12 INSIGHTS 2018
Energy policy
I drafted the rules for the Irish Single Electricity Market (SEM).
The SEM is basically like the NEM except that it included capacity
payments as well as energy payments for generators. With capacity
payments, generators get paid for being available and payments are
set at a level to ensure that sufficient generation is available to meet
demand so there is an incentive to stay on.
The Northern Ireland Authority for Utility Regulation (one of the
SEM sponsors) outlined the following reasons for its decision to have
an explicit capacity payment mechanism:
- Prices avoid the peaks of an energy-only pool.
- Provides a stable ‘bankable’ income that would help attract new
entrants. - The volatility, referred to above, would attract regulatory and politi-
cal attention that would reduce confidence in the market from an
investment point of view.
The move led to reduced system volatility, reduced rivalry between
renewable and conventional sources of power and, ultimately, brought
about a secure and sustainable energy system in Ireland.
Businesses were able to operate with confidence knowing the
lights will stay on; with pricing in the system so reliable, renewable
energy operators were encouraged into the market (and not always
with a subsidy). In response to the concerns about generators abusing
market power in bidding into the SEM, Ireland incorporated express
prohibitions on generator authorisations and market rules against gam-
ing or engaging in activity that would be an abuse of market power.
Other jurisdictions have recognised that theoretical approaches to
the market, based on political sentiment one way or another, cannot
be allowed to get in the way of energy security and reliability. Alberta
in Canada is a striking case given its similarities to Australia, both
economically and industrially. Alberta’s 2016 review of its wholesale
electricity market surprisingly resulted in the adoption of a capac-
ity market solution to facilitate an orderly transition away from coal