Irish power capacity mechanism gets state aid approval

Source: Heren


The European Commission said on Friday it had granted EU state aid approval for the new Irish electricity capacity mechanism.

The decision means the country’s inaugural capacity auction will take place on 15 December for the capacity delivery period running from May 2018 to September 2019.

Ireland’s existing capacity payment mechanism (CPM) is being replaced as part of a full redesign of the Irish single electricity market (SEM).

Under the existing CPM money from a single pot is distributed equally to all available generators in Ireland.

But with the arrival of the new integrated single electricity market (I-SEM) in May, this system is being replaced by a more sophisticated capacity remuneration mechanism (CRM).

The new CRM will select conventional gas- and coal-fired power plants on the basis of a competitive sealed-bid auction. Successful generators will receive reliability call options in the form of payments linked to available units.

For more information click here to access an ICIS Briefing on the Irish power market redesign, or here for an in-depth market insight paper focussed on the I-SEM redesign.

How it works

The reliability option will be a one-way contract for difference, meaning generators will be paid a fixed option fee on top of the revenues gained from selling their power into the market in exchange for offering the amount of generation in their contract.

In the event that the market price rises above an agreed strike price of €500.00/MWh, generators will be obliged to pay the grid operator the difference between the market price and the strike price.

The new arrangement is intended to ensure sufficient generation is secured for times when Irish demand spikes, or when supply is restricted by low renewable output or plant outages.

The all-island Irish power market is undergoing a full redesign in order to more closely align Ireland with European electricity markets in compliance with the EU’s third energy package.

The new I-SEM was initially due to launch in October, but at the end of last year the regulators recommended a seven-month delay to 23 May 2018 to give market participants more time to trial the market’s various systems and services ahead of the launch.

Even this date could be optimistic however, according to the head of the organisation overseeing the redesign (click here to read story).