WEI Position Paper on High Energy Prices
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Security of Supply Working Group
WEI Position Paper on High Energy Prices
Background
Due to availability of cheaper fuels on the world market, subdued demand due to the COVID-19 pandemic,
and a rapidly expanding renewable generation fleet, wholesale energy prices fell sharply in Ireland’s
wholesale single electricity market (called the SEM) during 2019 and negative electricity prices became
widespread in 20201. Unfortunately, the downward pressure on prices was abruptly halted last year.
In the SEM, wholesale electricity prices, which had averaged at €38/MWh in 20202, climbed to an average
of €136/MWh in 2021. With heightened uncertainty continuing in early 2022, the average wholesale
electricity price in the SEM in Q1 2022 had risen to €226/MWh. A similar trend was witnessed right across
Europe, as illustrated in Figure 1.
Figure 1: Day-Ahead pricing from Representative Northwest European Electricity Markets
1
Negative pricing is usually associated with overnight periods of high wind power when large power stations
ramp-up to be on the power system and ready to generate for the morning peak demand period. This ramping up
can drive prices to zero or below and ultimately the negative prices mean that the industry was paying people to
take excess cheap power.
2
It should be noted that 2020 pricing was unusually low due to low commodity prices during the pandemic. Since
the implementation of ISEM in October 2018, the annual prices have averaged 2018: 72, 2019: 50, 2020: 38, 2021:
136, note 2018 only references the period of ISEM”.
IWEA CLG t/a Wind Energy Ireland. Registered in Ireland · Company No. 352773
Directors · A. P. Burke, E. Cassidy, K. Doyle, P. Lynch, D. McInerney, K. Moloney, M. Ryan, E. Tinker
The primary reason for the unprecedented price spikes experienced in 2021 was the surge in international
gas prices – along with oil, coal, and commodities more generally – as economies rebounded from the
COVID-19 pandemic and energy demand increased as a result. Furthermore, Europe experienced a colder
than expected 2020 which meant European gas storage levels and supplies were depleted leaving Europe
highly susceptible to a complex and varying set of geopolitical factors.
In addition, the surge of Europe’s ETS carbon pricing through 2021 resulted in increased power prices.
Fossil fuel generators must purchase a European Union Allowance (EUA) to offset each tonne carbon they
emit while producing electricity. The cost of these EUAs has increased dramatically across 2021
approaching €100/tonne in early 2022, a price point that was expected to be reached in the latter half of
this decade. It is important to note that ~80-90 per cent of the cost of operating a baseload gas fired
generator are in their gas fuel costs.
The Russian invasion of Ukraine, along with the corresponding sanctions against Russia has also resulted
in a surge in commodities in 2022, such as gas, oil, and coal. Russia is a large producer of these fossil fuels
and Europe is heavily reliant on Russia for these commodities. Consequently, price volatility has been
exacerbated even further during the early period of this year, as illustrated in Figure 2.
Figure 2: Volatility in the EU Energy Market
IWEA CLG t/a Wind Energy Ireland. Registered in Ireland · Company No. 352773
Directors · A. P. Burke, E. Cassidy, K. Doyle, P. Lynch, D. McInerney, K. Moloney, M. Ryan, E. Tinker
Domestically, Ireland’s high energy import dependency has placed us at the mercy of international price
volatility – and this is now hitting people’s pockets. We have a very limited indigenous fossil fuel resource
and a high energy import dependency in Ireland. Ireland’s energy import dependency varied between
85% and 90% until Corrib gas field started production in 2016. It fell to 66% in 2017 but increased again
to 69% in 2019. However, supply from the Corrib field continues to run down, meaning Ireland will again
be about 90% dependent on imported gas from the UK and abroad. To understand the scale of the
challenges it’s important to note that in 2019 for example, Ireland spent approximately €4.5 billion on
energy imports, with natural gas accounting for 56% of the fuel inputs used for electricity generation in
that year according to the SEAI3.
Impact of Renewables
To address rising energy prices, there is an urgent need for policies to reduce our reliance on fuel imports,
and in particular volatile gas prices. The good news is that we have compelling evidence to show that
renewable energy, specifically wind power, drives down energy prices for the consumer.
• One study, from Baringa Partners, analysed the financial impact for end consumers of the
deployment of wind generation in Ireland in the period 2000-2020. It showed that because wind
farms require no fuel to run, they can generate electricity at very low cost. As a result, “wind
generation displaces more expensive sources such as gas or coal-fired power stations or
imports, reducing prices in the market”4.
• Another analysis, from the Sustainable Energy Authority of Ireland, demonstrated the impact of
wind generation on wholesale electricity costs, noting that “the impact of wind generation in
2011 is to reduce overall wholesale electricity prices”5.
• More recently, the SEM Committee SEM-21-081 paper analysing market monitoring report for
Q3 2021 notes that “in periods of high wind, the day ahead price dropped significantly” and that
“the highest prices are associated with a low wind forecast”6.
Wind Energy Ireland publishes monthly Wind Energy reports. The report for March 20227 showed that
wind energy provided 33 per cent of Ireland’s electricity during the month. However, Ireland’s
dependence on imported fossil fuels for much of our electricity drove wholesale prices to the highest
monthly average since the Integrated Single Electricity Market was set up in 2018. In short, while wind
energy was able to help push prices down, the combination of high demand and rising gas prices puts
more pressure on electricity consumers. The average wholesale price of electricity in March was €293,
more than four times the price in March 2021. However, prices in March on the days with most wind
energy were more than 10 per cent lower than days with little wind. This is illustrated in Figure 3.
3
https://www.seai.ie/publications/Energy-in-Ireland-2020.pdf
4
https://windenergyireland.com/images/files/baringa-wind-for-a-euro-report-january-2019.pdf
5
https://www.seai.ie/publications/Impact-of-Wind-Generation-on-Wholesale-Electricity-Costs-in-2011.pdf
6
https://www.semcommittee.com/sites/semc/files/media-
files/Market%20Monitoring%20Unit%20Quarterly%20Report%20Q3%202021.pdf
7
https://windenergyireland.com/latest-news/6434-wind-supplies-33-of-power-in-march-as-gas-pushes-prices-to-
record-high
IWEA CLG t/a Wind Energy Ireland. Registered in Ireland · Company No. 352773
Directors · A. P. Burke, E. Cassidy, K. Doyle, P. Lynch, D. McInerney, K. Moloney, M. Ryan, E. TinkerFigure 3: March Wind Energy Report 2022 Furthermore, it has been shown that renewable energy enhances security of supply by being produced indigenously. In Ireland, the development of renewables has brought about much needed competition, and as a result has increased security and sustainability. The EU is working on a toolbox of measures to tackle rising energy prices, which will address storage, market integration and supports for users – but the clean energy transition is the best insurance against price shocks like the one the EU is facing today8. 8 https://ireland.representation.ec.europa.eu/news-and-events/news/energy-prices-european-commission- presents-toolbox-measures-tackle-exceptional-situation-and-its-2021-10-13_en IWEA CLG t/a Wind Energy Ireland. Registered in Ireland · Company No. 352773 Directors · A. P. Burke, E. Cassidy, K. Doyle, P. Lynch, D. McInerney, K. Moloney, M. Ryan, E. Tinker
How to Cut the Price of Power
Ireland has set itself an ambitious target of delivering up to 80 per cent renewable electricity on our power
system by 2030. The policy frameworks to incentivise the significant levels of investment in deployment
of renewable energy technologies are now being put in place.
Ireland has a strong pipeline of wind projects, both onshore and offshore, currently progressing through
the various stages of the development process with the aim of delivering additional capacity onto the
system by the end of the decade. This additional capacity will continue to drive the price of wholesale
electricity. However, renewable capacity alone is not enough. A whole of system approach is needed.
Wind Energy Ireland (WEI) believes that a suite of solutions is needed to tackle rising energy costs as we
decarbonise our energy system, while ensuring a robust electricity supply. These solutions include:
1. Developing a stronger electricity grid
2. Connecting our grid to other markets
3. Delivering renewables at pace
4. Reducing the price to develop renewables
Developing a Stronger Electricity Grid
The most significant challenge Ireland faces in getting to grips with rising energy prices is whether the grid
will be strong enough to integrate the significant new volumes of renewable energy planned in the coming
decade. This includes new connections for renewable capacity, and the reinforcement of the wider
backbone transmission and distribution networks.
Deploying innovative technologies and new solutions on the system presents opportunities in the shorter
term. It is important that we begin to see strong delivery from EirGrid and ESB Networks in smart grid and
smart technology trials, and the wider deployment of technologies, especially technologies which are in
operation in other transmission networks such as special protection schemes9, dynamic line ratings10 and
power flow control technologies11. The use of these technologies will increase renewable energy
production, reduce the constraining and wasting of renewable energy and ultimately decrease our usage
of fossil fuels.
9
A special Protection Scheme is defined as an automatic protection system designed to detect abnormal or
predetermined system conditions and take corrective action other than and/or in addition to the isolation of
faulted components to maintain system reliability. They operate at strategic points of the transmission system.
10
The rating of an overhead line is influenced by meteorological conditions such as ambient temperature, wind
speed and wind direction etc. Dynamic Line Rating involves the installation of monitoring devices to examine
meteorological conditions. Under certain conditions, it can be possible to increase the line rating and to transfer
additional power on the line. Hence, the technology helps to reduce potential network constraints.
11
Simply put, power flow control devices make better use of spare capacity in transmission lines. The units work
by increasing resistance on a power line. By increasing resistance, they push power away from an overloaded line
and effectively divert power flow onto a line that has spare capacity. As power follows the path of least resistance,
the end result of this technology is an increase in the amount of power that can be safely carried. This means that
EirGrid can make the most of the existing grid and respond flexibly to sudden changes in generation and demand.
IWEA CLG t/a Wind Energy Ireland. Registered in Ireland · Company No. 352773
Directors · A. P. Burke, E. Cassidy, K. Doyle, P. Lynch, D. McInerney, K. Moloney, M. Ryan, E. TinkerIt is important to note that substantial amounts of power are lost each year because the transmission
system cannot cope with the existing volumes of renewable electricity available. For example, in 2020
more than 10% of renewable generation was lost because the grid could not accommodate it and the
wind resource had to be dispatched down. There was enough renewable energy lost last year to power
Galway City, Limerick City and Sligo town for a year.
As more wind and solar farms are built larger amounts of power could be lost in the coming decade, in
the absence of grid development. According to research from Everoze, a stronger electricity grid could
cut costs by 18 per cent12.
In short, network development needs to allow for the Government’s ambitious renewable electricity
targets to be delivered. Grid costs should be seen as an investment which reduces the overall cost of
renewables. Failing to invest in building a stronger grid means higher electricity prices for Irish families
and businesses. This is guaranteed.
Connecting our Grid to Other Markets
Interconnection of Ireland’s electricity system is essential to provide greater security of supply and reduce
reliance on volatile fossil fuel imports. The Irish electricity system currently has approximately 1 GW of
electricity interconnection supplied by the East West interconnector from Ireland to Wales and Moyle
interconnector between NI and Scotland. Increasing interconnection will add to our energy security,
meaning we can import electricity in times of high demand or low generation.
EirGrid is currently progressing plans for three separate interconnections in the current decade – the
North South interconnector between ROI and NI (2025), the Celtic interconnector between Ireland and
France (2026), and the Greenlink interconnector connecting Ireland to the UK (2023). It is crucially
important that we see all three delivered within the next four years.
Furthermore, work must start now to identify future interconnections to be completed in the early part
of the 2030s. Ireland has further opportunity to progress its interconnection through the North Sea Energy
Cooperation (NSEC), for which Ireland has the presidency in 2022. One of the aims within this Cooperation
is to explore the development of joint and hybrid cross-border projects and increased levels of renewable
energy interconnection among the members of the North Seas Energy Cooperation.
In March 2022, WEI published Ireland and the SuperGrid: Connecting an Energy Independent Europe13.
The paper outlined a vision for a fully integrated European electricity grid unlocking the best renewable
resources and connecting them to all of Europe. A SuperGrid would span far enough to alleviate the
variability of local weather and connect the strongest resources to demand centres, ensuring access to
clean renewable power, whatever the local weather conditions might be. A SuperGrid will:
• Provide an opportunity to decarbonise our energy systems on a continental scale.
• Help to achieve the 2050 climate targets.
12
https://windenergyireland.com/images/files/final-iwea-70by30-saving-money-report-may-2020.pdf
13
https://windenergyireland.com/images/files/supergrid-report-march2022-final.pdf
IWEA CLG t/a Wind Energy Ireland. Registered in Ireland · Company No. 352773
Directors · A. P. Burke, E. Cassidy, K. Doyle, P. Lynch, D. McInerney, K. Moloney, M. Ryan, E. Tinker• Facilitate a more stable and secure future electricity system with seasonal complementarity of
wind and solar.
• Develop a more interconnected system which will reduce the level of curtailment on the system.
• Help Europe gain energy independence.
• Allow Europe to build its renewable capacity where the resource is best, ensuring Ireland’s
offshore wind resources play a vital role in Europe’s 2050 ambitions.
Developing a SuperGrid would be one of the most significant infrastructure projects ever undertaken. It
will require international coordination at a level never seen before in the context of electricity grids.
Preparations cannot begin soon enough.
Delivering Renewables at Pace
To expedite the transition away from volatile fossil fuels, WEI believes that a change of pace is needed for
upcoming and future RESS and offshore (O-RESS) auctions. The Renewable Electricity Support Scheme
provides support to renewable electricity projects in Ireland, ensuring that Ireland is on the right pathway
to meet our climate targets and lays the foundations for a cost-effective renewable electricity market.
Against the backdrop of unprecedented ambition for decarbonisation in this decade, it is deeply
unfortunate that there were no auctions for new renewables held in 2021. The first of the dedicated
offshore renewable auctions, needed to deliver offshore wind, has been delayed by more than 12 months.
Government had previously announced plans to hold annual RESS auctions throughout the lifetime of the
scheme, with the objective of getting substantial volumes of renewables connected between now and
2025. The Climate Action Plan 2021 recommitted to this ambition, and it is important that we now see
this ambition fulfilled. This is one of the best ways to ensure a change of pace with decarbonising our
electricity grid, thus ensuring the best possible electricity price for consumers in the longer term.
Reducing the Price to Develop Renewables
The first RESS auction took place in 2020, with nineteen new wind farms with a total capacity of 479 MW
winning contracts. The auction cleared at €74 per megawatt-hour. Unfortunately, this was the highest
price in the EU in 2020 as prices elsewhere in Europe came in at prices in the fifties or sixties14.
In 2021 Spain announced that in their recent auction wind energy had cleared at €30.1815. WEI strongly
believes that more can be done at Government level to push down the price of renewables competing in
an auction for the best price.
Research by Everoze in the Saving Money report16 outlined the following practical solutions:
• Turbine tip height is the distance from the bottom of the turbine tower to the uppermost limit of
the rotor. While permitted tip heights in Ireland are increasing, they have only recently begun to
exceed a level of around 125m. In this respect Ireland is a laggard behind other markets across
14
https://windeurope.org/intelligence-platform/product/historic-and-upcoming-auctions-tenders/
15
https://renews.biz/73658/wind-secures-22gw-in-spanish-auction/
16
https://windenergyireland.com/latest-news/5896-government-must-act-now-to-cut-future-electricity-bills
IWEA CLG t/a Wind Energy Ireland. Registered in Ireland · Company No. 352773
Directors · A. P. Burke, E. Cassidy, K. Doyle, P. Lynch, D. McInerney, K. Moloney, M. Ryan, E. TinkerEurope – for example, tip heights in Scandinavian countries often exceed 200m. Since increasing
tip heights gives improved wind conditions, this would allow us to produce electricity more
cheaply. Everoze found that allowing turbine heights of up to 180 metres in Ireland could cut the
cost of wind energy by up to 27%.
• In recent years the Valuation Office has increased the commercial rates liability for wind farms by
between 250-300 per cent while leaving fossil fuel generators largely untouched. A 50 MW wind
farm now pays two and a half times the rates of a 50 MW fossil fuel generator.
Additional analysis completed by Cornwall Insights in 2022, considered which mitigation measures could
be put in place to address key risks for renewable projects entering future RESS auctions. The aim of the
study was to identify how best to move the burden of key risks to the party best placed to manage such
risks and then, consider the impact on reducing bidding prices and end savings to the consumer. The
following mitigations were applied in a Cost Benefit Analysis:
Figure 4: Proposed Mitigations for future RESS
The report concluded that “If the auction design does not insulate developers from enough risk, the bid
price submitted by those developers will be higher, resulting in higher contracted auction prices and costs
to the consumer”. It is clear that adopting risk mitigation measures for externally managed risks, can result
in beneficial savings for consumers. As illustrated below in Figure 4, the greatest single impacts would
arise from the mitigation of merchant tail risk17 for onshore wind, and constraints for offshore wind
projects. However, general benefits arising from mitigation across the entire basket of risks considered in
this study are meaningful, and the combination effect of addressing all of them are profound in terms of
reducing consumer costs.
17
When developers consider the lifetime revenue of a generation plant, they typically consider the subsidy
revenue as their primary revenue stream. As RESS contracts last 15 years this results in a large revenue gap
towards the end of the useful lifetime of the plant, which is typically 25 years in Ireland. After the end of the
subsidy period the developer will look to utilise a forward price projection to estimate the potential revenues that
could be earned post subsidy. The level of conservatism taken by a developer in this period can have a large
impact on bid price in RESS auctions. Extending the length of subsidy to 20 years under RESS would substantially
alter the risk profile, and hence bid price.
IWEA CLG t/a Wind Energy Ireland. Registered in Ireland · Company No. 352773
Directors · A. P. Burke, E. Cassidy, K. Doyle, P. Lynch, D. McInerney, K. Moloney, M. Ryan, E. TinkerFigure 5: RESS for LESS Taking one particular risk mitigation proposal, when it comes to RESS auctions, unlike in other countries, when Irish wind farms bid in an auction the price is not index-linked to inflation. This means projects must effectively guess a price to cover 15 years of inflation. Industry analysts believe the decision not to index prices in RESS-1 pushed prices up by 14-16 per cent. In summary, the appropriate allocation of risk in auctions also has the potential to deliver better value to the consumer. Furthermore, providing greater certainty on constraint, curtailment, and oversupply in RESS auctions would allow lower bid prices. If the associated residual risk can be managed by the SO’s and Regulators IWEA CLG t/a Wind Energy Ireland. Registered in Ireland · Company No. 352773 Directors · A. P. Burke, E. Cassidy, K. Doyle, P. Lynch, D. McInerney, K. Moloney, M. Ryan, E. Tinker
on behalf of consumers noting that they would be appropriately incentivised to so, this would be expected to deliver better overall consumer value. Conclusion This position paper has set the context for current high prices and price volatility in the wholesale market. It has presented compelling evidence to show that renewable energy, specifically wind power, drives down energy prices for the consumer. Finally, the paper has outlined a number of practical actions that can be prioritised to drive down the price of power, while ensuring a secure supply of electricity. These include wide scale grid development, more interconnection, deployment of renewables quicker and mitigating key risks within RESS T&Cs to reduce the costs for the consumer. IWEA CLG t/a Wind Energy Ireland. Registered in Ireland · Company No. 352773 Directors · A. P. Burke, E. Cassidy, K. Doyle, P. Lynch, D. McInerney, K. Moloney, M. Ryan, E. Tinker
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