On 29 March Eirgrid published its long-awaited consultation on the Delivering a Secure, Sustainable Electricity System (DS3) System Services Volume Capped Competitive Procurement. It provided some welcome detail on the next steps for DS3, but there are residual questions outstanding which make it difficult for current investors to ascertain risks on their projects.
The DS3 programme seeks to increase the allowable System Non Synchronous Penetration (SNSP) up to 75% by 2020, reducing the curtailment of wind to approximately 5% per annum. The programme started in 2011 and has taken time to arrive at this point, moving through stages of regulated and interim arrangements. DS3 is progressing towards a competitive enduring approach with the recent volume uncapped and now volume capped procurement process.
This consultation focusses on the volume capped procurement for “high availability units”, for example Demand Side Units or Non Synchronous Technologies such as storage, whose availability is not linked to energy market dispatch for a subset of system services. The proposed tender intends to provide contracts that support an investment case. Stakeholder views are sought by 11 May and the timeline for the procurement shown below
The consultation makes the following high level proposals:
- Procurement exercise via a staged approach, awarding 100MW in Stage 1
- Carry out future procurement stages to allocate up to a volume of 300MW total, with an additional procurement round for 100MW anticipated in 2019
- Six year agreement (with potential additional two year build phase)
- Must have a connection offer for go-live date
- Required to provide Fast Frequency Response (FFR), Primary Operating Reserve (POR), Secondary Operating reserve (SOR), Tertiary Operating Reserve (TOR) 1 and TOR 2, covering 2 seconds to 20 minutes duration to same contracted values
- Service availability obligation of 97% with Performance bonds of €12,000/MW
- Pay as bid pricing with maximum tariff rates and capped to nearest whole bid
- Scalars applied – scarcity, performance, product, location, and
- Providers must position themselves to meet commitments under the balancing market, capacity market and recharging
Developers have already been quick to start planning already for future opportunities, including:
- AES seeking to increase the Kilroot storage site to 100MW in Belfast
- Bord Gáis potentially developing 100MW of storage or gas peaking plants in Kilkenny
- Evermore Energy with 100MW planned in Lisahally
- Lumcloon Energy with 100MW close to Ferbane, and
- Engie with a 100MW project in Kellistown East Battery
In March, Cornwall Insight identified 730MW of battery storage in the grid connection queue.
All of these projects could be affected by a key proposal within the consultation: a maximum volume per separate grid connection of 30MW contracts, with a minimum of three providers, although it is not clear if “provider” refers to owner/developers from the lack of definition in the consultation. Other uncertainties remain such as the interaction with network constraints, inclusion of a floor for minimum payments based on a low wind scenario, with little detail on how this would work.
The scale of what is proposed is significant in relative terms. The Enhanced Frequency Response (EFR) scheme, launched in GB by National Grid in 2016, procured 201MW from a 1,684MW maximum offering. Compared with GB this is a larger level of procurement relative to the existing level of generation capacity/demand for Eirgrid to make, and a bold step.
There is no doubt it will be extremely competitive with existing incumbents and international developers seeking to secure long-term contracts that are rare in in the energy market. However, there are challenges for developers around forecasting revenues with much certainty and the interaction with the revised Capacity Remuneration Mechanism (CRM) dates. The DS3 contract execution is not until May/June 2019 which is after the first T-4 CRM auction for the 2022-23 delivery year and therefore people may choose to withdraw depending on the outcome of the CRM and the cleared price. Likewise, the T-2 CRM auction doesn’t take place until December 2019 for the delivery year starting at the same time as the DS3 service commences.
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