Dáil Éireann Debate, Tuesday - 17 December 2013
366. Deputy Barry Cowen asked the Minister for Communications, Energy and Natural Resources his plans to replace outdated plants that occupy valuable capacity payments; and if he will make a statement on the matter. [54268/13]
View answerResponsibility for the regulation of the retail electricity market is a matter for the Commission for Energy Regulation (CER), an independent statutory body, and is a matter in which I, as Minister, have no role of function. On 1 November 2007 the Single Electricity Market (SEM), the all-island arrangements for the trading of wholesale electricity, was implemented. The SEM is a gross mandatory pool which includes a marginal energy pricing system and an explicit Capacity Payment Mechanism (CPM). At a high level, the SEM design consists of a centralised and mandatory all-island wholesale pool (or spot) market, through which generators and suppliers trade electricity. Generators bid into this pool their own short-run costs for each half hour of the following day, which is mostly their fuel-related operating costs. Based on this set of generator costs and on customer demand for electricity, the System Marginal Price (SMP) for each half-hour trading period is determined by SEMO, using a stack of the cheapest all-island generator cost bids necessary to meet all-island demand.
The CPM is a fixed revenue mechanism which collects a pre-determined amount of money, the Annual Capacity Payment Sum (ACPS) from all suppliers and pays these funds to all available generation capacity in accordance with rules set out in the Trading and Settlement Code (TSC). The value of the Annual Capacity Payment Sum is determined by the quantity or capacity requirement, determined as the amount of capacity required to exactly meet all-island generation security standard, and a price, determined as the annualised fixed costs of a best new entrant (BNE) plant.
The SEM SMP and associated CPM does not disproportionately reward "outdated" plants. In fact, due to the structure of the SEM more expensive or inefficient generators are "out of merit" and hence they are not run and are not paid the System Marginal Price (which equates to their short run marginal cost), thus keeping customers' bills down.
