Prior to the liberalisation of the Irish electricity sector through the passage of the 1999 Act and the introduction of the generator licensing regime, substantially all electricity generation in Ireland was carried out by the Electricity Supply Board (ESB), a statutory body that is majority-owned by the Irish government, and in which its employees have a minority shareholding. However, it is now possible for any person to carry out the generation of electricity, so long as they first obtain from the CRU a licence to generate electricity and an authorisation to construct the relevant generating station. A generator having nameplate capacity in excess of 10MW is required to participate as a generator in the SEM, while a generator having nameplate capacity of 10MW or less may elect to, but is not required to, participate in the SEM.
It is noteworthy that the Irish electricity system is small (having an all-time peak system demand of approximately 5GW), at least when compared to the scale of (for example) modern combined cycle gas turbine generators. In a market power modelling exercise carried out as part of the I-SEM project, the CRU and NIAUR forecast that in 2016, ESB would retain a 44.4 per cent share of installed SEM generation capacity and a 46.6 per cent share of SEM generation (by volume).
While the market therefore remains relatively concentrated, a noteworthy trend in recent years has been the rapid increase in the amount of onshore wind generation connected to the Irish electricity system. There is now approximately 3,732MW of onshore wind generation connected (up from approximately 500MW as at the end of 2005), spread across a numerous and diverse set of owners - although the recent consolidation of development activities into a smaller sub-set of actors is also evident.
Ownership and, separately, operation of the Irish electricity transmission system requires the holding of an appropriate licence issued by the CRU pursuant to the 1999 Act. The 1999 Act provides that a licence to own the transmission system may be issued only to ESB, and that a licence to operate the transmission system may be issued only to EirGrid plc (wholly owned by the Irish government). ESB and EirGrid plc regulate their relationship, in relation to the transmission system, by way of a contractual Infrastructure Agreement.
On 22 May 2013, EirGrid plc was certified by the CRU as the electricity transmission system operator (TSO) for Ireland for the purposes of Directive 2009/72/EC and Regulation 714/2009. This certification amounted to a finding that the arrangements for the ownership and operation of the Irish electricity transmission system satisfied the requirements of Directive 2009/72/EC in relation to the independence of transmission system operation from electricity generation and supply.
Ownership and, separately, operation of the Irish electricity distribution system requires the holding of an appropriate licence issued by the CRU pursuant to the 1999 Act. ESB is the licensed owner of the distribution system (DAO) and ESB Networks DAC, a wholly owned subsidiary of ESB, is the licensed operator of the distribution system (DSO).
Retail supply of electricity
Prior to the liberalisation of the Irish electricity sector through the passage of the 1999 Act and the introduction of the supplier licensing regime, the retail supply of electricity in Ireland was carried out by ESB. From February 2005, all Irish electricity customers were eligible to select an alternative electricity supplier, and initially the ESB’s supply business was restricted in its ability to determine its retail prices and thereby compete to win back customers. Following the achievement of what the CRU determined to be an adequate level of consumer switching, these pricing restrictions were removed for business customers in October 2010 and for domestic customers in April 2011. As a condition of this deregulation, the supply business of ESB - which, at quarter one of 2017, still enjoyed a majority share (51.16 per cent of the domestic electricity market, measured by consumption) - was rebranded as ‘Electric Ireland’.
Any person may now carry out the retail supply of electricity in Ireland so long as they first obtain from the CRU a licence to supply electricity and accede to participation as a supplier in the SEM, which requires the provision to the market of appropriate collateral.
From SEM go-live (November 2007) until I-SEM go-live (October 2018), participation as a generator in the SEM carried with it an entitlement to receive capacity payments in return for plant availability. The SEM regulators determined, for each calendar year, an Annual Capacity Payment Sum, which was distributed to SEM-participating generators throughout the year on a weighted basis reflecting the relative scarcity, and corresponding value, of generation capacity at various times.
Since I-SEM go-live, in order for a generator to receive remuneration for capacity, it must successfully bid in an auction and be awarded a contract for difference in regulated form. Broadly, the terms of the contract provide for the payment to the generator of a capacity fee (based on auction bids), but also require the generator to pay back any revenues earned in the energy market when prices exceed a regulated strike price. Auctions and contracts run on various timetables. ‘T-1’ auctions take place on an annual basis and allocate the regulated contracts in the year preceding the year in which it is to be effective. ‘T-4’ auctions also take place on an annual basis, but allocate regulated contracts approximately four years before they are to take effect - this lead time is intended to enable the construction of new generating capacity.
The last T-1 auction was held in December 2018, in respect of the capacity year 2019/2020. The auction clearing price was €40,645.66 per megawatt. The last T-4 auction was held in March 2019, in respect of the capacity year 2022/2023. The auction clearing price was €46,150 per megawatt.
In its capacity as the operator of the Irish electricity transmission system, and with a view to increasing the percentage of instantaneous demand that may be securely served by intermittent generators, EirGrid plc is operating a programme of operational improvements known as ‘Delivering a Secure, Sustainable Electricity System’ (DS3). The DS3 programme includes the procurement of technical system services, such as operating reserve, frequency response and ramping capabilities, from market participants that are capable of providing them.
The procurement of these System Services is currently divided into ‘volume capped’ and ‘volume uncapped’ processes. The volume capped process has involved the awarding, during the course of 2019, of fixed-term contracts for a maximum period of six years, and involving remuneration at rates based on the results of competitive auctions. It is anticipated that battery energy storage will secure the majority of these contracts. By contrast, the remuneration for volume uncapped services is based on regulated tariffs that may be altered during the duration of the contract. Procurement of the volume uncapped services proceeds under a ‘gate’ cycle, whereby tenderers have six-monthly opportunities to enter the process.
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