Background

The Single Electricity Market Committee (SEMC) in its December 2011 Decision Paper (the 2011 Decision) decided to treat curtailment and constraint issues in tie break situations on a firm access quantity (FAQ) basis. This meant turning down generators with non-firm access before those with firm access to the grid; more commonly known as applying a grandfathering approach. After widespread criticism from industry body representatives, their decision, as it related to curtailment, was withdrawn pending further consultation. The SEMC has now published its proposed decision which is that curtailment will now be treated on a pro-rata basis with a defined curtailment limit. This decision, if implemented, will have a significant impact on the wind energy industry in Ireland.

Curtailment and Constraint Payments

Renewable projects with firm access currently receive payments from the Single Energy Market (SEM) in respect of both constraints and curtailments. Many wind energy generators enter into power purchase agreements with energy suppliers who agree to purchase all electricity produced by the generator which is then sold on to the SEM. These payments compensate the supplier for the fact that it is not always possible to sell electricity to the SEM when the grid is down (constraint payment) or when there is oversupply that could result in stability issues (curtailment payment).

Curtailment in Tie Break Situations

The SEM operates on the principle of priority dispatch generation i.e. one source of energy which must be run before another. Typically this consists of generation from renewable or partly-renewable energy sources over fossil fuels. However, on occasion it is necessary for the Transmission System Operator (TSO) to make curtailment decisions within these priority generation categories. This is particularly important in the case of wind energy, where scenarios of high wind coupled with low demand can result in curtailment in circumstances where the transmission system cannot handle the increased amount of generation.

As the fuel cost of wind is zero, there is no deciding indicator to help the TSO select which generator to turn down first when all of the generators available for curtailment (i.e. the wind farms) are seen as equal. This is known as a curtailment tie break situation.

Constraint in Tie Break Situations

Constraint events typically arise when a transmission or distribution line is down for maintenance or due to some fault. Generation utilising that particular line is constrained until the line is back up and running. The 2011 Decision provided that the grandfathering approach based on FAQ would be adopted in tie break situations to decide which generators should be constrained first. This decision was not withdrawn and continues to remain in force.

Proposed Decision on Curtailment

The proposal provides that:

  • Firm and non-firm generators will be turned down on an equal basis in a curtailment situation.
  • Firm and partially firm generators will be compensated up to their FAQ if they are dispatched down due to curtailment – that is until the defined curtailment limit is reached (i.e. the earlier of the confirmed achievement of 75% of the 40% renewable target on the island of Ireland or the date of 1 January 2016).
  • After either threshold is reached, the curtailment pot (the level of compensation paid out to wind generators for curtailment in that year) is reduced by one quarter each year over the following years until the pot is depleted, meaning that at the very latest compensation for curtailment will no longer be available after 2020.

Constraint or Curtailment?

Whether or not an event is deemed to be a constraint event or a curtailment event will become extremely important should the SEMC’s proposed decision be implemented; non-firm generators will be constrained before firm generators, but in the case of curtailment, both firm and non-firm generators will be curtailed pro-rata. Against this backdrop, the SEMC have proposed an operational rule set to be applied in deciding whether the reduction event is one of constraint or curtailment. The rule set provides that:

  • If the control centre assumed it had control over every wind farm on the island of Ireland and the security issue presented could only be resolved by reducing the output of one or a small group of wind farms then that reduction is deemed a constraint and logged as such.
  • If the control centre assumed it had control over every wind farm on the island of Ireland and the security issue presented could be resolved by reducing the output of any or all of the wind farms then that reduction is deemed a curtailment and logged as such.

The rationale for this rule set here is that constraints are considered to be a local network issue (e.g. congestion on the network in north Mayo). Curtailment on the other hand, is primarily seen as a network-wide issue (e.g. there is an excess of intermittent energy on the whole all-island system). The goal of the ruleset is to reflect this distinction.

Renewables Directive

Under the EC (Renewable Energy) Directive 2009 (the Renewables Directive), Ireland must ensure that 40% of all electricity it consumes is derived from renewable energy sources by 2020. This will require approximately 4,000 MW of onshore wind generation capacity whereas currently there is only approximately 1,900 MW installed.

Article 16 paragraph 2(c) of the Renewables Directive provides that “Member States shall ensure that appropriate grid and market-related operational measures are taken in order to minimise the curtailment of electricity produced from renewable energy sources” and if curtailment is required to safeguard system stability, then corrective measures must be taken to prevent “inappropriate curtailment”.

Furthermore, Recital 61 of the Renewables Directive provides that “In certain circumstances it is not possible fully to ensure transmission and distribution of electricity produced from renewable energy sources without affecting the reliability or safety of the grid system. In such circumstances it may be appropriate for financial compensation to be given to those producers.”

It is arguable that the above language confers a responsibility on the State to ensure that renewable energy generators are compensated for any curtailment for security reasons as well as investing in improvements to the transmission system to ensure similar curtailment events do not recur.

It is worth noting that the SEMC, in its proposed decision, has categorically stated that at no point does the Renewables Directive state that financial compensation must be paid if renewable energy generators are curtailed for the safe and reliable operation of the electricity system on the island. However, it is debatable whether this is actually the case and the removal of compensation for curtailment by 2020 will in all likelihood be resisted by industry stakeholders.

Conclusion

To achieve our 2020 renewable energy targets further investment in the development of renewable energy projects like wind farms is needed. In order for this to happen a stable investment environment must be maintained to encourage investors to enter the market. Whilst curtailment of both firm and non-firm generators on an equal basis is to be welcomed, the decision to cease all compensation for curtailment by 2020 will be of some concern to investors. It is therefore paramount that in line with our obligations under the Renewables Directive, the correct infrastructure is put in place to ensure that situations whereby curtailment might arise will be at a minimum e.g. by the development of further interconnectors with the UK to allow for export, the development of a smart grid in Ireland and wide scale improvements to the transmission system.