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An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
An Coimisiún um Rialáil Fóntas
Commission for Regulation of Utilities
Greenlink Electricity
Interconnector
Determination
Determination Paper
Reference: CRU/18/216 Date Published: 18/10/2018 Closing Date: N/A
www.cru.ie
An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
Executive Summary
The Greenlink Interconnector is a proposed 500 MW HVDC electricity interconnector, which
is being developed by Element Power, linking the power grid in Ireland and GB. It is
anticipated that the link will provide a new grid connection between the Great Island
transmission substation in Wexford and Pembroke transmission substation in South Wales.
Figure 0: Graphical Illustration of Greenlink (Image source: Element Power)
In December 2017, Element Power submitted an interconnector application under Section 2A
of the Electricity Regulation Act 1999. In its application Element Power requested the CRU
to:
1. determine if the construction of the Greenlink interconnector is in the public interest
for the project to be considered to be part of the transmission system for the purposes
of calculating and imposing charges for the use of the transmission system; and
2. approve the proposed charging methodology for Greenlink pursuant to section 35 of
the Act which is based on a 25 year Cap and Floor regime.
In June 2018, the CRU published Element Power’s application and a CRU consultation
paper (CRU18119) requesting views on the initial assessment of Greenlink by the CRU. The
CRU noted in the consultation paper that the assessment of Greenlink involves two stages:
1. testing the public interest case of the proposed interconnector by reviewing a Cost
Benefit Analysis (CBA) of the project; and
2. determine the best approach on a Cap and Floor mechanism.
This determination paper focuses on the first stage, i.e. the public interest test. The precise
details of any cap and floor regime would need to be consulted upon and determined at a
later stage.
The CRU has reviewed the consultation responses and considered the points raised by
respondents. In addition, the CRU has conducted its own CBA of Greenlink to test the
boundaries of Element Power’s CBA and the key inputs and assumptions which may drive
better or worse outcomes for Irish consumers and other stakeholders. The CRU has
1
An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
modelled ENTSO-E TYNDP scenarios and compared the CBA results to those of Element
Power.1
The consultation paper noted that if the CRU CBA revealed that Greenlink would generate
overall (net) benefits to Irish consumers then the CRU would go on to consider the
appropriate regulatory regime that is justified by public interest.
The focus of this paper is to set out CRU’s determination that the Greenlink application
meets the public interest.
The results of the CRU CBA2 of Greenlink are summarised below:
• Although there are differences between CBA modelling scenarios and assumptions
adopted by the CRU and Element Power, overall the CRU CBA results are consistent
with the findings of Element Power. They show that Greenlink has the potential to
deliver benefits for Irish consumers where significant decarbonisation of electricity
generation occurs.
• The CRU modelling indicates that in relatively conservative scenarios of
decarbonisation of electricity generation in Europe, Greenlink does not drive benefits
for Irish consumers.
• In a scenario where another new interconnector is added alongside Greenlink, e.g.
another interconnector to France, consumer benefits from Greenlink appear to be
significantly reduced.
• There are potential security of supply benefits for the Single Electricity Market (SEM)
with the introduction of Greenlink.
• The CRU Brexit sensitivity3 assumes that there would be trading frictions4 between
GB and the countries it is connected to via an interconnector. Trading frictions
between countries would result in less efficient trading, less efficient interconnector
usage, greater price divergence, and hence potentially higher cost for consumers. As
a consequence of these frictions, the overall net benefits in SEM are lower under the
Brexit sensitivity than under a no Brexit scenario. Because of the underlying
inefficiencies, introducing a new interconnector may unlock more benefits to Irish
consumers compared to a no Brexit scenario where no trading frictions are present.
• The addition of Greenlink would have a small negative impact on annual power sector
gas demand and an even smaller corresponding impact on total annual gas demand.
• Both CRU’s CBA and Element Power’s CBA show that Greenlink reduces RES
curtailment and improves captured electricity prices for Irish consumers, i.e. average
annual electricity prices are expected to be lower in the SEM when Greenlink is in
service compared to prices that would be captured without Greenlink.
1
The CRU has been supported by independent economic and technical advisors.
2
CRU modelled Vision 1 from the ENTSO-E TYNDP 2016 scenarios and Sustainable Transition and Global Climate Action from
the ENTSO-E TYNDP 2018 scenarios. At the time of conducting the CBA study, the TYNDP 2018 scenarios were still in draft
form.
3
See Section 3.5 for a description of the Brexit sensitivity.
4
Trading frictions were modelled as a transmission cost on all GB electricity interconnectors.
2
An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities The CRU CBA of Greenlink indicates that, at the time of assessing the Greenlink application, Greenlink has the potential to provide a net benefit to Irish consumers and Ireland as a whole. As such, the CRU is minded to determine, at this early stage, the Greenlink interconnector application passes the public interest test. The CRU notes that this paper outlines the CRU determination if the Greenlink interconnector is in the public interest. The CRU does not require any further comments on this determination paper. The precise details of any Cap and Floor regime will be consulted upon and determined at the next stage, after sufficiently detailed financial and technical submissions provided by the Greenlink developers to the CRU for a detailed assessment. The CRU notes that in the next stage the CRU will engage with the Ofgem to explore the potential for a Final Project Assessment process that takes both the Irish and GB regulatory separate decision-making processes into account. Notwithstanding this determination on the public interest test, if any subsequent information is given to the CRU before making its final decision would lead the CRU to consider that the basis of its public interest test decision has materially changed, then the CRU may revisit this determination. In this case, the CRU may re-run its analysis in order to confirm whether or not the project continues to be in the public interest. Greenlink developers are required to regularly update the CRU on progress against their key development milestones. Furthermore, the CRU expects the Greenlink developers to give formal written notice of any material change to the project design. 3
An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
Public Impact Statement
Electricity interconnectors are physical links which allow the transfer of electricity across
borders. New interconnectors should be built only to the extent that they benefit the public at
large. That is, as long as the benefits of adding interconnection capacity outweigh or equal
the costs. Therefore, the CRU’s assessment of each electricity interconnection application
will balance potential benefits of a new interconnector to the Irish consumers against its
costs.
Generally, new electricity interconnectors can offer multiple potential benefits:
• lowering costs for consumers if power can be generated abroad and imported to
Ireland at a lower price (lower prices);
• reducing emissions by facilitating the integration of renewable power into the energy
system (renewable energy integration); and
• providing an additional layer of security (security of supply).
In relation to lower prices, interconnectors can transport power in both directions, i.e. import
and export. This allows them to utilise differences in the power systems, and electricity
prices, between countries. Electricity between interconnected markets flows from the lower-
priced market to the higher-priced one. For instance, at times of high electricity price in
Ireland, interconnectors can allow cheaper electricity from another country to be imported
into Ireland, thereby raising the supply of electricity and lowering its price. Conversely, if
Ireland was the lower-priced market, export of its (cheaper) electricity to a higher-priced
market would increase the price in Ireland and bring the price down for the consumers
abroad.
In summary, a new interconnector tends to increase prices in the lower-priced market and
decrease prices in the higher-priced market. As prices converge, consumers in the higher-
priced market will benefit from lower prices, while the lower-priced market consumers will
have to pay a higher price. Therefore, whether a new interconnector lowers electricity prices
for Irish consumers would depend on whether it connects to a country where electricity prices
are typically lower than in Ireland.
Regarding renewable energy, on very windy or sunny days there can be more renewable
power available than the electricity system can accept. When this happens, renewable
generators are dispatched down or “curtailed off”, that is, blocked from supply, and a large
volume of renewable energy goes unused. This is because, at present, renewable energy
cannot displace conventional power plants below the minimum level needed for certain grid
stability services. Additional interconnection could reduce this effect and allow more
renewable energy onto the electricity system (as it can safely be exported).
Finally, regarding security of supply, interconnectors allow physical imports of electricity to
meet domestic demand. As such, a new interconnector would give Ireland yet another
potential import route for electricity, diversifying Ireland’s energy supply. This diversification
can have various dimensions. First, a new interconnector can provide geographic
diversification if it links Ireland with a new country or supplies power to a new (different) point
on the Irish electricity system. A new interconnector can also provide economic
4An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities diversification, as it supplies electricity according to the price dynamics between the two interconnected countries. Finally, a new interconnector also provides technological diversification in that it links markets with different technology choices or having different natural resources determining their energy mix. Each of these dimensions enables security of supply risks to be spread and reduced. Building a new interconnector can be costly for the Irish consumers, depending on the way it is regulated and funded. Interconnectors derive their revenues from sales of interconnection capacity to users who wish to move electricity between markets with different prices (congestion revenues). There are various approaches to regulate interconnectors and determine who bears the risk of the interconnector being able to earn congestion revenues. In a merchant model, which is exceptional in Europe, the interconnector is fully reliant on its congestion revenues and bears all the risks of not being able to recover its investment. In a fully regulated model, which is most common in Europe, investment costs are recovered through network tariffs. In this model, it is the end consumer that pays the investment costs in full and receives all the revenues from sales of interconnection capacity. Interconnectors can also be partly regulated, and therefore partly funded by the tariffs. For instance, in a so-called cap and floor model, an interconnector’s sales revenues that are below the floor are topped up by network tariffs and its sales revenues above the cap are returned to the end consumer. Hence, regulated and partially regulated interconnectors can have a positive or negative impact on network tariffs, and ultimately on end consumers, depending on their performance. If interconnectors underperform financially, then this can translate into a cost to electricity consumers by increasing network tariffs. In contrast, if electricity interconnectors over- perform financially they can reduce electricity network tariffs. Therefore, the risk of underperformance and its potential cost to Irish consumers must be balanced against the potential benefits that a new interconnector may bring in the medium to long term. 5
An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
Table of Contents
Table of Contents ...................................................................................................... 6
1. Introduction ...................................................................................................... 10
1.1. Commission for Regulation of Utilities ...........................................................................10
1.2. Background ........................................................................................................................ 10
1.3. Greenlink Project – PCI 1.9.1............................................................................................ 11
1.4. Purpose of this Paper .......................................................................................................11
1.5. Legal and Policy Context..................................................................................................11
1.5.1. Electricity Regulation Act 1999, Section 2A ................................................................ 12
1.5.2. Electricity Regulation Act 1999, Section 9 ..................................................................12
1.5.3. Electricity Regulation Act 1999, Section 16A .............................................................. 12
1.5.4. ENTSO-E’s TYNDP .........................................................................................................13
1.5.5. ENTSO-E’s CBA Guideline ............................................................................................ 13
1.5.6. CRU’s policy to date ......................................................................................................14
1.5.7. Government’s Policy on Electricity Interconnection .................................................15
1.6. Structure of this Paper ......................................................................................................15
2. Summary of Responses Received.................................................................. 16
2.1. Are there any other specific factors that the CRU should consider in assessing the
Greenlink CBA? ........................................................................................................................ 16
2.2. Is there any additional information the CRU should consider when determining
whether the Greenlink interconnector is in the public interest or not? ............................. 18
2.3. Are there any other specific factors that the CRU should consider in assessing the
Greenlink technical overview report? ....................................................................................19
2.4. Are there other specific factors that the CRU should consider in selecting the
appropriate regulatory approach? ......................................................................................... 20
2.5. Other comments ................................................................................................................21
3. CRU CBA of Greenlink ..................................................................................... 23
3.1. Methodology and Modelling Approach ...........................................................................23
3.2. CRU CBA Results of Greenlink ........................................................................................ 26
3.3. CRU CBA Results Across all Scenarios .........................................................................27
3.3.1. TYNDP 2018 ST vs Element Power Reference Case ..................................................28
3.3.2. TYNDP 2016 V1 vs Element Power Low Case ............................................................. 30
3.3.3. TYNDP 2018 GCA vs Element Power High Case ........................................................ 31
3.4. RES Integration..................................................................................................................32
3.5. Impact of Greenlink on Security of Supply ....................................................................32
6An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
3.6. Impact of Brexit on Greenlink .......................................................................................... 34
3.7. Impact of Greenlink on Gas Transmission Tariffs ......................................................... 38
4. CRU CBA Summary ......................................................................................... 40
5. CRU’s Determination ....................................................................................... 42
6. Next Steps ........................................................................................................ 43
7An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
Glossary of Terms and Abbreviations
Abbreviation or Definition or Meaning
Term
ACER Agency for the Cooperation of Energy Regulators
CBA Cost Benefit Analysis
CBCA Cross-border cost allocation
CEF Connecting Europe Facility
CRU Commission for Regulation of Utilities
DCCAE Department of Communications, Climate Action and the Environment
EENS Expected Energy Not Served
ENSTO-E European Network of Transmission System Operators for Electricity
ESB Electricity Supply Board
GB Great Britain
UK United Kingdom
FFR Fast Frequency Response
FPA Final Project Assessment
HVAC High Voltage Alternating Current
HVDC High Voltage Direct Current
Interconnexion France-Angleterre (Interconnector between France and
IFA
GB)
IPA Initial Project Assessment
SEM Single Electricity Market
I-SEM Integrated Single Electricity Market
LOLE Loss of Load Expectation
NPV Net Present Value
8An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
Abbreviation or Definition or Meaning
Term
NRA National Regulatory Agency
O&M Operations and Management
Ofgem Office of Gas and Electricity Markets (GB Energy Regulatory Authority)
PCI Project of Common Interest
Réseau de transport d'électricité (French Transmission System
RTÉ
Operator)
TEN-E Trans-European Energy Infrastructure Regulation (EU Regulation (EC)
Regulation No 347/2013)
TSO Transmission System Operator
KPI Key Performance Indicator
CRE French Regulator
SNSP System Non-Synchronous Penetration
V1 Vision 1
ST Sustainable Transition
GCA Global Climate Action
RES Renewable energy sources
CO2 Carbon dioxide
TYNDP Network development plan for the next ten years
DfD Contracts for Differences
VoLL Value of Lost Load
EENS Expected energy not served
PPA Power Purchase Agreements
9An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
1. Introduction
1.1. Commission for Regulation of Utilities
The Commission for Regulation of Utilities (“CRU”) is Ireland’s independent energy and
water regulator. The CRU’s mission is to regulate water, energy and energy safety in the
public interest.
Further information on the CRU’s role and relevant legislation can be found on the CRU’s
website at www.cru.ie.
1.2. Background
In December 2017, Element Power submitted an application for an interconnector between
GB and the Republic of Ireland, i.e. the Greenlink interconnector under Irish Legislation
(Electricity Regulation Act 1999 (the Act)). The application consisted of a cost-benefit
analysis of Greenlink, a technical description of the project, project financial information as
well as a description of the charging methodology and regulatory regime Greenlink is seeking
to be regulated under. In its application Element Power requested the CRU to:
1. determine if the construction of the Greenlink Interconnector (a Project of Common
Interest (PCI) connecting Great Britain (GB) and Ireland) is in the public interest for
the project to be considered to be part of the transmission system for the purposes of
calculating and imposing charges for the use of the transmission system; and
2. approve the proposed charging methodology for Greenlink pursuant to section 35 of
the Act which is based on a 25-year Cap and Floor regime.5
This determination pertains to the first stage outlined above. The CRU assessed the “public
interest” stage by conducting its own CBA and comparing the results to those provided by
Element Power.
The CRU considered the application and issued a public consultation seeking comments
from stakeholders on the CRU’s initial assessment of Greenlink’s electricity interconnector
application.
In June 2018, the CRU published Element Power’s application and a CRU consultation
paper (CRU18119) requesting views on the initial assessment of the Greenlink’s electricity
interconnector application by the CRU. In the consultation paper the CRU indicated that it
would conduct its own CBA of Greenlink to test the boundaries of Element Power’s CBA and
the key inputs and assumptions which may drive better or worse outcomes for Irish
consumers and other stakeholders. The CRU also noted that if the CRU CBA revealed that
Greenlink would generate overall (net) benefits to Irish consumers, the CRU would then
consider the appropriate regulatory regime that is in the public interest.
5
Greenlink requested from the CRU a Cap and Floor regime in respect of 50% of Greenlink’s revenues. Greenlink is seeking a
regime that is symmetrical with Ofgem’s 25-year Cap and Floor regime that would apply to Greenlink in GB, i.e. the Greenlink
Interconnector would be, in principle, half underwritten by GB consumers and the other half underwritten by Irish consumers.
10An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities 1.3. Greenlink Project – PCI 1.9.1 The Greenlink Interconnector is a proposed 500 MW HVDC electricity interconnector, which is being developed by Element Power, linking the power grid in Ireland and GB. It is anticipated that the link will provide a new grid connection between the Great Island transmission substation in Wexford and Pembroke transmission substation in South Wales. Figure 2: Graphical Illustration of Greenlink (Image source: Element Power) Greenlink has been designated as a PCI by the European Commission and has been granted, by Ofgem, a Cap and Floor regulatory regime 6. The interconnector is focused on increasing the ability of the all-island SEM and GB markets to integrate low carbon electricity generation, particularly through renewable generation, as the penetration of renewable electricity generation increases. Element Power considers the interconnector can also help wind and solar energy avoid curtailment by allowing surplus output to be exported during periods where supply outstrips demand. 1.4. Purpose of this Paper The purpose of this paper is to outline the CRU determination following an assessment on the Greenlink interconnector application seeking to understand whether the interconnector would be in the public interest. 1.5. Legal and Policy Context The CRU has several competences in relation to assessing electricity interconnection projects and deciding on their regulatory treatment. An overview of those competencies under the Irish and the European law is provided in a CRU information paper (CRU18056). When assessing electricity interconnection applications, the CRU is mindful of the Government’s policy on electricity interconnection. Moreover, the CRU takes into consideration the European guidance and best practices for such assessments. 6 Regulatory framework that sets the maximum (cap) and a minimum (floor) on the level of revenues that can be gained/lost by interconnector project promoters. 11
An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
The CRU notes that Element Power has submitted the Greenlink Interconnector application
and requested from the CRU to make a determination pursuant to Section 2A of the
Electricity Regulation Act 1999 (as amended) (the Act) that it is in the public interest for
Greenlink to be considered to be part of the transmission system for the purposes of
calculating charges and imposing charges for use of the transmission system, and approve
the proposed charging methodology for Greenlink pursuant to section 35 of the Act which is
based on a 25 year Cap and Floor regime.
1.5.1. Electricity Regulation Act 1999, Section 2A
Under the Act interconnector developers may apply directly to the CRU for a determination
on their application.
Section 2A of the Act states that an interconnector owned by a person other than the Board
(i.e. ESB) may, where the CRU determines that it is in the public interest, be considered to
be part of the transmission system for the purposes of calculating and imposing charges for
the use of the transmission system (as set out in Section 35 - Charges for connection to and
use of transmission or distribution system).
1.5.2. Electricity Regulation Act 1999, Section 9
Pursuant to Section 9 of the Act, the CRU has responsibilities which include:
• protect the interests of final customers;
• promote competition, efficiency and the use of renewable and sustainable energy;
• not discriminate unfairly between relevant stakeholders;
• contribute to the development of the internal market and to the development of
compatible regulatory frameworks between regions of the European Union, by
engaging, co-operating and consulting with other national regulatory authorities, the
Agency and with the European Commission in regard to cross-border issues;
• cooperate with other regulatory authorities at a regional level to foster operational
arrangements to enable an adequate level of interconnection capacity within the
region and between regions to allow the development of effective competition and
improvement of Security of Supply; and
• cooperate with other regulatory authorities at a regional level to develop rules on
access to cross border infrastructure including allocation of capacity and congestion
management.
1.5.3. Electricity Regulation Act 1999, Section 16A
Section 16A of the Act provides that, with the consent of the Minister, the CRU may secure
the construction of an interconnector by:
• a competitive tender;
12An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
• an authorisation granted to a person without a prior competitive tender where the
person demonstrates, to the satisfaction of the CRU, that the granting of an
authorisation, subject to such conditions as the CRU deems necessary and
appropriate, is in the long term interests of final customers; or
• requesting the transmission system operator to provide for the construction of an
interconnector in its development plan.
1.5.4. ENTSO-E’s TYNDP
The European Commission selects PCI projects from a list of projects included in ENTSO-
E’s pan-European network development plan for the next ten years (TYNDP). The principal
aim of the plan is to provide a consistent view of the pan-European electricity infrastructure,
signal potential gaps in future investment and capture the wider dynamics of the European
electricity market. ENTSO-E use several scenarios to represent future developments of the
power system. ACER recommends that project promoters use TYNDP scenarios in their
CBAs submitted to NRAs, while noting that additional robust scenarios can also be provided.
ENTSO-E update their plan every two years.7 The previous edition, the TYNDP 2016, was
published in December 2016. The 2018 edition is currently under preparation.8
1.5.5. ENTSO-E’s CBA Guideline
The ENTSO-E has developed guidelines for the CBA of grid development projects, including
interconnectors9. According to these guidelines, the scenarios considered in the economic
assessment should:
• be coherent, comprehensive and internally consistent;
• consider interaction of economic key parameters such as economic growth, fuel
prices, CO2 prices, etc. as well as the impact of any significant risk affecting the
results of the CBA over the investment horizon; and
• be characterised by:
• a generation portfolio, including a forecast of power plant installations and
retirements, type of generation, etc.;
• a demand forecast, e.g. impact of efficiency measures, rate of growth, shape
of demand curve, etc.; and
• exchange patterns with the systems outside the studied region.
The ENTSO-E Guideline also provides an economic assessment framework that considers a
project’s benefits, cost and impact on society, as summarised in the figure below.
7
See TYNDP website for updates.
8
As such, CRU CBA modelling is based on draft TYNDP 2018 scenarios.
9
ENTSO-E Guideline for Cost Benefit Analysis of Grid Development Projects, 29th July 2016
13An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
Figure 3: ENTSO-E economic assessment framework
ACER recommends that project-specific CBAs are consistent with the ENTSO-E’s economic
assessment framework.
1.5.6. CRU’s policy to date
Since late 2015, the CRU has published six documents which outline the CRU process in the
development of a regulatory framework for assessing electricity interconnectors, in particular
those with a PCI status. These documents are listed below:
• CER/15/269: Information on PCI Incentive Methodology in accordance with Article
13(6) of EU Regulation 347/2013;
• CER/15/284: Consultation on Review of Connection and Grid Access Policy: Initial
Thinking & Proposed Transitional Arrangements;
• CER/16/239: Information on Policy for Electricity Interconnectors – Consultation
Process and Call for Initial Comments;
• CRU17300: Direction on Grid Connections for Electricity Interconnectors with PCI
status;
• CRU18056: Information on Electricity Interconnectors;
• CRU18119: Consultation on Greenlink Electricity Interconnector;
• CRU18131: Consultation on Assessment Criteria for Electricity Interconnection
Applications.
• CRU18221: Decision on Assessment Criteria for Electricity Interconnection
Applications.
14An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
1.5.7. Government’s Policy on Electricity Interconnection
When assessing electricity interconnectors, the CRU is mindful of the Government’s policy
on electricity interconnection. Relevant Government’s policy documents:
• Government Policy Statement on the Strategic Importance of Transmission and Other
Energy Infrastructure;
• Ireland’s Transition to a Low Carbon Energy Future 2015-2030;
• Draft National Policy on Electricity Interconnection in Ireland: Public Consultation;
• National Policy Statement on Electricity Interconnection.
1.6. Structure of this Paper
This paper is structured as follows:
• Section 1, provides an introduction to the CRU and provides background information
to this paper.
• Section 2, provides a summary of the responses received and the CRU’s position.
• Section 3, provides an overview of the CRU CBA of Greenlink.
• Section 4, summarises the key findings of the CRU assessment.
• Section 5, outlines the CRU’s determination on the application “Public Interest Test”.
• Section 6, provides the next steps with regards to the Greenlink Interconnector
application.
15An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
2. Summary of Responses Received
On 18 June 2018 the CRU published a consultation on the Greenlink electricity
interconnector application. The CRU requested comments on the questions raised in the
consultation paper. There were:
• Are there any other specific factors that the CRU should consider in assessing the
Greenlink CBA?
• Is there any additional information the CRU should consider when determining
whether the Greenlink interconnector is in the public interest or not?
• Are there any other specific factors that the CRU should consider in assessing the
Greenlink technical overview report?
• Are there other specific factors that the CRU should consider in selecting the
appropriate regulatory approach?
The CRU received 18 responses to the consultation paper, of which none were confidential.
The main points made by respondents are summarised below. The submissions are
published on the CRU’s website alongside this paper.
2.1. Are there any other specific factors that the CRU
should consider in assessing the Greenlink CBA?
In the consultation paper (CRU18119) the CRU requested respondents’ views on the factors
that the CRU should consider in its CBA of Greenlink. The majority of respondents stated
that Security of Supply and de-rating factors should be considered.
Several respondents noted that it is necessary to examine whether Greenlink would lead to
any increase in costs elsewhere in the energy system, that the energy user would be
required to cover. A number of respondents highlighted that the impact on existing gas-fired
power plants should be considered, in particular where additional interconnection results in
lower Load Factors.
Some respondents noted that the CRU should consider if investment in alternative
infrastructure be more beneficial to Irish consumers.
With respect to Brexit impacts, a few respondents noted that related impacts on efficiency of
interconnector flows and costs between the two countries need to be taken into account. One
respondent noted that the CRU should consider if the I-SEM would still be a single market.
A number of respondents suggested that the level of reliability of Greenlink needs to be
taken into account.
The majority of respondents stated that the CRU CBA needs to look at whole-system costs
including deep reinforcement costs, any knock-on effect on the wider market and any
ramifications for energy policy goals such as decarbonisation, sustainability and competition.
16An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities CRU Response The CRU has considered the points submitted regarding the Greenlink CBA assessment. The CRU notes that while interconnectors may provide security of supply benefits, as some respondents acknowledge, those benefits are difficult to quantify. An interconnector provides security of supply benefits if it improves the power system's ability to ensure adequate supplies to meet demand. Security of supply events (i.e. instances when supply falls short of demand) tend to be relatively rare, and therefore the analysis of security of supply benefits requires a probabilistic assessment of many system conditions (including temperature, wind speed, generator outage patterns, correlation with other markets, etc.). Such data was not readily available, and therefore the CRU CBA did not quantify security of supply benefits in this manner. Instead, a simpler security of supply analysis was conducted with the available data, which is described below in section 3 of this paper. Some stakeholders have raised the issue of de-rating factors for interconnectors in the context of security of supply. These de-rating factors determine the amount of capacity that interconnectors can offer into the Capacity Market. If the interconnectors clear in the Capacity Market but fail to provide that amount of de-rated capacity during stress events, it may have security of supply implications. The CRU has modelled a sensitivity on the Greenlink interconnector availability. In the sensitivity the CRU has assumed an availability rate of 70% for Greenlink instead of 97%. This sensitivity shows that when Greenlink availability is lower, there are more flows on other interconnectors to Ireland, e.g. EWIC or Moyle. The sensitivity also shows that although net benefits are lower compared to the case where Greenlink availability is assumed to be 97%, the interconnector still generates positive net benefits to Irish consumers and other stakeholders. In relation to additional costs in the energy system, the CRU has monetised Social Economic Welfare (i.e. consumer surplus, producer surplus, congestion rents, etc.) and security of supply.10 In its CBA the CRU has sought to estimate the potential impact of the interconnector on gas tariffs through its impact on power sector gas demand (i.e. interconnector imports displacing some domestic gas-fired generation). This is discussed further in section 3 of this paper. The CRU notes the respondents’ comments in relation to investment in alternative technology solutions. Regarding investments, the CRU notes that in a free market economy, a vast majority of investment decisions should be driven by market forces. The Government may seek to incentivise investments in particular technologies to achieve its national and EU policy objectives. The CRU’s role is to ensure a well-functioning and efficient energy market for the benefit of Irish consumers, rather than determining or promoting certain investment decisions. The CRU has considered the potential impact of Brexit on the Greenlink interconnector. CRU’s Brexit sensitivity assumes that GB is no longer part of the EU’s Internal Energy 10 Any benefits associated with the integration of renewable generation and CO2 emissions were already monetised under Social Economic Welfare. 17
An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
Market but that the Republic of Ireland (ROI) and Northern Ireland (NI) remain coupled. This
is discussed further in section 3 of this paper.
The CRU is aware that availability of EWIC and Moyle has been relatively low in recent
years. In its CBA the CRU has assumed the same (relatively high) level of availability of all
new and existing interconnectors. The higher availability of existing interconnectors results in
more conservative CBA results for Greenlink, since existing interconnectors would compete
with Greenlink.
In relation to other costs, the CRU CBA of Greenlink has considered whole-system costs.
These include:
• shallow connection costs;
• ongoing maintenance costs;
• network reinforcement costs; and
• Greenlink capital and operational expenditure.
The CRU notes that EirGrid assessed the need for any additional transmission network
needs that are driven by the connection of Greenlink to the Irish system. EirGrid’s analysis
shows that the solutions required are relatively minor in relation to the scale of Greenlink’s
application and consist of a number of 110kV network solutions.
2.2. Is there any additional information the CRU
should consider when determining whether the
Greenlink interconnector is in the public interest or
not?
Element Power submitted the Greenlink interconnector application under Section 2A of the
Act and required the CRU to consider whether Greenlink is “in the public interest”. The CRU
requested respondents’ opinions on the public interest assessment. The majority of
responses received agreed with the CRU’s approach to conduct its own CBA of Greenlink
and identify the potential benefits and costs to Irish consumers.
Several respondents highlighted that the CRU should consider EU and National renewable
targets and policy objectives. The respondents highlighted that Greenlink could help to
integrate renewables and reduce wind curtailment.
A number of respondents stated that the CRU needs to consider the interaction with the gas
market. The respondents noted that additional interconnection could have an impact on the
gas network and could ultimately increase the price of gas and electricity.
A few respondents noted that the CRU should consider the potential impact of Brexit when
determining whether the Greenlink Interconnector is in the public interest or not and
consideration should also be given to the potential impact on other European energy
projects.
18An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
The majority of respondents noted that the Security of Supply should be taken into
consideration. One respondent noted that Greenlink can make a positive contribution to
Security of Supply and system reliability.
Some respondents noted that the most efficient solution for meeting national and EU targets
may be delivered by alternative technology solutions. The respondents noted that alternative
options should be considered.
CRU Response
The CRU has considered the points made by all respondents regarding the public interest.
The CRU has conducted its own CBA of Greenlink to test the boundaries of Element Power’s
own CBA of the Greenlink interconnector and the key inputs and assumptions which may
drive better or worse outcomes for Irish consumers and other stakeholders, i.e. whether the
Greenlink interconnector is likely to be in the public interest. This is discussed further in
section 3 of this paper.
In its CBA the CRU has also undertaken a high-level assessment of other Greenlink impacts,
including on Irish gas transmission tariffs, Security of Supply, Renewable energy sources
integration (RES), and the Greenlink interconnector impacts under a Brexit scenario. In
addition, the CRU examined how other potential interconnectors connecting Ireland to other
countries (e.g. another interconnector to France) would impact the incremental benefits
driven by Greenlink.
With regards to Security of Supply benefits, the CRU notes that the analysis of Security of
Supply benefits requires a probabilistic assessment of many system conditions (including
temperature, wind speed, generator outage patterns, correlation with other markets, etc.).
The CRU notes that Element Power did not conduct a probabilistic assessment of Security of
Supply benefits. Instead, Element Power used the de-rating factor of the Greenlink
interconnector multiplied by the Capacity Market clearing price.11 The CRU considered the
Security of Supply benefits driven by Greenlink in one of its scenarios using a simplified
approach that is based on ten different climatic years.12 Further information on the Security of
Supply benefits can be found in section 3 of this paper.
In relation to alternative technology solutions to meet national and EU targets. As noted
above, Government may seek to incentivise investments in particular technologies to achieve
its national and EU policy objectives.
2.3. Are there any other specific factors that the CRU
should consider in assessing the Greenlink technical
overview report?
In the consultation paper (CRU18119) the CRU requested respondents’ views on the
Greenlink technical overview report and other specific factors that the CRU should consider.
11
See section 3.4.
12
See section 3.5.
19An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
Several respondents believe that the proposed technology for Greenlink is now quite
extensively established and a high level of performance and reliability in service can be
expected. However, some respondents noted that the CRU should seek further information
regarding the technical details. Some of the respondents advised that before any final
decision is made on the Greenlink interconnector, a detailed technical assessment should be
carried out.
One respondent raised concerns regarding the risks posed to the project from shipping traffic
in the area, particularly given past events relating to interconnectors/pipelines and anchors
from ships.
Another respondent suggested the consideration of interconnector ancillary services, sub-
synchronous response and ramp rates in the CRU assessment.
One respondent noted that the CRU should ensure that the Greenlink interconnector
complies with all of the EirGrid system requirements and satisfies Grid Code conditions and
will support system security requirements as necessary including ancillary services and DS3
provisions.
CRU Response
The CRU notes the views and comments submitted regarding the Greenlink technical
requirements.
The CRU notes that this paper is focused on the public interest test. The CRU accepts that
further detail and clarity need to be provided by Greenlink developers to the CRU for a
detailed technical assessment of the Greenlink interconnector before any final project
assessment decision is made. In the next stage of the assessment, the CRU will require
Greenlink developers to submit details on the seabed surveys and additional technical & cost
details.
With reference to the EirGrid system requirements and Grid Code conditions, the CRU notes
that the interconnector operator licence requires the interconnector owner to comply with the
provisions of the Grid Code, Distribution Code, Metering Code and the SEM Trading and
Settlement Code.
2.4. Are there other specific factors that the CRU
should consider in selecting the appropriate
regulatory approach?
Ofgem has provisionally granted a Cap and Floor for Element Power, which would apply to
50% of the project costs and revenues.13 Element Power proposed a symmetrical Cap and
Floor regulatory approach to the one provisionally granted by Ofgem, which would apply to
the remaining 50% of the project costs and revenues.14 In the consultation paper
13
Ofgem, Decision on the Initial Project Assessment of the Greenlink interconnector, 30th September 2015
14
p9, Greenlink interconnector application
20An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities (CRU18119) the CRU requested views from respondents regarding the proposed regulatory approach for Greenlink. There was a broad support for further CRU consultation on the appropriate regulatory regime. The respondents in general recognised the need for a careful consideration on a Cap and Floor regulatory regime. One respondent noted that the duration of the Cap and Floor regime needs to be defined. The same respondent requested a clarification of whether the regulatory regime would remain fixed for the duration of the regime. A number of respondents were concerned that variability in the operation of the interconnector could have an impact on network tariffs for Irish electricity consumers, which could have broader economic impacts. Another respondent advised to take into account possible Brexit scenarios and a recent decision by the French Regulator (CRE) in their deliberation 2017-25315. One respondent noted that the CRU should set out a clear set of Key Performance Indicators (KPI) to ensure that the interconnector is operated as efficiently as possible. CRU Response The CRU considered the views and recommendations submitted regarding the regulatory approach for the Greenlink interconnector. The CRU notes that this paper is focused on the CBA of Greenlink and the public interest question. The CRU also noted that if the CRU CBA revealed that Greenlink would generate overall (net) benefits to Irish consumers, then the CRU would consider and consult upon the appropriate regulatory regime that is justified by public interest, e.g. a Cap and Floor regime for Greenlink. The CRU notes that in the next stage the CRU will engage with the Ofgem to explore the potential for a Final Project Assessment process that takes both the Irish and GB regulatory separate decision-making processes into account. 2.5. Other comments A few respondents noted that the Greenlink interconnector application should be assessed against the criteria set out in (CRU18131). One respondent noted that Greenlink’s Brexit scenarios modelling should be shared publicly. 15 The CRE delayed a decision on a proposed interconnector to the UK pending Brexit negotiations - https://www.google.ie/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwibkMfgk- rcAhUQM8AKHXM_DHcQFjAAegQIABAC&url=https%3A%2F%2Fwww.cre.fr%2Fen%2Fcontent%2Fdownload%2F16726%2F2 06259&usg=AOvVaw03tuj9Bf-UmmBlx6MVCu96 21
An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
CRU Response
The CRU notes that the assessment criteria for electricity interconnector applications
(CRU18131) is developed for the assessment of applications the CRU has received, or will
receive, from the developers of the electricity interconnection projects. The CRU assessed
the Greenlink interconnector application considering the CRU criteria.16 In addition, the CRU
CBA modelling approach of Greenlink is based on ENTSO-E Guideline.
The CRU highlights that following Greenlink’s project submission in December 2017, it
submitted additional analysis on:
• The potential Security of Supply benefits associated with Greenlink; and
• The impact of Greenlink on Social Economic Welfare in a Brexit world.
16
The CRU carries out a holistic assessment against all of the criteria and its decision will depend on the specific case. In other
words, the application will be viewed in the round against the criteria, and failure to provide certain information or meet certain
criteria will not necessarily mean that the application will be rejected or negatively assessed.
22An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
3. CRU CBA of Greenlink
The CRU reviewed the CBA of Greenlink interconnector submitted by Element Power and
considered that further analysis was needed to understand the boundaries of impacts on
consumers and other stakeholders before a determination can be reached on whether the
Greenlink interconnector is in the public interest. The CRU has conducted its own CBA of
Greenlink supported by independent economic and technical advisors. The results of the
CRU CBA of Greenlink are summarised below.
3.1. Methodology and Modelling Approach
To assess the potential costs and benefits of Greenlink, the CRU has modelled three
scenarios and two sensitivities of the European electricity market to assess the impact of
Greenlink on Social Economic Welfare. The CRU’s CBA modelling approach is based on
ENTSO-E CBA Guideline.17
The CRU has modelled scenarios based on the TYNDP 2016 and 2018 scenarios produced
by ENTSO-E.
For TYNDP 2016, ENTSO-E developed four ‘visions’ out to 2030 along two main
dimensions:
• The x-axis represents the degree of European cooperation to reduce greenhouse gas
emissions by 80-95% on 1990 levels by 2050; and
• The y-axis relates to the relative speed of green transition.
Both axes provide a spectrum of progress. Vision 1 projects the slowest progress in
decarbonising electricity generation (see figure 4 below).
Figure 4: TYNDP 2016 Visions
17
See section1.5.5 for details.
23An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
For TYNDP 2018, ENTSO-E considered three storylines for 2030 and 2040. The CRU has
modelled the two storylines highlighted in light blue below:
• Sustainable Transition; and
• Global Climate Action.
Figure 5: TYNDP 2018 Scenarios
The scenarios modelled (highlighted in light blue in Figures 4 and 5 above) were:
• TYNDP 2016 Vision 1 (V1)18 – Out of the TYNDP 2016 Visions, Vision 1 projects the
slowest progress towards decarbonisation, and therefore provides the lowest case for
renewables deployment. This scenario resulted in the lowest benefits compared to
other scenarios (snapshots years 2020 and 2030);
• TYNDP 2018 Sustainable Transition (ST) 19 – Out of the three possible storylines,
ST represents the most likely future in 2030, but also the ‘lower’ of the storylines, with
electrification of heat and transport occurring at the slowest pace. ST 2030 was
selected over DG 2030, as the latter presents a future that departs significantly from
current projections (snapshot years 2025, 2030 and 2040); and
• TYNDP 2018 Global Climate Action (GCA) – Beyond 2030, the CRU has also
modelled GCA in 2040 (in addition to ST), as the emphasis in this storyline is on rapid
18
The CRU notes that the TYNDP 2016 V1 scenario was modelled for 10 climatic years reflective of a variety of system
conditions including temperature, wind speed, generator outage patterns, correlation with other markets, etc. The potential
Security of Supply impacts of Greenlink (discussed below) were also considered for this scenario.
19
The TYNDP 2018 ST and GCA scenarios are based on one climatic year that represents average conditions with respect to
weather, demand, and plant availability (i.e. 2007). Additionally, we note that the TYNDP 2018 scenarios used for this analysis
are still in draft form.
24An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
decarbonisation and large-scale renewables, which both have an impact on the
benefits provided by interconnectors20 (snapshot year 204021).
The CRU has considered these scenarios with and without an additional interconnector
project to France (referred to as ‘IE-FR interconnector’ in figures and tables).
A summary for the adopted scenarios is set out in the figure below.
Figure 6: Scenarios and Simulations
To quantify the costs and benefits of Greenlink, the simulations with and without Greenlink
were compared, as shown in the figure below:
Figure 7: Quantifying the change in costs and benefits due to Greenlink
In addition to the scenarios, the CRU has modelled two sensitivities on the ST scenarios.
These sensitivities are:
• Brexit sensitivity – to model the potential impact of Brexit on Greenlink; and
20
Although the TYNDP 2018 Distributed Generation (DG) pathway is also an interesting scenario for the EU electricity system,
the CRU has not modelled this pathway for the assessment of the Greenlink CBA. The DG pathway is driven by prosumers,
decentralised development, with focus on end-user technology, high penetration of electric vehicles, the assumption that PV
and batteries are widespread and that high levels of demand side response are available.
21
This scenario is not active until 2040 and offers an alternative future to the ST scenario post-2030, whereby sudden action is
taken, and rapid decarbonisation occurs after 2040, above that projected in the ST scenario.
25An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities
• System Non-Synchronous Penetration (SNSP) – the SNSP limit of 75% of non-
synchronous generation22 was added to the ST scenario. The SNSP includes the
non-synchronous generation and net interconnector imports as a percentage of the
demand and net interconnector exports. This was done for SEM only as CRU
assumes that only the day-ahead markets are coupled, and the SNSP limit applies in
other trading timeframes, i.e. the intraday and balancing markets.
A summary for the adopted sensitivities is set out in the figure 8 and figure 9.
Figure 8: Brexit Sensitivities
Figure 9: SNSP Sensitivity
The CRU has also undertaken a high-level assessment of other Greenlink impacts, including
on Security of Supply and on Irish gas transmission tariffs as a result of changes in gas fired
generation in the SEM.
3.2. CRU CBA Results of Greenlink
In this section, the CRU presents the results of its CBA for the modelled scenarios and
sensitivities.
The CRU has monetised the benefits and costs of:
• Improved security of supply (€);
• Social Economic Welfare (€);
• Total interconnector project expenditures (€).
The CRU has also quantified:
• RES integration (MWh);
• CO2 emissions (tonnes).
22
Non-synchronous generation, i.e. wind, solar, interconnection
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