Compensation for excess Irish wind production will end from 2018

The SEM Committee, which is the decision-making authority on all matters concerning the Irish Single Electricity Market (SEM), will continue to pay compensation to the operators of certain wind farms in the event of a 'curtailment event' until 31 December 2017. In the meantime, it will take a 'pro rata' position on whether to stand down developments entitled to compensation and those that are not, it said in its final decision (31-page / 468KB PDF).

"The decision, in practice, will mean the pro rata treatment of all windfarms in tie-break situations with the cessation of compensation for curtailment on January 1 2018," the SEM Committee said in its decision.

"It is the view of the SEM Committee that the proposed decision would not be discriminatory towards wind. Wind has priority dispatch in the SEM and is only turned down for system security reasons after conventional and other generation have been reduced ... In approving this decision and in considering the appropriate changes to the market rules which will be drafted as a result, the SEM Committee is of the view that only those generators contributing to the curtailment event should be affected by this change. This is a fair and non-discriminatory position as generators which are not contributing to curtailment (and indeed in some cases may have been turned down to accommodate higher levels of wind penetration) should not be exposed to the risks," it said.

The change was one of several possibilities raised by the SEM Committee in October in its 'proposed to' decision on the treatment of curtailment in 'tie break' situations, situations in which the plants that may be curtailed are seen as equals by the transmission system operators (TSOs) which make the final decision about where generation should be turned down at times when supply outstrips demand. Under existing rules generators with operational, or 'firm', assets with a guaranteed connection to the grid receive financial compensation in the event that their output is turned down; while other 'non-firm' projects receive no compensation.

In December 2011, the SEM Committee published a discussion paper in which it decided to treat curtailment issues in a tie-break situation by "grandfathering" export capacity on a firm access quantity basis - essentially, creating a merit order list on the basis of appropriate criteria for TSOs to follow when deciding which facilities to turn down first. However, parts of the energy industry warned that this approach would discourage new investment and so risk Ireland's 2020 renewable targets as it meant newer projects that did not yet have firm status would be the first to be curtailed.

Among the alternative proposals raised by the SEM Committee in its 'proposed to' decision were limiting the amount of compensation to be paid to operators to a fixed 'defined curtailment limit', and a sliding scale or 'tapering' mechanism. In its final decision, the Committee said that setting aside a "ring-fenced pot" of compensation money linked to a defined limit would be "difficult to achieve", while a sliding scale mechanism would be "complex and costly" for something that would "only be in place for a short period of time".

Energy law expert Richard Murphy of Pinsent Masons, the law firm behind Out-Law.com, said that there were "no real surprises" in the SEM Committee's final decision.

"Cessation of compensation payments for curtailment protects consumers from the risk of curtailment while application of this rule from 1 January 2018 onwards will provide certainty and a sufficient lead-in time for generators, both existing and future," he said. "The TSOs across Ireland are working hard through the DS3 Programme to minimise curtailment and the final decision notes the importance of the DS3 Programme and the SEM Committee's continued commitment to oversee and support the work of the TSOs to ensure curtailment can be minimised."

Delivering a Secure Sustainable Electricity System (DS3) is a joint programme of work which will be delivered by the SEM Operator and the two TSOs, Eirgrid in the Republic of Ireland and System Operator Northern Ireland (SONI). It sets out how the group will manage the operation of the power system in the medium term in order to meet 2020 renewable targets. According to the SEM Committee, the DS3 programme is a "key mechanism by which overall volumes of curtailment will be reduced".