1. REFIT and Irish electricity prices 21 April 2010 Conor Devitt and Laura Malaguzzi Valeri Economic and Social Research Institute

2. Overview n Determine the effect of the REFIT schemes on the PSO (and hence electricity prices) n Outline REFIT schemeREFIT scheme ModelModel ResultsResults ConclusionConclusion

3. REFIT scheme n DCENR: 2006 REFIT I Price guarantee for large scale onshore windPrice guarantee for large scale onshore wind Also administrative paymentAlso administrative payment n REFIT I (2009) – indexed to CPI Large scale wind (onshore) Small scale wind (onshore) Administrative payment 15% of €66/MWh Guaranteed price €66/MWh€69/MWh

4. REFIT II (2009) – does not change with CPI Offshore wind Wave and Tidal Administrative payment 15% of €66/MWh (indexed to CPI) 15% of €66/MWh (indexed to CPI) Guaranteed price €140/MWh (not indexed) €220/MWh Note: in practice payment is made to supplier, not generator directly. Adds transaction costs, changes returns to generators, has no effect on PSO

5. Model n Analyse results for 2020 n Use optimal dispatch model of the All-Island electricity system (no transmission constraints) n Determines half-hourly SMP n If SMP < REFIT, extra payment is made to renewable generators n The administrative payment is made independent of SMP

6. Scenarios (all island) n On shore wind - high 6000MW wind on shore6000MW wind on shore n Mixed portfolio 5000MW wind on shore (3000 MW ROI)5000MW wind on shore (3000 MW ROI) 1000MW wind off shore (all ROI)1000MW wind off shore (all ROI) 500 MW wave & tidal (all ROI)500 MW wave & tidal (all ROI)

7. Assumptions n Inflation 2% per year n Demand growth low (avg 0.8% per year) n Capacity payments continue as currently set n Wholesale price SMP (includes cost of carbon at €31/tonne CO 2 )SMP (includes cost of carbon at €31/tonne CO 2 ) Capacity paymentsCapacity payments Uplift & balancing costs (12.8% of SMP)Uplift & balancing costs (12.8% of SMP) Low fuel Medium fuel High fuel Oil price $57/barrel$87/barrel$107/barrel Natural gas price €17/MWh€26/MWh€32/MWh

8. Assumptions (cont) n Onshore wind – 31% load factor n Offshore wind – 35% load factor n Wave & tidal – 35% load factor n All have same load profile as onshore wind Results average of 4 wind profilesResults average of 4 wind profiles

9. PSO costs (€ million, 2008 currency) medium fuel price All onshore Mixed portfolio 4000MW Onshore (3000MW) Offshore (1000MW) Wave & Tidal (500MW) Total Administrative payment 96.673.027.713.9114.6 Guaranteed price payment 4.93.667.633.8104.9 Total101.576.695.347.7219.5 Total: €/MWh consumed 3.32.53.11.67.2

10. Wholesale electricity price (all island) €/MWh, 2008 currency Mixed portfolio Low fuel price Mixed portfolio Med. fuel price Mixed portfolio High fuel price SMP49.868.981.2 Capacity payments 15.115.115.1 Uplift and balancing costs (12.8% of SMP) 6.48.810.4 Total wholesale 71.392.8106.7 REFIT PSO 13.07.25.2 PSO as % wholesale 18%7.8%4.9%

11. Conclusion n Off shore wind REFIT is expensive, offshore mostly for export n REFIT probably not best support for wave & tidal In this simulation provided €95k/MW capacity per year (medium fuel price scenario)In this simulation provided €95k/MW capacity per year (medium fuel price scenario)