufficient lead in time to make investment decisions. The SEMC also considered that eliminating DBC compensation for curtailment after 2018 will promote efficiency by discouraging wind farms that would only be viable if they received DBC payments over their entire operational lifetime.
Curtailment remains one of the most significant challenges for renewable energy sector stakeholders. The overall objective of the single electricity market scheduling is to meet the demand for electricity on the island of Ireland at the least cost to consumers, subject to the security and reliability of the system. The decision to phase out DBC payments from 2018 onwards would seem to be based primarily on the SEMC’s statutory duty under the Electricity Regulation (Amendment) (Single Electricity Market) Act 2007 and the Electricity (Single Wholesale Market) (Northern Ireland) Order 2007 to protect the interests of electricity consumers by promoting effective competition. While clarity on the treatment of curtailment is to be welcomed, investors, lenders, connected generators and new entrants will now need to assess the implication of the decision for their projects.
Investment in grid infrastructure in order to minimise curtailment is mandated under EU Renewable Energy Directive 2009/28/EC. A much welcomed aspect of the decision is the SEMC’s confirmation of its intention to ensure that the transmission system operators DS3 work programme delivers on its objectives of minimising curtailment of renewable generation.
The transmission system operators and SEMO are now tasked with implementing this decision through the relevant market rules, codes and dispatch system changes.