Insights Blog

The Government is consulting on RESS 3 auction design and implementation. The closing date for responses is 16 December 2022.

Several proposals for RESS 3 differ from previous RESS auctions, which we looked at here. Features that will support project delivery include extending the duration of support to reduce merchant tail risk and allowing for partial indexation.

Also welcome is the proposal to expand the eligible technologies / hybrid pairings that would be supported by RESS 3 to include wind + solar + storage, although reaping the benefit of this would be dependent on progressing the actions in the Climate Action Plan intended to facilitate connection of hybrid technologies.

Perhaps most notable is the proposal to compensate projects at the RESS Strike Price for “availability not converted to generation for reasons of either curtailment or oversupply” through an Unrealised Available Energy Compensation (“UAEC”). Though not expressly stated, this seems to apply regardless of whether a project has a Firm Access Quantity.

Compensation for constraints, however, is not included in the UAEC. DECC indicates that this is partly because constraints are dealt with by the SEM Committee response to Article 13 of the Internal Market in Electricity Regulation (the “IME Regulation”).

Article 13 provides a mechanism to compensate the non-market based redispatch (deemed in Ireland to be curtailment and constraints) of generation, storage and demand response (not just RESS-supported generation projects) where they have a guarantee of firm delivery.

More specifically, Article 13(7) requires the System Operator to compensate such facilities. The compensation has to be at least equal to the higher of (a) additional operating cost caused by the redispatch, and (b) net revenues from the sale of electricity on the day-ahead market that the facility would have generated (and net revenues is deemed to include financial support like RESS support), or a combination of (a) and (b) if applying only the higher would lead to an unjustifiably low or an unjustifiably high compensation.

Article 13(7) is being implemented through SEM-22-009. As part of an interim solution, the SEM Committee has divided limb (b) so that units will receive compensation for curtailment and constraints at the better of their complex bid/offer price or imbalance settlement price up to the level of their Firm Access Quantity. The financial support element of net revenues is to be decided by the Government Departments.

The RESS 3 consultation has the clear intent of minimising the extent to which regulatory risk might be factored into RESS auction bid prices. However, risk around compensation for constraints may potentially continue to be reflected in bids. Firm access policy is in the process of being developed so firm access dates for projects are unknown.  Even with firm access, complex bids are regulated at the short-run marginal cost (and so wind units are settled at a deemed decremental price of zero). It is not yet clear how the Article 13(7) requirement to compensate up to the level of lost financial support is being met. It is also worth remembering that non-firm generation is exposed to the balancing market price for constrained volumes.

Projects bidding into RESS 3 will also need clarity on the methodology that will be used for identifying curtailment, constraints and oversupply – whether it is by flagging and tagging in the SEM or based on ECP constraints reports.

Related to the issue of constraint risk is the proposal to include explicit locational signals. DECC indicates that the most likely way this would be implemented would be by setting out explicit quantity based limits to each area of the network. It will be important to ensure that any such mechanism does not impact the volumes coming through the RESS auction, or indeed incentives on the TSO to complete works in areas which may not be prioritised for RESS 3 purposes. Meanwhile, there is the proposal in the firm access consultation (SEM-22-068) to annually set firm thresholds for constraint areas. It will be important to understand more about how these mechanisms might interact with each other and whether they will be based on the same assessment methodologies.

Also of note is the proposal to require that successful projects remain under the PSO (RESS support) for the duration of the RESS term, unless expressly authorised by the Minister. This is perhaps indicative that RESS PPAs may be seen as beneficial in hedging prices, particularly now that the mechanism exists to allow refunds from the PSO pot to customers.

The objective of UAEC is to significantly de-risk RESS participant exposure to uncertainty surrounding curtailment and oversupply, which generation participants are not able to easily manage….