This story has originally been published for ICIS Power Perspective subscribers on 02 October 2019 at 09:58 CET.
Average annual prices in the all-Ireland integrated single electricity market (I-SEM), which includes both Ireland and Northern Ireland, are set to increase rapidly to a peak of €84.98/MWh in 2025, our modelling shows. The price rise will be driven by a combination of thermal capacity closures, rising fuel and carbon prices, and increased demand. From 2026-2030 prices are expected to stabilise, in part due to a new interconnector with France.
- The all-Ireland power market is one bidding zone comprised of Ireland and Northern Ireland. Our forecasts are for the market as a whole, though we include separate capacity, generation and demand figures for Ireland and Northern Ireland
- Gas plants tend to be the marginal units on the system and therefore set the price, though onshore wind has been the most significant growth technology in recent years
- The only interconnection is currently to neighbouring Great Britain, though plans are in place to construct a new interconnector to Ireland, which we assume to come online in 2026
- The market has a system non-synchronous
penetration (SNSP) limit which at any time
places restrictions based on the contribution
of non-synchronous generation and imports minus
demand and exports
- This SNSP limit, which in practice leads to the curtailment of onshore wind generation, is being gradually increased from 50% in 2015 to 75% in 2020. We assume a further gradual increase to 90% in 2030
Mid-term price drivers
- Prices are expected to increase rapidly in the early 2020s, rising from an average annual price of €58.20/MWh in 2021 to €84.89/MWh in 2025
- The primary driver, as with the majority of
countries across Europe, will be rising coal,
gas and carbon prices through to the mid-2020s,
which will increase generation costs
- In particular, the expected rise in EU ETS prices from €25.04/tCO2 in 2019 to a peak of €40.85/tCO2 in 2025 will push some coal and gas out of the mix and lead to higher imports from Great Britain
- In addition, thermal capacity is set to fall in the period to 2025, with the phase-out of the remaining 1.3GW of coal in the all-Ireland market, as well as a gradual reduction in oil and peat capacity
- At the same time as fuel costs increase and thermal capacity falls, Ireland is expected to see a significant rise in demand, from around 38TWh in 2019 to 47.5TWh in 2025
- As we previously analysed, almost all of the demand growth is likely to stem from data centres, which will create opportunities for renewable PPAs, but will also put upward pressure on prices
- After 2025 we expect to see a slight softening of prices, driven in part by the start-up of the 700MW Celtic Link interconnector with France, which will lead to an increase in net imports from the lower-cost French market
- Bearish pressure will also be provided by an anticipated decline in EU ETS prices in the second half of the 2020s, as well as from an increase in solar, onshore wind and offshore wind capacity stemming from the Irish government’s introduction of new renewable auctions to meet the newly imposed target for a 70% RES-E share by 2030
- However, we anticipate that prices will be maintained above €80/MWh in the period from 2025-2030 due to continuing increases in demand and the presence of the SNSP limit, which will lead to curtailment of wind generation
- Ireland is expected to provide significant opportunities for renewable generators over the coming decade, with details of a new renewable support scheme due to be announced in Q4 2019 and the first auctions likely to follow in Q2 2020
- While the structure of the scheme remains uncertain at present, the government has declared its intention to install up to 8.2GW of onshore wind, at least 3.5GW of offshore wind and between 0.4GW and 1.5GW of solar capacity by 2030, which represents a significant expansion of all three technologies
- In addition to the new auctions, Ireland has become the first country to set a target for corporate PPAs, with 15% of electricity demand to be met through such deals by 2030 (which equates to around 2.5GW of onshore wind capacity)
- The rapid expansion of data centres will create opportunities for PPAs as the centres have significant demand and therefore exposure to power price rises and tend to be owned by large companies with previous experience of signing such deals
- In contrast to Ireland, we are currently anticipating low levels of renewable expansion in Northern Ireland as there are currently no plans in place to support new projects
- Renewable generators in the all-Ireland market will be able to benefit from power prices rises, which will improve their market revenues. The forecasts below highlight the significant increases in solar, onshore wind and offshore wind capture prices over the coming decade.
Matthew Jones is Senior Analyst - EU Carbon & Power Markets at ICIS. He can be reached at Matthew.Jones@icis.com
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