Posted on Monday 4 February 2019 by Ulster Business

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With a potential ‘no deal’ around the corner on Brexit, what will that mean for the future of Northern Ireland’s energy policy – especially on renewables, the I-SEM all-island market and power generation? John Simpson takes a closer look

On the last working day before Christmas 2018, the System Operator for Northern Ireland (SONI) published draft proposals of how the electricity systems and grids on this island may operate in 2019-20. Subject to confirmation by the all-island Single Electricity Market Committee, the auction for electricity generators to be awarded capacity contracts, on an all-island basis, has identified electricity capacity (as measured in terms of de-rated capacity) of 8,397 MW which will be in place for the year starting October 1, 2019 – 1,999 MW of that all-island total is attributed to Northern Ireland.

This is a critical series of draft decisions which will reassure the large conventional generators about their contracts and will impose the discipline of revenue limits constrained by the capacity auction. The draft decisions also point to the expectations in terms of the capacity earmarked from renewable sources, from inter-connection with the Scottish grid and the capacity adjustments that may follow from demand-side adjustment contracts.

SONI has not been as open and transparent as should have been possible. Readers must make the assumption that ties location to where capacity payments are identified in sterling and euro.
The SONI statement lists 36 generator names (from 26 businesses in Northern Ireland), 17 of which are identified as DSUs (demand side units) which leaves 19 others. Eight are shown as part of the AES capacity in Ballylumford and Kilroot: four are small capacity generators, six each have capacity of over 45MW (which also seems to include Coolkeeragh and two large units at Ballylumford), and the last capacity source linked to Northern Ireland is the Moyle Interconnector.

SONI does not present the capacity awards in a way that allows readers to identify the location of each successful unit.

The Utility Regulator has agreed that the available Northern Ireland capacity should include 216 MW from the Moyle Interconnector which represents over 10% of locally available capacity.

This is a judgement that might be queried. Is the interconnector (and also the east-west interconnector to Dublin) a guaranteed source of capacity? If, at a time of peak demand in Northern Ireland, demand in the grid in GB had no spare capacity, presumably the capacity might not be available for supply to Northern Ireland. The regulator and SONI are well placed to judge the probability of this outcome and might argue that it is a minimal risk.

There are some interesting features stemming from the assumptions made in setting the framework for the capacity auction.

First, Northern Ireland has been treated as meriting some contract variations because of locational constraints. This is a reflection of the limited capacity of the electricity grid on the whole island to send electricity to the places where there is demand. Both the Dublin area and Northern Ireland (treated as separate areas) did not attract auction bids adequately to supply these area locational constraints. For Northern Ireland. the easy explanation lies in the absence of the long awaited north-south grid expansion from/to the planned distribution hub in Co Tyrone.

The capacity auction allowed for the acceptance of bids with prices which are higher than the main auction prices which would match supply and demand across the whole island. Because of the locational deficit, some Northern Ireland bids now show capacity payment prices above the all-Ireland ceiling of £36,960 per MW which applies to most of the successful bids.

In the quotation from AES for the two large fossil fuel burning units, the proposal is that they should attract payment prices of £46,708 and £47,200 per MW. At first sight this appears to allow a premium of nearly 28% on the payment price for each MW. This seems more than a marginal cost and points to the possible cost savings if the proposed new north-south link had been operational.
This answer for the older high capacity units at Kilroot is a further reflection of the doubt about the continued viability of these units. It will be remembered that a year ago, these same two units were deemed unsuccessful in the auction but, at a late stage when faced with a request for a derogation to be allowed to close these units, the initially agreed settlement was revised.

A year ago, the first capacity auction under the rules of the newly instituted I-SEM, was accepted with a capacity supply of near to 1,700 MW for all of Northern Ireland. Now, in early 2019, SONI has concluded that for security of supply Northern Ireland should contract for just under 2,000 MW. There is no obvious major uplift in demand in Northern Ireland so that, quietly, the suggestion is that the arithmetic in late 2017 may now be thought to have been slightly too risky.

The capacity auction is a fundamental building block of electricity supply policy for Northern Ireland. However, on its own, the allocation of capacity and the possible scope for investment in new generating capacity must also be seen in the context of increasing, if market forces allow, the proportion of electricity supply that is supplied from renewable sources.

The distribution of generating capacity is still dominated by fossil fuels. Northern Ireland’s capacity is nearly 85% from gas and (indirectly) coal. However, the statistics showing the proportion of electricity supply from renewables points to average consumption from renewables of nearer to 35-40%. Because of the variability in the contribution of wind based renewables, it would be hazardous if greater security dependence was allocated to renewables.
In turn, the caveat about the possible role of renewables points to the possible value of further investment in energy storage for which no major scheme has been launched. If Kilroot power station survives for a further three to four years, then the experimental electricity storage capacity on that site may become an attractive asset.

There are several continuing questions about Northern Ireland’s security of electricity supply. Will Kilroot be given further stays of execution after 2021? Will the North South interconnector eventually be built? Will the proposed large natural gas burning power station be built in Belfast? Will the politically unpopular investment in anaerobic digestion plants be tackled?

Will the Brexit settlement, or lack of it, damage the continued operation of the all-island single electricity market? But... it seems Kilroot has been given a temporary extension of its role in keeping the lights on.

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