Irish wind developers should be compensated up to a fixed limit if output from projects is turned down by the system

The Committee, which is the decision-making authority on all matters concerning the SEM, set out its 'proposed to' position in a document (54-page / 580KB), following a consultation process earlier this year. It proposes limiting the amount of compensation that will be paid to operators of 'firm' wind projects, or those with guaranteed access to the grid, in the event of a 'curtailment' to a fixed 'defined curtailment limit'.

However, the document makes it clear that should a curtailment event take place, all operational wind farms – regardless of whether they are 'firm' or 'non-firm' projects – should be stood down on an equal basis.

The decision, which has been "eagerly anticipated" by the industry, would go some way to providing certainty on expected levels of compensation to support investment decisions said energy law expert Richard Murphy of Pinsent Masons, the law firm behind Out-Law.com.

"Whilst some developers will be disappointed that it is proposed compensation for firm and partially firm projects will only continue up to a fixed point, the proposals have certainly scotched the rumour circulating recently in the market that there would be no or little compensation payable to generators in a curtailment event," he said. "Developers will be reviewing this position in more detail over the coming days and it will be interesting to see what further views come forward from stakeholders prior to a final decision being taken by the SEM Committee."

Due to the increasing penetration of intermittent forms of energy generation such as wind across the SEM in recent years, the Committee has been investigating how the system should cope when more energy is produced that is needed.

It will reject power produced by wind farms to ensure that production and demand are matched, but has to choose to accept power from some plants and reject power from others.

In a 'tie-break situation' the plant which may be curtailed is seen as equal by the transmission system operators (TSOs), which make the decision for curtailment. Under existing rules generators with operational, or 'firm', assets with a guaranteed connection to the grid receive financial compensation at market rates in the event that their output is turned down; while other 'non-firm' projects receive no compensation.

In December 2011, the SEM Committee published a discussion paper in which it decided to treat curtailment issues in a tie-break situation by "grandfathering" export capacity on a firm access quantity basis - essentially, creating a merit order list on the basis of appropriate criteria for TSOs to follow when deciding which facilities to turn down first.

However, parts of the energy industry warned that this approach would discourage new investment and so risk Ireland's 2020 renewable targets as it meant newer projects that did not yet have firm status would be the first to be curtailed.

A second consultation process began in April, which the Committee said would "ensure a full and transparent process" before it made its final decision. This paper set out a number of options for the treatment of curtailment in tie-break situations including grandfathering, a pro-rata approach and a "temporary" pro-rata arrangement which would have prioritised firm projects after Ireland's renewables targets had been met. In addition, the paper considered the possibility of dropping compensation when generators were curtailed on a pro-rata basis.

The decision, on which the Committee is seeking views before 2 November, sets a two-stage threshold for reducing the set amount of compensation that will be paid out to firm and partially firm generators in the event of a curtailment. Once this threshold is reached the total amount of compensation paid to generators in that year will be reduced by 25% each year over the following years until no more compensation is available. The threshold will consist of either the point at which Ireland reaches 75% of its target for 40% renewable energy generation by 2020 or 1 January 2016; whichever is earlier.

TSOs will be responsible for recording annual renewable penetration on a calendar year basis and reporting this to the Committee. If the 75% threshold, equating to 30% renewable penetration across Ireland, is reached the reduction mechanism will apply from the next calendar year. If the 1 January 2016 deadline passes without this threshold being reached, then the reduction mechanism will begin from 2017. New windfarms which attain 'firm' status after the threshold has been reached will not?? be eligible for their share of the reduced compensation.