Irish energy market shake-up could mean plant closures

A number of power plants here could close following changes in Ireland’s electricity market midway through next year.

The European Commission recently approved key elements of proposals for a an all-Ireland electricity market, paving the way for its introduction next May.

The Commission for Regulation of Utilities, the State watchdog that oversees the sector, has confirmed that a change in some of the payments made to generators could result in a number of them shutting down.

Generators such as the ESB, SSE Airtricity and Energia receive so-called “capacity payments” to help maintain and invest in power plants, but the new system will cut these revenues and limit them to the cheapest and most efficient operators, meaning some will lose out.

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As a result, the regulator says that “owners of generation plants will make a commercial decision as to whether or not they remain in operation based on all their revenues in the market”.

Generators get about €55 a kilowatt hour – a unit in which electricity is measured – under the current system, but the new rules could reduce this to €41 or less.

At the same time, the payments will only be offered to plants with a total capacity to generate 7,000 megawatts (MW) of electricity. The industry as a whole can produce 10,000MW.

Consequently, a significant number of power plants will not receive capacity payments. An auction on December 15th will decide which of them will get the payments. Its results will be known three days later.

Mothballed

The regulator stressed that those that lose out at the auction will have the option of staying open after May and supplying electricity.

However, industry sources argue that as capacity payments are a key source of revenue, it is more likely that plants will be shut or mothballed as a result.

Those likely to be hit will be known on December 18th. “This affects everyone in the industry,” said one source.

Observers suggest that companies that are involved in generating electricity along with other activities could find most difficulty with the new system. “A lot of people will have examine what it is they want to be in May when the new market comes into being,” says one.

Competition

Ireland has had an all-island electricity market since 2007. Capacity payments, ultimately funded by electricity users, have been a feature of the industry since then. The planned change is a result of new EU rules.

Announcing that Brussels had approved the Irish regulator’s capacity payment proposals, EU competition commissioner Margrethe Vestager indicated that the new market would boost competition and cut prices for consumers.

However, industry sources predict that prices are likely to be more volatile, for at least six months following the new market’s launch in May.

Electricity prices rose following the original all-Ireland electricity market’s launch in November 2007, but fell as recession hit demand for power.

The commission maintains that current Irish electricity prices are in line with the EU average.