The Irish Electricity Market

The Electricity Supply Board (ESB) is eighty years old this year. It was founded in 1927, the same year my father was born. It is hard for me to imagine that as a young child he did not have electricity at home. Up to that point electricity was generated by city corporations for local distribution. The development of the Shannon hydroelectric scheme and the creation of the national transmission grid that resulted triggered the Irish government into forming a single state owned monopoly for electrical generation and transmission. In Ireland, electricity and the ESB became synonymous. Most people in Ireland still view this as the market situation but times have changed considerably.

The European Union (EU) directive 96/92/EC, published in 1996, required member states to open their electricity markets. From the year 2000 this directive is being gradually implemented in Ireland. The ESB lost its monopoly on electricity production and distribution in Ireland. The ESB was divided into two separate business units, ESB Generation and ESB Networks. ESB Generation now competes as any other wholesale elctricity generation company in the state. ESB Networks maintains the distribution network.

Once the ESB monopoly was broken, the Commission for Energy Regulation (CER) www.cer.ie became the overall regulator of the Irish energy market including electricity. A new organisation EirGrid www.eirgrid.com was founded to act as the  System Operator and the wholesale market operator for electricity in Ireland.

How does this new structure affect the regulation and administration of EDM projects, existing or proposed, in Ireland? Any EDM projects must be initiated and licensed by the CER and must be operated by EirGrid.

In order to facilitate wind energy penetration, EDM must be real time. The only real time EDM in Ireland is STAR and that is limited in size, is currently closed to new entrants, and is designed to assist in rare cases of generation plant failure. Obviously if I am to implement an EDM business in Ireland I will need the necessary regulatory and administrative procedures to be implemented bt CER and EirGrid. The question is therefore, how disposed to EDM are CER and EirGrid.  The following link answers that question:-

http://www.cer.ie/DSM

CER are planning to implement a pilot Demand Side Management (DSM) project involving smart metering and time of day tariffs. Surprisingly the discussion document in the above link does not mention wind energy at all. I think that this is because the project is in response to initiatives at a European level and it is only in the Irish context that EDM takes on a specific signifiacance in relationship to wind energy.

Also you will notice that CER use the acronym DSM while I use the acronym EDM. Do these mean the same thing? From the published literature, demand side management appears to be a very broad term that includes all kinds of energy efficiency projects at the consumer. DSM includes EDM as a subset. Energy demand mangement is specifically about the real time generation, curtailment and consumption of electricity to achieve grid stability.

Profile of an Energy Demand Management (EDM) company

EnerNOC Inc. is an excellent example of a company offering EDM services. The company is based in the USA. Each customer of EnerNOC has an EnerNOC Site Server (ESS) installed.

EDM requires measurement and control functionality at the customer site and the ESS implements this. Every ESS has a communications link back to a Network Operations Centre (NOC) that acts as a central control point. The name EnerNOC comes from a concatenation of Energy and NOC.

From the NOC, EDM can be implemented by either curtailing loads at the customer site or by starting diesel generators at the customer site. In either case load is removed from the grid, reestablishing stability.

EnerNOC is paid by the TSO for every MW of load removed from the grid. At times of grid instability the TSO is prepared to pay far more for load shedding than the normal cost of electricity. This money, paid by the TSO, is shared between EnerNOC and EnerNOCs customer.

Tim Healy is the CEO of EnerNOC. With a name like that there has got to be an Irish link there somewhere. Click on the following URL if you want to hear Tim talk some more about his company.

http://videoplayer.thestreet.com/TimHealyInterview

Imitation is the sincerest form of flattery. Ireland needs an EDM company with a business model similar to EnerNOC in order to further stabilise our grid so as to allow deeper penetration of wind power. In the Irish case we may also need to add load to the grid for stability to compensate at times that wind exceeds forecasted energy output. This could be done by using refrigeration or HVAC loads whose thermostat could be controlled. So, for example, a refrigeration plant normally run at -10C could go to -12C at times of surplus wind energy. Later when energy was scarce (and therefore more expensive) the thermostat could be reset to -10C.

It is my prime business objective to setup an Irish EDM company.

Toyota announce Plug In Hybrid!

Toyota have announced that they are road testing a plug-in version of the Prius.

http://www.japancorp.net/Article.Asp?Art_ID=14929

This is the off peak electrical load we need to get EDM on the road (literally) in Ireland. According to the published specification, the secondary battery can store about 2.6kWh of energy. If we had 10,000 of these cars in Ireland they would consume 26MWh of off peak wind generated electricity per day. The grid stabilistion effect of this managed load would be a very positive factor in increasing wind energy penetration in Ireland.

Google and Vehicle To Grid (V2G)

The work that Google are doing on solar energy and hybrid cars is fascinating. Reading the following blog from Google though adds a new element to the mix.

http://googleblog.blogspot.com/2007/06/clean-energy-update.html

Google are growing a fleet of plug in hybrid cars. These are standard hybrid cars with larger batteries fitted and the ability to charge from the electricity grid. The blog also mentions vehicle to grid (V2G) technology. This allows the bidirectional transfer of electricity between the electricity grid and the plug in hybrid.

In the context of Ireland’s need to consume surplus wind generated electricity, electric vehicle or hybrid vehicle batteries would be an ideal candidate for energy storage where the stored energy replaced fossil fuels when consumed on the following day. According to the Irish Examiner (19 June 2007), Toyota are selling 400 Prius hybrid cars per annum in Ireland. Obviously the installed base would have to be much higher to have a significant impact on grid stability.

Wind Power Economics

Last Friday, 8th June 2007, Eirgrid published a paper on Wind Powered Generation which was subtitled ‘An analytical framework to assess generation cost implications’.

http://www.eirgrid.com/EirgridPortal/uploads/Announcements/Windreportv.16.pdf

The report is a very competent analysis establishing the relative cost of electricity generated by wind energy versus by natural gas. The wild-card variable in this analysis is, of course, the variability in price of natural gas from now to 2025 the period of analysis in the report. I was very confused by the predictions for natural gas prices and so I sent EirGrid a question regarding same. The question and their answer are shown below. It’s very interesting that natural gas prices more than doubled and then halved again in one year. No wonder I was confused.

Question

I am studying the energy market in Ireland to identify business opportunities. I need your help understanding one issue. I just read your report about the relative cost effectiveness of wind energy.The report comes out very neutral on the topic. Wind is OK in small doses but we can’t have too much because it destabilises the network. Fair enough! But the whole case of the document was comparing wind to natural gas. The authors had to estimate what the price of natural gas is going to be from now until 2025 to do the sums. They had three scenarios, best, worst and most likely. A consultancy group, Popry, was quoted as a reference for these price estimates.By my interpretation of the natural gas price prediction graph in your report:-

  • Best scenario: gas will halve in price from now to 2010 and then hold that price until 2025
  • Likely scenario: gas will come down by 30% between now and 2025
  • Worst case: gas will go up by 25% to 2025.

Either I am reading this incorrectly, or the whole peak oil thing is not on Eirgrid’s radar. If you put a 5% increase on gas prices per annum, which I would have thought reasonable) then surely the economics swings hugely in favour of wind energy. Are you really basing your predictions on the worst case expectation that energy prices will increase less than general inflation over the next 18 years? The likely and best case scenarios seem bizarre to me.

I’m totally confused. Can you help? Please explain how I am misinterpreting your report.

Answer

Thank you for your question on our Wind Powered generation paper. We would point out that it is a contribution to the discussion on the issue of the economics of wind generation and has been discussed with industry stakeholders and that we do welcome comment.

The price forecasts are based on a period when there was a gas supply shortage in the UK. This had driven prices to historically high levels of 80 cent/therm. The forecast was that these prices would fall back again once additional gas pipeline capacity from Europe to the UK was commissioned in early 2007. So far the predictions have been correct with gas prices now down to 30 cent/therm or less (on the UK gas balancing market).  The low gas price scenario continues on at this low level based on the UK ‘s ability to tap into the global gas market through the construction of large scale LNG terminals.  In the long term if gas prices went to the higher levels quoted, you may see some switching to clean coal technology for electricity generation.

The paper identifies the break even price of gas to be above 80 cent. The reader can then take a own view on the probability of average gas prices over a year being in excess of 80 cent. In the long term as fossil fuels get scarce, it is fair to say that prices could be expected to rise, the unknown is by how much and when.