As Ireland moves towards an Integrated Single Electricity Market (I-SEM), the regulator has just set out a methodology for a transition to competitive power auctions in a bid to attract investment in new capacity. The first auction will be held on December 15 for the rest of the delivery year 2017/18.
This regulatory verdict substantially changes the Irish energy market model: Rather than distributing a certain pot of money among power generator under the former Capacity Payment Mechanism (CPM), the new rules will see the gradual introduction of competitive auction as part of a Capacity Remuneration Mechanism (CRM).
As for timing, the regulator just announced in an update to the 2017 Transitional Auction that it will make a decision on Capacity Market Rule by June. It also set July as the start date for the auction qualifying period for December’s first transitional auction.
May 2018 has been set as the start date of I-SEM, when further auction will be held for the delivery year 2018/19.
The first T-4 auction will be staged in August 2018 for delivery in 2022/23 – propped up by transitional auctions, if required, to meet any eventual supply gaps.
The new capacity auction scheme is meant at accelerate investment in new power generation capacity in Ireland – but winners of a capacity contract will be carefully reading the small print of the auction rules, notably these parameters:
· Termination fees for new generation assets have been introduced in a range between €10/kW to €40/kW depending on the timing.
· For new-builds, there is now a New Capacity Investment Rate Threshold (NCIRT) of €300/de-rated kW.
· To avoid price spikes, the regulator has also set an indicative auction cap of €118.23/de-rated kW/year with a net cost of a new entrant (net CONE) of €78.82/de-rated kW/year.
· An Existing Capacity Price Cap (ECPC) has been set at 0.5 of net CONE
· The regulator also introduced an Reliability Option Strike Price of €500/MW
With the introduction of the new I-SEM CRM, the Irish regulator complies with requirement of the EU legislation to introduce the European target model for electricity market integration.