Irish interconnector model could hinder flows to UK

A new interconnector methodology in the Irish electricity market could skew flows between Ireland and the UK, according to market sources.

Ireland and the UK are joined by two interconnectors, the 500MW East West Interconnector and the 500MW Moyle that is currently operating at 250MW (see EDEM 31 March 2015). The way that capacity is allocated across these cables is set to change as part of the new market design, which could lead to inefficient flows across the interconnectors according to market participants.

The all-island Irish wholesale power market, the single electricity market, SEM, is being completely redesigned in order for the market to fit EU-driven targets. The new integrated market, or I-SEM, is expected to fully come into place in October 2017.

Many aspects of the new market designed have yet to be finalised and are in various aspects of consultation and discussion. One of these is the way transmission losses will be treated across both interconnectors linking Ireland to the UK.

Transmission losses

The two cables linking Ireland to the UK have different efficiencies which means that more power is lost when it flows across the East West cable, around 6% compared to Moyle’s 2%.

As part of the new market design the flows of cross border capacity will be calculated using Euphemia, an algorithm already used in the majority of European electricity markets. The European day-ahead market will be the exclusive route to a physical contract nomination at the day-ahead stage.

But the algorithm needs to take into account a loss factor before comparing the price of the markets to determine the direction of power flow.

The regulators have put forward two options for the way that the transmission losses will be calculated across the two interconnectors, which could influence the direction of flows between the markets.

Combined losses

One option, that would be the most simple for using with Euphemia, is to combine the loss factors of the two cables to create one effective boundary between the Irish and UK markets to use in the algorithm. This would give an effective loss factor of 4.6% on both cables.

If this were to be used, it would mean that flows would be prompted between the UK and Ireland if the price difference in the markets was 4.6% or higher, with electricity flowing from the more expensive to the cheaper market.

“Dead zone”

Some traders in Ireland are wary of this option because it could lead to a situation where the price difference between the markets would indicate it would be efficient for power to flow across the Moyle interconnector, between 2-4.6%, but the algorithm would not take this into account.

“It could create a kind of dead zone,” said one market participant.

Another source from an offshore wind generator thinks this dead zone effect could impact UK power prices.

“If the highly competitive Irish wind power is locked out of Europe, then by default, the downward price pressure in the UK market is denied,” he said. The 750MW capacity across the two cables represents just 2% of the UK’s forecast demand for week 17, for example, but it can have an impact at times of tight supply margins.

It would also schedule power to flow across the East West interconnector when the price difference between the markets was between 4.6% and 6%, when “it would not be efficient to do so” according to the regulators.

According to data collected by ICIS, the difference between the Irish pool price, or system marginal price, has been between 2-6% on 17 out of the 72 working days so far this year (see graph).

This indicates that flows across the interconnectors could have hit the “dead zone” at some point on almost 25% of the days so far this year, had the Euphemia algorithm been used.

But the regulators have said that it is possible to get around the problem by treating the two as separate boundaries. “The Euphemia developers have said they could work around it,” said a source from the regulator in the republic of Ireland, CER.

This would schedule flows across Moyle when the price difference was greater than 2%, and across the East West Interconnector at a price spread of 6% or greater.

Participants asked by ICIS indicated they preferred the second option, but the results from the public consultation have yet to be published. The consultation closed on 25 March, and the regulators are expected to publish all responses in the next month. A decision will be made later in the year. Abigail Beall