Irish solar boom could boost Ireland-to-UK electricity flows

• Ireland could meet up to 10% of peak demand from solar power by the end of this decade

• Most recent trade showed the UK power market only held a narrow discount to Ireland for summer delivery

• But grid congestion could inhibit Irish solar supply

Power is more likely to flow from Ireland to the UK at peak times in the coming years, with Irish wholesale prices set to be pressured by an imminent solar capacity boom.

Ireland’s 2020 solar power pipeline has swelled in recent months, propelled by growing confidence that the government will soon be introducing attractive subsidies for the industry (see EDEM 20 February 2017).

Large solar projects of between 25MW and 95MW, totalling almost 1.2GW of capacity, are under consideration for licences to connect to the Irish grid, according to transmission system operator (TSO) EirGrid.

It is believed that government subsidies for solar will be rolled out to allow Ireland to meet 16% of its demand with renewable-generated power by 2020 in line with EU targets.

The government previously told ICIS the support will be made available before the end of this year, so construction of the next wave of solar projects should commence soon after.

If this capacity was connected to the grid, Ireland would be able to meet approximately 10% of its peak demand with low-cost solar power, a factor that could significantly reduce wholesale prices and drastically alter the market’s peaks-baseload ratio.

This would be especially pertinent during summer months, when solar output increases significantly.

Such a pattern has already emerged in the UK, where the peaks-baseload ratio has steadily fallen since solar began to proliferate in 2014 with the impact most noticable in the early- and late-summer months, outside the mid-summer months when the heat causes demand to jump (see graph).

Increased exports

Sources have said the impact of such a large amount of incoming solar capacity could prompt an upheaval of the established pattern of interconnector flows between Ireland and the UK.

Historically, prices on the Irish single electricity market (SEM) have been above Britain, with net flows tending to be in the direction of Ireland.

“It’s likely that we could be looking at Ireland-to-Britain flows becoming the norm,” said one UK-based trader at a supplier.

The summer price difference between the two markets at present is slim, which means that small movements in one market relative to the other could flip the spread and have a profound impact on flows.

The Irish Q3 ‘17 Baseload contract most recently changed hands for €50.90/MWh during an over-the-counter trading session on 25 January, according to latest data available from broker Tullett Prebon.

On that day, the equivalent UK product was valued at £43.60/MWh (€50.46/MWh) according to ICIS closing assessments.

This means that the Irish market held a premium of just €0.44/MWh over the UK for that summer delivery period.

Ireland has previously become a net exporter of power over periods when UK prices have pushed higher as a result of strained supply margins (see EDEM 27 October 2016).

The SEM is currently connected to the UK via two 500MW power cables – the East-West interconnector, which runs between Flintshire and County Dublin, and the Moyle interconnector, which connects South Ayrshire and County Antrim in Northern Ireland. Although the wholesale power price in Northern Ireland is the same as in the Republic of Ireland, hence the SEM term.

Excess power generated in Ireland will have a second route to Britain from 2022, when the 500MW Greenlink interconnector is due to come online.

Grid issues

Sources have raised concerns that the Irish grid may be ill-equipped at present to deal with a sudden proliferation of modern solar plant.

One Ireland-based trader highlighted the potential strain that such a large amount of solar capacity would place on Ireland’s ailing transmission system.

“The best results for solar will be down the southern quarter of the island,” he said, referring to the fact that southern Ireland can receive around an hour more sunshine a day than the north during the summer. “But there are some pretty big system congestion issues there already.

“Eirgrid has plans to reinforce the grid down there to relieve the congestion, but that’s years away,” he added.

Ireland’s largest grid upgrade project, the 1.5GW North-South interconnector between the Republic of Ireland and Northern Ireland, has met with intense public opposition (see EDEM 21 February 2017).

The project, which EirGrid says is vital to improve efficiency of supply between the two jurisdictions, is officially still on track for 2020. However repeated setbacks have led market participants to say this launch date is optimistic.

CPS changes

One factor that could offset a fall in Irish prices is the future trajectory of the UK’s carbon price support (CPS) – a top-up tax rate charged to fossil-fuelled generators.

Speculation has recently emerged that the UK government could be poised to announce a reduction of the rate after 2021 (see EDEM 2 March 2017).

Any reduction in the rate would inevitably reduce wholesale electricity prices in the UK and could also have an impact on flows between the country and Ireland. christopher.somers@icis.com