John Simpson: Kicking can down the road puts power supply at risk
Electricity generating at Kilroot has won a contract to continue in business for a further year, into 2020. For the American owners, AES, there has been considerable uncertainty.
A year ago, after the first auction of capacity, initiated as part of the new annual contracting system in the I-SEM (integrated single electricity market), it seemed that the two large generating units at Kilroot would be decommissioned since the new contracting deal had excluded these generators as uncompetitive.
In the aftermath of the ill-fated auction in late 2017, the regulatory authorities negotiated an unusual compromise.
The two Kilroot generators were allowed to continue to supply the electricity market but, in a partial offset, two older generating sites at Ballylumford were taken offline.
That unusual settlement continues to operate to this day, and will continue until later this year.
The auction for the supply of electricity for 2019 to 2020 has been concluded, and as part of a complex all-island settlement, the two large generating units at Kilroot have been allocated a capacity contract for a further year.
However, the circumstances of that decision point to special conditions which, looking further ahead, mean the axe hanging over Kilroot has not been removed.
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The all-island regulatory authorities allocated generation contracts, first, on an all-island basis and, second, to cope with electricity distribution capacity constraints which mean that the electricity grid cannot securely be asked to import adequate supplies of electricity from outside Northern Ireland.
As a result, the contract price offered for Kilroot capacity was well above the price that gave a competitive answer on an all-island basis.
The Kilroot bid was accepted because, without Kilroot being contracted, Northern Ireland did not have acceptable assurances of guaranteed supply.
The terminology used is that in Northern Ireland there are 'locational constraints' affecting the ability to transfer electricity into the system.
The interconnector and cross-border links do not have enough capacity to give assured supplies. From this starting point, the case for the long-delayed high-capacity cross-border link is easily made.
The absence of adequate cross-border grid electricity distribution is now imposing large extra costs on Northern Ireland consumers.
The recent further stumble delaying the construction of the new north-south link is a further hitch in critical local decision-making. Even now it is not clear whether, following the recent Judicial Review, the Permanent Secretary in the Department for Infrastructure, if she is so minded, could authorise the project under new legislation.
The award of a further annual contract for the two large Kilroot generators comes at a price.
Kilroot will earn more than £46,000 per MW compared to the capacity contracts for other generators, such as Coolkeeragh and some other generators at Ballylumford (including some maintained under the long-standing power purchase contracts with Viridian/Power NI), which will be paid £36,890 per MW.
The long-term implication of the extra costs because of locational constraints is that there is now a close interest in whether there will be a competitive response for the provision of new generating capacity which might be installed more quickly than the expected all-island grid.
There is an expectation that local business interests may be asking for planning permission for a new 400 to 500MW generator based in Belfast and drawing natural gas from the existing import pipeline.
Potential developers now know the challenge for the economics of a new large plant. The market price to win a contract will presumably need to compare with the bids from operators such as Coolkeeragh. That points to the probability of a reliance on natural gas supplies.
Northern Ireland faces many uncertainties in its future energy services. Supplies from renewable sources are significant, electricity storage plans are under scrutiny, and supplies from interconnectors have become critical.
Long-term policy decisions and investments are needed.