Department of Communications, Climate Action & Environment announces emerging thinking on transition of REFIT into I-SEM

On 23 May 2017, the Department of Communications, Climate Action & Environment (DCCAE) published the much anticipated Renewable Energy Support Scheme: Transitioning to I-SEM (Options Paper).  The purpose of the options paper is to formally announce the DCCAE’s emerging thinking on the transition of existing renewable support schemes into I-SEM. 

The options paper states clearly in its introduction that it is not a consultation paper but rather that it is “an information paper designed to inform stakeholders of the Department’s rationale and approach to this matter”.

Sections 8 and 9 present the options under consideration and the emerging approach, with two core issues to be addressed, namely:

1. How should the energy component of the Total Market Revenue (TMR) be derived for REFIT purposes?
2. What is the most appropriate reference price for REFIT ex ante calculations?

In respect of issue 1, the DCCAE has indicated that its preferred option is to exclude any balancing costs in the calculation of the TMR. In other words, it will not take into account any imbalances between a traded position and the actual position which were caused by trading in the windows ahead of the balancing market.    The view of the DCCAE is that this ‘revenue only’ option would ensure that REFIT payments reflect the revenues obtained from trading in the reference market without incorporating any balancing risk from the supplier’s ex ante trading.

In respect of issue 2, the option being favoured by the DCCAE is that the reference price for the calculation of TMR would be the clearing price for the Day Ahead Market (DAM), rather than the balancing market or a blended approach.  One of the stated reasons for choosing this option is that this would have the likely effect of incentivising trade in the DAM which would support I-SEM trading across different trading timeframes.

The preferred approach being put forward by the DCCAE, while anticipated by many, is perhaps the worst possible outcome for the wind industry on the basis that the entire balancing risk would be placed onto generators and they would no longer be made ‘whole’ under REFIT. It remains to be seen whether the DCCAE will revise its thinking on foot of representations from the wind sector and other stakeholders. In that respect, the DCCAE states that it is willing to meet with industry representative groups and, if required, is willing to host a small workshop with said industry representative groups before making a final decision.