Energy Update: REFIT In I-SEM – Department Issues Options Paper

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The Irish Department for Communications, Climate Action and Environment ("DCCAE") has, on Tuesday 23 May 2017, published an options paper discussing various methods by which Ireland's Renewable Energy Feed-in Tariff ("REFIT") support schemes might operate, when trading commences in the new wholesale electricity market - the Integrated Single Electricity Market ("I-SEM"). A paper of this type has been awaited since the high level design of the I-SEM was settled in late 2014.

REFIT in I-SEM

The REFIT schemes currently serve as Ireland's primary incentive to attract the investment in renewable energy generation that will be necessary in order for Ireland to meet its EU renewable energy targets. Having been largely successful in this role, these schemes are estimated to currently support approximately 2,600MW of installed or in-construction renewable energy generation capacity, the majority being onshore wind generation projects.

The Irish energy regulators are currently developing I-SEM in order to meet the requirements of the European "target model" for electricity market integration. The REFIT schemes operate successfully in the existing all-island wholesale electricity market. However, due to the added complexity of I-SEM and, in particular, the introduction of Day-Ahead, Intraday and Balancing markets, a deliberate design decision needs to be taken before these schemes can operate in I-SEM.

Re-pricing the REFIT

At the heart of the design decision is the selection of a market price, in I-SEM, against which the REFIT schemes will then operate.

The REFIT schemes act by "topping up" the revenues received under power purchase agreements, where the revenues available under these agreements exceed the revenues available from the market. The determination of these market revenues is relatively straightforward in the current wholesale electricity market, because a single half-hourly spot energy price exists that can readily be used for this purpose.

However, under I-SEM a number of distinct markets will exist, including Day-Ahead, Intraday and Balancing markets. From these markets a price - or pricing formula - needs to be selected for the purpose of calculating the market revenues upon which the REFIT schemes will operate.

Emerging Approach

It has been almost three years since the high level design of the I-SEM was settled. It is therefore surprising that the ambition of the Department's paper is limited to contemplating a small number of...