Indicative T-4 Capacity Auction Results

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*** 2022/2023 T-4 Capacity Auction Update (08/05/2019) *** 

 

SEMO have published the latest update on the 2022/2023 T-4 Capacity Auction Results delay, stating that “[t]here has been no change from the provisional Capacity Auction Results communicated on the 4th April.” 

For more information on the Final Capacity Market Auction and Results, please see the following documents published by the Systems Operators:

 

 

*** 2022/2023 T-4 Capacity Auction Update (30/04/2019) *** 

 

SEMO sent out an update yesterday evening, stating that there will be a delay to the publication of the 2022/2023 T-4 Capacity Auction Final Results, as they are waiting on final approvals from the Regulatory Authorities. SEMO will issue a communication once the final results have been published. 

 

 

 

 

Indicative T-4 Capacity Auction Results

 

In our latest Insights on the I-SEM, we take a look at the results of the recent T-4 auction for the Capacity Market Mechanism, explore the winners and losers and examine how the result might perhaps shape the future of the portfolio on the island of Ireland.

As part of the transition to the new I-SEM market, the Regulatory Authorities (RAs) introduced a new Capacity Market Mechanism (the Reliability Options), which has caused quite the disruption in the energy industry of late. Instead of generators being guaranteed a steady revenue stream for their capacity, they now must compete against each other in annual auctions to earn revenues for their capacity.

In March 2019, the first T-4 (terminology referring to an auction 4 years ahead of delivery) Capacity Auction took place which saw 9.9GW de-rated generation compete against each other to provide up to 7.5GW of de-rated capacity for the year 2022/23.

The provisional results of the auction were published on 4th April 2019, which awarded contracts to 7,412MW of de-rated capacity at a clearing price of €46,150/MW (or £43,030.26/MW). Although the clearing price is 13% higher than the previous T-1 auction results, the Capacity Market’s overall value of €342m is still far lower than the market value of the Capacity Market in the SEM world, whose closing value was €545m in 2017.

 

Breakdown of successful T4 auctions winners by technology class and companyBreakdown of successful T4 auctions winners by technology class and company

 

Diving into the numbers, almost 11GW of de-rated capacity qualified for the T-4 capacity auction but, only 9.9GW actually competed. Of the 7.4GW of de-rated capacity that won a contract, 710MW (almost 10%) came from new capacity, comprising mainly of gas turbines and Demand Side Units (DSUs). With all these entry signals (seemingly for smaller flexible generation), there were also exit signals for some older, bigger generators as a number of large existing units lost out on contracts.

A total of 9 existing generators did not receive a contract, including:

  • SSE’s 4 Tarbert units (these were already expected to close by the end of 2022)
  • ESB’s Moneypoint 2 (a sign of the heavy-duty coal units phasing out?)
  • ESB Coolkeeragh GT8 (not the big CCGT, but the smaller 53MW unit!)
  • Viridian’s Huntstown 1 (as opposed to Huntstown 2, which failed to come out of the first T-1 auction).

A total of 31 contracts have been awarded to New Capacity, including:

  • 173MW de-rated capacity from various DSUs
  • 5MW de-rated capacity from Stratkaft’s wind farm portfolio
  • A 10-year contract for ESB’s retrofitted 120MW turbine at North Wall
  • 10-year contracts for 659MW (or 381MW de-rated) of 8 New Capacity units from ESB.

The graph below shows the volume of successful new capacity and unsuccessful existing capacity in installed capacity terms (not de-rated!). New capacity winners comprise mainly of flexible thermal generation and DSUs as well as wind while the unsuccessful existing capacity comprise of both flexible units and large inflexible generation. The net difference in winners and losers is 381MW showing Ireland’s transition to a larger fleet of smaller generation units compared to the traditional baseload capacity units.

 

T4 Capacity Winners and Losers

 

Locational Constraints in the Capacity Market

Locational constraints play a major role on the Irish system as the Transition System Operators (TSOs) must ensure there is enough available capacity in different zones to meet peak demand. Due to this, the TSOs have set minimum capacity requirements in each of Northern Ireland, Republic of Ireland and Dublin. If the results of an auction do not satisfy locational constraint requirements, the TSOs must then award ‘out-of-merit’ contracts to higher priced units. This can have big implications for generators bidding close to the clearing price, as for every out-of-merit contract the TSO awards, an equal volume of in-merit units will be displaced and thus be without a contract. Based on the provisional results, it seems that AES’ Kilroot units, K1 and K2, have been awarded out-of-merit contracts for their combined 417.7MW de-rated capacity, for £43,730/MW and £43,274/MW respectively, so no doubt there have been some ‘in-merit losers’ as a result.

Another locational constraint feature for the T-4 auction is that any successful new capacity units will be also awarded a connection offer if they build in Dublin. This was introduced by the RAs to fast track development of further generation assets to account for the rapid regional demand growth, particularly due to data centres over the coming years. The table below shows the total volume of successful units per constraint zone.

 

Total Vol of successful units per contraints zone

 

As can be seen, all minimum capacity requirements have been met, however not by a long shot. A lot can happen between now and 2022 if the last few years are anything to go by. Viridian are back in a position where they only have one contract at Huntstown but seemingly need two contracts to maintain the upkeep of their two plants. The market will watch the latest in this saga with great interest!

 

What does the future energy system look like now?

It’s always interesting to step back and look at how the energy system is shaping up to meet National and EU requirements. Between the provisional results of the T-4 capacity market, as well as the upcoming DS3 Volume Capped tender and the Renewable Electricity Support Scheme (RESS) auctions, there is a clear indication that the energy system is moving towards much smaller, flexible generation as opposed a system of large thermal units. There’s plenty of demand side, wind, solar and battery storage on the rise too!

Below is a graph comparing EirGrid’s most recent view of the generation mix in 2022 (combining their most recent Generation Capacity Statement and Tomorrow’s Energy Scenarios) against an updated view of the possible generation mix after the Capacity T-4, DS3 and Renewable Electricity Support Scheme (RESS) auction results. It’s clear from the below that large thermal units are tightening while wind, DSUs, energy storage and flexible generation are growing…and this is only 3 years away!

 

EirGrid Gen Mix 2022 vs Possible Gen Mix After Capacity T4, DS3 and RESS Auction ResultsEirGrid Gen Mix 2022 vs Possible Gen Mix After Capacity T4, DS3 and RESS Auction Results

 

The final T-4 capacity auction results will be published on Monday, 29th April 2019, so stay tuned to our Insights for more news in this space.