Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

The electricity regulatory authorisation required to construct a generation facility is an ‘authorisation to construct or reconstruct a generating station’, issued by the Commission for Regulation of Utilities (CRU) pursuant to section 16 of the Electricity Regulation Act 1999 (the 1999 Act). The criteria to which the CRU may have regard in determining an application for such an authorisation are prescribed under the Electricity Regulation Act 1999 (Criteria for Determination of Authorisations) Order 1999 (SI No. 309 of 1999). Other authorisations such as planning permission are also required.

The electricity regulatory authorisation required to operate a generation facility is a licence to generate electricity issued by the CRU pursuant to section 14(1)(a) of the 1999 Act. Other operational permits such as an integrated pollution prevention and control licence may also be required.

Authorisations to construct and generation licences are typically issued by the CRU in a standard form, each of which is personalised only to the extent required to identify the relevant licence-holder and project. The 1999 Act includes a procedure, involving public consultation, under which the CRU may modify an issued authorisation or licence. The CRU modified the form of standard generation licence in 2007 in preparation for the commencement of trading in the Single Electricity Market (SEM), and then again in 2017 in preparation for the Integrated Single Electricity Market (I-SEM) go-live, although the CRU suspended the latter set of modifications following a challenge from a licence-holder.

Streamlined procedures also exist to facilitate the issuance of authorisations to construct and generation licences in respect of generators that are to have an installed capacity of 10MW or less. Of these, generators that are to have an installed capacity of 1MW or less automatically stand duly authorised and duly licensed, without the need for formal application to be made to the CRU.

Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

Section 34 of the 1999 Act confers upon the CRU regulatory powers in respect of the connection of electricity generators to the transmission grid. Section 34 provides that where an application is made to the transmission system operator (TSO) for connection to or use of the transmission system, the TSO must (except where certain circumstances apply) offer to enter into an agreement for such connection or use, in accordance with directions given to the TSO by the CRU from time to time.

The CRU has used this power of direction to stipulate the required standard form of transmission connection and use of system agreements, as well as the approach required to be taken by the TSO to applications for connection. The most significant uses of this power have been:

  • the approval of the basis upon which the system operators levy charges for the connection of parties to the electricity transmission and distribution systems. Each connecting party is generally responsible for meeting the cost of the construction of local connection assets, as designed by the system operators on a ‘least cost technically acceptable’ basis. Certain connection assets may be procured ‘contestably’, whereby the connecting party, rather than the system operators, is responsible for the construction of the relevant assets; and
  • the establishment of the group processing approach (GPA) to connection applications, which was introduced by the CRU in 2004 and which limited the availability of connection to renewable generation projects that fell within the criteria specific for membership of the Gate 1 (370MW), Gate 2 (1,300MW) and Gate 3 (4,000MW) capacity tranches. A separate 2,000MW tranche of capacity was subsequently added to the Gate 3 programme for conventional (non-renewable) generation.

 

In March 2018, the CRU established a multiphase enduring connection policy (ECP) to replace the GPA. The second cycle of capacity allocation, ECP-2, was announced on 10 June 2020, and will consist of one ‘batch’ per year in September 2020, September 2021 and September 2022. The size of these batches will be determined by number of applications rather than aggregate megawatts. There is a target of 115 connection offers for each batch period consisting of (1) 85 projects for the generation, storage and other system services technology projects with a maximum export capacity exceeding 500kW, prioritised by largest renewable energy generation (for the first 25) and thereafter by date of planning permission grant; (2) 15 non-batch projects; and (3) 15 community-led projects.

Offshore wind grid connection is dealt with separately to the ECP process. To achieve the 3.5GW offshore wind energy target set out in the Climate Action Plan, the Irish government is seeking to establish a policy framework for the delivery model for offshore grid connection in alignment with the National Marine Planning Framework. Accordingly, the Department for Communications, Climate Action and the Environment published a consultation paper in June 2020 on a Grid Development Policy for Offshore Wind in Ireland. The consultation paper outlined four different options, ranging from a developer-led model (which is similar to the model used in Great Britain) to a plan-led model (which is similar to the model used in the Netherlands). The consultation closed on 22 July 2020.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

Pursuant to the 1999 Act, the Minister and the CRU are required, when carrying out their duties, to have regard to the need to promote the use of ‘renewable, sustainable or alternative forms of energy’. This category is defined as the production of electricity using, as the primary source of energy, any of wind, hydro, biomass, waste (including waste heat), biofuel, geothermal, fuel cells, tidal, solar and wave (or a combination of such sources).

Public Service Obligation (PSO) support schemes

Under section 39 of the 1999 Act, the Minister is required to direct the CRU to impose ‘public service obligations’ upon electricity licence-holders, which may include such arrangements as are necessary to ensure the availability of electricity generated using ‘renewable, sustainable or alternative forms of energy’ or that operate as combined heat and power plants.

This PSO mechanism was used to establish three renewable energy feed-in tariff (REFIT) support schemes. Each of these schemes operated by paying, to the off-taker of a supported power purchase agreement with a renewable generator, a feed-in tariff reflecting the difference between the wholesale electricity price and the technology-specific price guaranteed to the generator under the REFIT scheme. The last of the schemes, REFIT 3, closed to new applicants on 31 December 2015. REFIT support for an eligible project will expire after 15 years or at 31 December 2032, whichever occurs first.

In July 2018, following an earlier consultation exercise, the Department of Communications, Climate Action and Environment (as it was then known) announced its intention to establish a new Renewable Electricity Support Scheme (RESS), and published an accompanying high-level design paper. The RESS is intended to operate by allocating long-term two-way contracts for difference that will support the payment of fixed per megawatt hour prices (on a ‘pay as bid’ basis) to projects that are successful in RESS auctions. State aid approval was obtained in time for bidding in the first RESS auction in July 2020, and the announcement of the final results and notices of awards are scheduled for early and late September 2020 respectively.

Planning

The Planning and Development Act 2000 allows an enhanced approval procedure for planning applications for wind farms with more than 25 turbines or an output of greater than 50MW, where the Planning Appeals Board considers that the project is of strategic, economic or social importance, contributes substantially to fulfilling the National Spatial Strategy or regional planning guidelines or would have a significant effect on the area of more than one planning authority. In 2006, the Department of Environment, Heritage and Local Government (as it then was) published Wind Energy Development Guidelines, which set the national policy context to be applied by planning authorities in the determination of planning applications for wind farms.

In December 2019, new draft Wind Energy Development Guidelines, which are intended to replace the 2006 Guidelines, were published by the Minister for Housing, Planning, Community and Local Government.  The draft revisions were open to public consultation until February 2020. The key aspects of the draft approach are the following.

  • New noise restriction limits of a relative rated noise limit of 5dB(A) above existing background noise within the range of 35–43dB(A) for both day and night, with 43dB(A) being the maximum noise limit permitted. The Guidelines propose a potential penalty of up to 11dB(A) for specific noise with tonal or amplitude modulation characteristics, with the result that wind farm developments with these specific noise characteristics would not be able to operate without mitigation measures. The Guidelines also specify a threshold for low frequency noise, beyond which a turbine will be required to be shut down.
  • For visual amenity purposes, each turbine should be set back from the curtilage of a residential property by a distance of at least four times its tip height, subject to a mandatory minimum setback of 500 metres. Where the owner or occupier of such a residential property agrees to a lower setback distance, an exception can be permitted, but the requirement to comply with the noise requirements outlined above will continue to apply to such a residential property.
  • The adoption of technology that will shut off each wind turbine automatically to eliminate any shadow flicker.
  • Developers of wind energy developments must be required to engage in active public consultation with the local community in advance of the planning process, and there will be a requirement to submit a community report as part of that planning process outlining how the concerns of the community in relation to the development have been accommodated in the final proposed development. Furthermore, the community report must detail how the local community have been offered an opportunity to obtain an enduring economic or social benefit from the proposed development.
  • No works in respect of the primary wind energy development, which will require an environmental impact assessment to be conducted, will be permitted unless the grid connection element of the project has also obtained a grant of planning permission. 

 

The June 2020 ‘programme for government’ indicates that the finalisation and publication of the Guidelines is a priority for the new government. That programme also proposes the establishment of a dedicated Environmental and Planning Law Court, along the lines of the dedicated Commercial Court that operates in Ireland. It is considered that such a dedicated court could assist in reducing the often lengthy delays occasioned by litigation of planning decisions in the Irish courts. The programme for government also flags the potential for some reform of the judicial review process, although it stops short of making any detailed proposal in that regard.

Priority dispatch

Ireland was previously required, pursuant to the EU Renewable Energy Directive (2009/28/EC), to ensure that transmission and distribution system operators ‘guarantee the transmission and distribution of electricity produced from renewable energy sources’. This obligation has been transposed into Irish law as a duty upon the TSO and distribution system operator to, when dispatching generating units, ‘give priority to generating units using energy from renewable sources in so far as the secure operation of the electricity system permits’, and was also reflected in:

  • the dispatch obligations imposed upon the TSO in its TSO licence and in the Grid Code;
  • rules imposed upon the TSO by the CRU for the dispatch of plant in ‘tie-break scenarios’; and
  • the ability of renewable generators to register as ‘price taking generation’ in the SEM (thereby providing preferential access to the SEM market schedule).

 

However, under the EU clean energy package, priority dispatch is removed for new generators that have contracts concluded on or after 4 July 2019, except for limited exemptions. The CRU is currently implementing this rule change, including specifying the contracts whose conclusion defines the priority dispatch entitlement.

Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

In June 2019, the Irish government published its Climate Action Plan, which includes the stated government intention to:

  • deliver an ‘early and complete’ phase-out of coal- and peat-fired electricity generation; and
  • increase electricity generated from renewable sources to 70 per cent by 2030, indicatively comprised of at least 3.5GW of offshore renewable energy, up to 1.5GW of grid-scale solar energy and up to 8.2GW total of increased onshore wind capacity.  

 

The RESS is anticipated to be the key policy lever by which new renewable generation capacity is to be delivered towards this target. RESS support will be priced according to the results of auctions, on a pay-as-bid basis, which makes its cost difficult to predict ahead of time.

The Irish Government is also seeking to reduce the amount of power that is consumed, through the implementation of the National Energy Efficiency Action Plan that Ireland maintains pursuant to the EU Energy Efficiency Directive (2012/27/EU). The 2020 energy efficiency target equates to a 20 per cent reduction in final overall energy demand based on the average energy demand during the period 2001 to 2005, with the public sector expected to play an exemplar role by working towards a 33 per cent reduction target – although it should be noted that these targets apply to overall energy demand and not just the demand for electricity.

Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

The Irish electricity regulatory framework does not currently recognise electricity storage as a licensable activity in its own right. Absent this recognition, the business of an entity engaged in the storage of electricity falls to be regulated on the basis of the separate licensable activities that this business entails: in particular, the supply and generation of electricity. Specific treatment of batteries and pumped storage units was, however, introduced into the wholesale electricity market rules as part of I-SEM go-live. A recent consultation of the CRU has noted that storage providers pay both demand-related network charges and general-related network charges (GTUOS) and has proposed a revised interim approach (eliminating the requirement to pay GTUOS) pending a full review of the network tariff structure later in 2020.

Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

It is noted in the 2015 energy white paper that nuclear power generation in Ireland is currently prohibited by legislation. This may be a reference to section 18(6) of the 1999 Act, which prohibits the Minister from providing for nuclear fission in any order by which the Minister directs the CRU as to how it determines whether or not to grant an authorisation to construct a generation station. An order of this type was made in 1999, but does not refer explicitly to nuclear fission. A more effective prohibition is set out in section 37K of the Planning and Development Act 2000, which provides that nothing in that Act shall be construed as enabling the authorisation of development that consists of an installation for the generation of electricity by nuclear fission.

Regulation of electricity utilities – transmission

Authorisations to construct and operate transmission networks

What authorisations are required to construct and operate transmission networks?

Pursuant to the European Communities (Internal Market in Electricity) Regulations 2000 to 2009, functions and duties in relation to the Irish electricity transmission system are borne by each of EirGrid plc, as transmission system operator (TSO), and the Electricity Supply Board (ESB), as owner (transmission asset owner (TAO)). Each bears a degree of responsibility for the construction and operation of the transmission system. Accordingly, the electricity regulatory authorisations required to construct and operate the Irish electricity transmission network are both: the licence to discharge the functions of the transmission system operator, issued by the Commission for Regulation of Utilities (CRU) pursuant to section 14(1)(e) of the Electricity Regulation Act 1999 (the 1999 Act); and the licence to discharge the functions of the transmission system owner, issued by the CRU pursuant to section 14(1)(f) of the 1999 Act.

The 1999 Act provides that a licence to own the transmission system may be issued only to the ESB, and that a licence to operate the transmission system may be issued only to EirGrid plc. However, under limited circumstances the CRU may also permit another person to construct a ‘direct line’.

Eligibility to obtain transmission services

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

Section 34 of the 1999 Act imposes upon the TSO a duty to offer to enter into an agreement for connection to or use of the Irish electricity transmission system, where an application for such connection or use is made by any person. However, in considering such an application or entering into such an agreement, the TSO is obliged to comply with directions given by the CRU. The CRU has made extensive use of its powers to issue these directions, with the result that connection policy is one of the most extensively regulated areas of the Irish electricity sector.

As a starting point, section 34 provides that a connecting party should be the holder of an electricity licence or authorisation issued pursuant to the 1999 Act, or should be an ‘eligible customer’. However, the requirements that must be met to apply for, obtain and maintain access to the electricity transmission system are set out across a number of sources, including the Grid Code, CRU decision papers, electricity licences and the forms of connection and use of system agreement that have been approved by the CRU.

The TSO is required to prepare and maintain a Grid Code, governing the technical aspects relating to connection to and operation of the Irish electricity transmission system, and with which each connected party is obliged to comply. To facilitate the integrated operation of the Single Electricity Market, certain sections of the Grid Code – relating primarily to scheduling and dispatch – are governed jointly by the TSO and SONI Limited, the operator of the Northern Irish transmission system.

Government transmission policy

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

Pursuant to the 1999 Act, the Minister and the CRU are required, when carrying out their duties, to have regard to the need to secure that ‘all reasonable demands by final customers of electricity for electricity are satisfied’. The TSO is obliged, both by legislation and by the terms of its TSO licence, to develop, if necessary, the transmission system with a view to ensuring that all reasonable demands for electricity are met, and to plan the long-term ability of the transmission system to meet reasonable demands for the transmission of electricity. The TAO receives a regulated rate of return on transmission assets, which suggests that expansion is not likely to occur without the approval of the CRU.

Rates and terms for transmission services

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

Under the 1999 Act the TSO is required to prepare, from time to time, a statement of the basis upon which charges for providing transmission services (namely, connection to and use of the electricity transmission system) are imposed, which statement must then be approved by the CRU. The CRU may also give directions to the TSO in relation to the charging basis that must be adopted.

A charge for connection to or use of the transmission system is required to be calculated so as to enable the TSO to recover an ‘appropriate proportion’ of the costs directly or indirectly incurred in carrying out any necessary works, and a ‘reasonable rate of return’ on the capital represented by such costs. The CRU determines what constitutes such an ‘appropriate proportion’ and a ‘reasonable rate of return’.

Under the CRU’s current approach to charging policy, the CRU conducts a price review that sets the transmission revenue that can be collected from connected customers during each successive five-year period. The current price review period relates to the calendar years 2016–2020 (inclusive). Within each price review period, tariffs are set annually by the CRU on a basis that includes adjusting for over- or under-recovery of transmission revenues in previous tariff periods. In practice, and in recognition that approved transmission revenues will be shared between the parties, both the TSO and the TAO participate in the regulatory price review process.

In offering to enter into an agreement for connection to or use of the Irish electricity transmission system, the TSO is obliged to comply with directions given by the CRU. The CRU has used this power to approve the forms of agreement for connection to or use of the transmission system that are required to be offered by the TSO to new and existing customers. The TSO is not permitted to discriminate unfairly between persons or classes of persons when providing for use of the transmission system or where offering terms for the carrying out of works for the purpose of connection to the transmission system.

Entities responsible for grid reliability

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

These responsibilities are shared between the TSO, the TAO and the CRU. The TSO is obliged, both by legislation and by the terms of its TSO licence, to operate and ensure the maintenance of and, if necessary, develop a safe, secure, reliable, economical and efficient electricity transmission system. The TAO is, in turn, obliged to maintain the transmission system and to provide to the TSO such information as the TSO requires to ensure the secure operation of the transmission system. The discharge of these responsibilities, among other things, is governed by the Infrastructure Agreement in place between EirGrid plc and the ESB.

The CRU is obliged by law to monitor the security of supply of electricity, which includes the monitoring of the quality and level of maintenance of the transmission networks and taking such measures as it considers necessary to protect security of supply. The CRU has a general power to monitor and enforce the compliance by licensed parties with the terms of their respective licences, which includes the supervision of the performance of the TSO and TAO obligations referred to above.

Law stated date

Correct on

Give the date on which the information above is accurate.

23 July 2020.