
Originally Posted by
fiannafailure
As promised here is my analysis of the operation of the electricity market in Ireland, it may or may not make this thread easier to follow.
A simplified description of the Irish electricity market.
At the beginning of the decade Ireland faced some problems in our electricity market, we did not have enough efficient electricity plants to enable the growth of our economy, there was a need to integrate the markets and infrastructure of the Republic and Northern Ireland, EU required competition in the electricity market and wind energy was beginning to come on stream in quantity and needed to be integrated into the grid and market.
The adopted solution to the above problems was the Single Electricity Market, in the SEM, generators on both sides of the border fed their electricity into a central pool, from which the retail companies could purchase electricity to be sold to their customers. To address the the generation capacity problem and to encourage new entrants to the SEM, a market mechanism was devised to enable easier financing of new power stations.
A power station is paid for its electricity in two streams, the marginal cost of production (to cover the cost of fuel, labour and maintainance) and a capacity payment (to cover the cost of building of the power station) for providing generation capacity to the grid. Each day the grid operator issues a forecast of the amount of electricity needed at particular times,for the following day. The power stations submit a bid price (marginal cost) to supply a certain amount of electricity at a particular time of day, and everyone is paid the highest marginal cost. This ensures that if demand is high then older higher cost stations can afford to supply. In addition the power stations are paid annual capacity payments to enable them to cover their capital costs.
To encourage renewable energy onto the grid, certain tariffs were introduced for different forms of renewable energy, for wind energy the tariff is called REFIT, under REFIT the minister annually decides on an amount of money to put into a fund to pay REFIT, under the REFIT tariff a floor price is decided for wind energy, currently 6.7c a unit, however as there is also a ceiling on the amount of money in the pot, if the total wind energy produced, exceeds a certain limit, then the REFIT tariff ceases to be paid and instead the wind farm is paid the spot price on the day. A different tariff applies to wave, tidal and hydro although the same mechanism applies.
Renewable energy does not qualify for capacity payments.
All of the above, plus the costs of operating the grid, is financed from electricity bills and the market is operated by an organisation called SEMO and is regulated by CER
This is a very simplified explanation of a very complex arrangement however I believe it to be accurate.