Commission for Regulation of Utilities Greenlink ... · Ireland, interconnectors can allow cheaper...

An Coimisiún um Rialáil Fóntas Commission for Regulation of Utilities

Determination Paper

Reference: CRU/18/216 Date Published: 18/10/2018 Closing Date: N/A

An Coimisiún um Rialáil Fóntas

Commission for Regulation of Utilities

Greenlink Electricity

Interconnector

Determination

www.cru.ie


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Executive Summary

The Greenlink Interconnector is a proposed 500 MW HVDC electricity interconnector, which

is being developed by Element Power, linking the power grid in Ireland and GB. It is

anticipated that the link will provide a new grid connection between the Great Island

transmission substation in Wexford and Pembroke transmission substation in South Wales.

Figure 0: Graphical Illustration of Greenlink (Image source: Element Power)

In December 2017, Element Power submitted an interconnector application under Section 2A

of the Electricity Regulation Act 1999. In its application Element Power requested the CRU

to:

1. determine if the construction of the Greenlink interconnector is in the public interest

for the project to be considered to be part of the transmission system for the purposes

of calculating and imposing charges for the use of the transmission system; and

2. approve the proposed charging methodology for Greenlink pursuant to section 35 of

the Act which is based on a 25 year Cap and Floor regime.

In June 2018, the CRU published Element Power’s application and a CRU consultation

paper (CRU18119) requesting views on the initial assessment of Greenlink by the CRU. The

CRU noted in the consultation paper that the assessment of Greenlink involves two stages:

1. testing the public interest case of the proposed interconnector by reviewing a Cost

Benefit Analysis (CBA) of the project; and

2. determine the best approach on a Cap and Floor mechanism.

This determination paper focuses on the first stage, i.e. the public interest test. The precise

details of any cap and floor regime would need to be consulted upon and determined at a

later stage.

The CRU has reviewed the consultation responses and considered the points raised by

respondents. In addition, the CRU has conducted its own CBA of Greenlink to test the

boundaries of Element Power’s CBA and the key inputs and assumptions which may drive

better or worse outcomes for Irish consumers and other stakeholders. The CRU has

https://www.greenlinkinterconnector.eu/


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modelled ENTSO-E TYNDP scenarios and compared the CBA results to those of Element

Power.1

The consultation paper noted that if the CRU CBA revealed that Greenlink would generate

overall (net) benefits to Irish consumers then the CRU would go on to consider the

appropriate regulatory regime that is justified by public interest.

The focus of this paper is to set out CRU’s determination that the Greenlink application

meets the public interest.

The results of the CRU CBA2 of Greenlink are summarised below:

• Although there are differences between CBA modelling scenarios and assumptions

adopted by the CRU and Element Power, overall the CRU CBA results are consistent

with the findings of Element Power. They show that Greenlink has the potential to

deliver benefits for Irish consumers where significant decarbonisation of electricity

generation occurs.

• The CRU modelling indicates that in relatively conservative scenarios of

decarbonisation of electricity generation in Europe, Greenlink does not drive benefits

for Irish consumers.

• In a scenario where another new interconnector is added alongside Greenlink, e.g.

another interconnector to France, consumer benefits from Greenlink appear to be

significantly reduced.

• There are potential security of supply benefits for the Single Electricity Market (SEM)

with the introduction of Greenlink.

• The CRU Brexit sensitivity3 assumes that there would be trading frictions4 between

GB and the countries it is connected to via an interconnector. Trading frictions

between countries would result in less efficient trading, less efficient interconnector

usage, greater price divergence, and hence potentially higher cost for consumers. As

a consequence of these frictions, the overall net benefits in SEM are lower under the

Brexit sensitivity than under a no Brexit scenario. Because of the underlying

inefficiencies, introducing a new interconnector may unlock more benefits to Irish

consumers compared to a no Brexit scenario where no trading frictions are present.

• The addition of Greenlink would have a small negative impact on annual power sector

gas demand and an even smaller corresponding impact on total annual gas demand.

• Both CRU’s CBA and Element Power’s CBA show that Greenlink reduces RES

curtailment and improves captured electricity prices for Irish consumers, i.e. average

annual electricity prices are expected to be lower in the SEM when Greenlink is in

service compared to prices that would be captured without Greenlink.

1 The CRU has been supported by independent economic and technical advisors. 2CRU modelled Vision 1 from the ENTSO-E TYNDP 2016 scenarios and Sustainable Transition and Global Climate Action from the ENTSO-E TYNDP 2018 scenarios. At the time of conducting the CBA study, the TYNDP 2018 scenarios were still in draft form. 3 See Section 3.5 for a description of the Brexit sensitivity. 4 Trading frictions were modelled as a transmission cost on all GB electricity interconnectors.


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The CRU CBA of Greenlink indicates that, at the time of assessing the Greenlink application,

Greenlink has the potential to provide a net benefit to Irish consumers and Ireland as a

whole. As such, the CRU is minded to determine, at this early stage, the Greenlink

interconnector application passes the public interest test.

The CRU notes that this paper outlines the CRU determination if the Greenlink

interconnector is in the public interest. The CRU does not require any further comments on

this determination paper.

The precise details of any Cap and Floor regime will be consulted upon and determined at

the next stage, after sufficiently detailed financial and technical submissions provided by the

Greenlink developers to the CRU for a detailed assessment.

The CRU notes that in the next stage the CRU will engage with the Ofgem to explore the

potential for a Final Project Assessment process that takes both the Irish and GB regulatory

separate decision-making processes into account.

Notwithstanding this determination on the public interest test, if any subsequent information

is given to the CRU before making its final decision would lead the CRU to consider that the

basis of its public interest test decision has materially changed, then the CRU may revisit this

determination. In this case, the CRU may re-run its analysis in order to confirm whether or

not the project continues to be in the public interest.

Greenlink developers are required to regularly update the CRU on progress against their key

development milestones. Furthermore, the CRU expects the Greenlink developers to give

formal written notice of any material change to the project design.


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Public Impact Statement

Electricity interconnectors are physical links which allow the transfer of electricity across

borders. New interconnectors should be built only to the extent that they benefit the public at

large. That is, as long as the benefits of adding interconnection capacity outweigh or equal

the costs. Therefore, the CRU’s assessment of each electricity interconnection application

will balance potential benefits of a new interconnector to the Irish consumers against its

costs.

Generally, new electricity interconnectors can offer multiple potential benefits:

• lowering costs for consumers if power can be generated abroad and imported to

Ireland at a lower price (lower prices);

• reducing emissions by facilitating the integration of renewable power into the energy

system (renewable energy integration); and

• providing an additional layer of security (security of supply).

In relation to lower prices, interconnectors can transport power in both directions, i.e. import

and export. This allows them to utilise differences in the power systems, and electricity

prices, between countries. Electricity between interconnected markets flows from the lower-

priced market to the higher-priced one. For instance, at times of high electricity price in

Ireland, interconnectors can allow cheaper electricity from another country to be imported

into Ireland, thereby raising the supply of electricity and lowering its price. Conversely, if

Ireland was the lower-priced market, export of its (cheaper) electricity to a higher-priced

market would increase the price in Ireland and bring the price down for the consumers

abroad.

In summary, a new interconnector tends to increase prices in the lower-priced market and

decrease prices in the higher-priced market. As prices converge, consumers in the higher-

priced market will benefit from lower prices, while the lower-priced market consumers will

have to pay a higher price. Therefore, whether a new interconnector lowers electricity prices

for Irish consumers would depend on whether it connects to a country where electricity prices

are typically lower than in Ireland.

Regarding renewable energy, on very windy or sunny days there can be more renewable

power available than the electricity system can accept. When this happens, renewable

generators are dispatched down or “curtailed off”, that is, blocked from supply, and a large

volume of renewable energy goes unused. This is because, at present, renewable energy

cannot displace conventional power plants below the minimum level needed for certain grid

stability services. Additional interconnection could reduce this effect and allow more

renewable energy onto the electricity system (as it can safely be exported).

Finally, regarding security of supply, interconnectors allow physical imports of electricity to

meet domestic demand. As such, a new interconnector would give Ireland yet another

potential import route for electricity, diversifying Ireland’s energy supply. This diversification

can have various dimensions. First, a new interconnector can provide geographic

diversification if it links Ireland with a new country or supplies power to a new (different) point

on the Irish electricity system. A new interconnector can also provide economic


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diversification, as it supplies electricity according to the price dynamics between the two

interconnected countries. Finally, a new interconnector also provides technological

diversification in that it links markets with different technology choices or having different

natural resources determining their energy mix. Each of these dimensions enables security

of supply risks to be spread and reduced.

Building a new interconnector can be costly for the Irish consumers, depending on the way it

is regulated and funded. Interconnectors derive their revenues from sales of interconnection

capacity to users who wish to move electricity between markets with different prices

(congestion revenues).

There are various approaches to regulate interconnectors and determine who bears the risk

of the interconnector being able to earn congestion revenues. In a merchant model, which is

exceptional in Europe, the interconnector is fully reliant on its congestion revenues and bears

all the risks of not being able to recover its investment. In a fully regulated model, which is

most common in Europe, investment costs are recovered through network tariffs. In this

model, it is the end consumer that pays the investment costs in full and receives all the

revenues from sales of interconnection capacity. Interconnectors can also be partly

regulated, and therefore partly funded by the tariffs. For instance, in a so-called cap and floor

model, an interconnector’s sales revenues that are below the floor are topped up by network

tariffs and its sales revenues above the cap are returned to the end consumer.

Hence, regulated and partially regulated interconnectors can have a positive or negative

impact on network tariffs, and ultimately on end consumers, depending on their performance.

If interconnectors underperform financially, then this can translate into a cost to electricity

consumers by increasing network tariffs. In contrast, if electricity interconnectors over-

perform financially they can reduce electricity network tariffs. Therefore, the risk of

underperformance and its potential cost to Irish consumers must be balanced against the

potential benefits that a new interconnector may bring in the medium to long term.


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Table of Contents

Table of Contents ...................................................................................................... 6

1. Introduction ...................................................................................................... 10

1.1. Commission for Regulation of Utilities ........................................................................... 10

1.2. Background ........................................................................................................................ 10

1.3. Greenlink Project – PCI 1.9.1............................................................................................ 11

1.4. Purpose of this Paper ....................................................................................................... 11

1.5. Legal and Policy Context .................................................................................................. 11

1.5.1. Electricity Regulation Act 1999, Section 2A ................................................................ 12

1.5.2. Electricity Regulation Act 1999, Section 9 .................................................................. 12

1.5.3. Electricity Regulation Act 1999, Section 16A .............................................................. 12

1.5.4. ENTSO-E’s TYNDP ......................................................................................................... 13

1.5.5. ENTSO-E’s CBA Guideline ............................................................................................ 13

1.5.6. CRU’s policy to date ...................................................................................................... 14

1.5.7. Government’s Policy on Electricity Interconnection ................................................. 15

1.6. Structure of this Paper ...................................................................................................... 15

2. Summary of Responses Received .................................................................. 16

2.1. Are there any other specific factors that the CRU should consider in assessing the

Greenlink CBA? ........................................................................................................................ 16

2.2. Is there any additional information the CRU should consider when determining

whether the Greenlink interconnector is in the public interest or not? ............................. 18

2.3. Are there any other specific factors that the CRU should consider in assessing the

Greenlink technical overview report? .................................................................................... 19

2.4. Are there other specific factors that the CRU should consider in selecting the

appropriate regulatory approach? ......................................................................................... 20

2.5. Other comments ................................................................................................................ 21

3. CRU CBA of Greenlink ..................................................................................... 23

3.1. Methodology and Modelling Approach ........................................................................... 23

3.2. CRU CBA Results of Greenlink ........................................................................................ 26

3.3. CRU CBA Results Across all Scenarios ......................................................................... 27

3.3.1. TYNDP 2018 ST vs Element Power Reference Case .................................................. 28

3.3.2. TYNDP 2016 V1 vs Element Power Low Case ............................................................. 30

3.3.3. TYNDP 2018 GCA vs Element Power High Case ........................................................ 31

3.4. RES Integration .................................................................................................................. 32

3.5. Impact of Greenlink on Security of Supply .................................................................... 32


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3.6. Impact of Brexit on Greenlink .......................................................................................... 34

3.7. Impact of Greenlink on Gas Transmission Tariffs ......................................................... 38

4. CRU CBA Summary ......................................................................................... 40

5. CRU’s Determination ....................................................................................... 42

6. Next Steps ........................................................................................................ 43


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Glossary of Terms and Abbreviations

Abbreviation or Term

Definition or Meaning

ACER Agency for the Cooperation of Energy Regulators

CBA Cost Benefit Analysis

CBCA Cross-border cost allocation

CEF Connecting Europe Facility

CRU Commission for Regulation of Utilities

DCCAE Department of Communications, Climate Action and the Environment

EENS Expected Energy Not Served

ENSTO-E European Network of Transmission System Operators for Electricity

ESB Electricity Supply Board

GB Great Britain

UK United Kingdom

FFR Fast Frequency Response

FPA Final Project Assessment

HVAC High Voltage Alternating Current

HVDC High Voltage Direct Current

IFA Interconnexion France-Angleterre (Interconnector between France and

GB)

IPA Initial Project Assessment

SEM Single Electricity Market

I-SEM Integrated Single Electricity Market

LOLE Loss of Load Expectation

NPV Net Present Value


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Abbreviation or Term

Definition or Meaning

NRA National Regulatory Agency

O&M Operations and Management

Ofgem Office of Gas and Electricity Markets (GB Energy Regulatory Authority)

PCI Project of Common Interest

RTÉ Réseau de transport d'électricité (French Transmission System

Operator)

TEN-E

Regulation

Trans-European Energy Infrastructure Regulation (EU Regulation (EC)

No 347/2013)

TSO Transmission System Operator

KPI Key Performance Indicator

CRE French Regulator

SNSP System Non-Synchronous Penetration

V1 Vision 1

ST Sustainable Transition

GCA Global Climate Action

RES Renewable energy sources

CO2 Carbon dioxide

TYNDP Network development plan for the next ten years

DfD Contracts for Differences

VoLL Value of Lost Load

EENS Expected energy not served

PPA Power Purchase Agreements


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1. Introduction

1.1. Commission for Regulation of Utilities

The Commission for Regulation of Utilities (“CRU”) is Ireland’s independent energy and

water regulator. The CRU’s mission is to regulate water, energy and energy safety in the

public interest.

Further information on the CRU’s role and relevant legislation can be found on the CRU’s

website at www.cru.ie.

1.2. Background

In December 2017, Element Power submitted an application for an interconnector between

GB and the Republic of Ireland, i.e. the Greenlink interconnector under Irish Legislation

(Electricity Regulation Act 1999 (the Act)). The application consisted of a cost-benefit

analysis of Greenlink, a technical description of the project, project financial information as

well as a description of the charging methodology and regulatory regime Greenlink is seeking

to be regulated under. In its application Element Power requested the CRU to:

1. determine if the construction of the Greenlink Interconnector (a Project of Common

Interest (PCI) connecting Great Britain (GB) and Ireland) is in the public interest for

the project to be considered to be part of the transmission system for the purposes of

calculating and imposing charges for the use of the transmission system; and

2. approve the proposed charging methodology for Greenlink pursuant to section 35 of

the Act which is based on a 25-year Cap and Floor regime.5

This determination pertains to the first stage outlined above. The CRU assessed the “public

interest” stage by conducting its own CBA and comparing the results to those provided by

Element Power.

The CRU considered the application and issued a public consultation seeking comments

from stakeholders on the CRU’s initial assessment of Greenlink’s electricity interconnector

application.

In June 2018, the CRU published Element Power’s application and a CRU consultation

paper (CRU18119) requesting views on the initial assessment of the Greenlink’s electricity

interconnector application by the CRU. In the consultation paper the CRU indicated that it

would conduct its own CBA of Greenlink to test the boundaries of Element Power’s CBA and

the key inputs and assumptions which may drive better or worse outcomes for Irish

consumers and other stakeholders. The CRU also noted that if the CRU CBA revealed that

Greenlink would generate overall (net) benefits to Irish consumers, the CRU would then

consider the appropriate regulatory regime that is in the public interest.

5 Greenlink requested from the CRU a Cap and Floor regime in respect of 50% of Greenlink’s revenues. Greenlink is seeking a regime that is symmetrical with Ofgem’s 25-year Cap and Floor regime that would apply to Greenlink in GB, i.e. the Greenlink Interconnector would be, in principle, half underwritten by GB consumers and the other half underwritten by Irish consumers.

http://www.cru.ie/


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1.3. Greenlink Project – PCI 1.9.1

The Greenlink Interconnector is a proposed 500 MW HVDC electricity interconnector, which

is being developed by Element Power, linking the power grid in Ireland and GB. It is

anticipated that the link will provide a new grid connection between the Great Island

transmission substation in Wexford and Pembroke transmission substation in South Wales.

Figure 2: Graphical Illustration of Greenlink (Image source: Element Power)

Greenlink has been designated as a PCI by the European Commission and has been

granted, by Ofgem, a Cap and Floor regulatory regime 6. The interconnector is focused on

increasing the ability of the all-island SEM and GB markets to integrate low carbon electricity

generation, particularly through renewable generation, as the penetration of renewable

electricity generation increases. Element Power considers the interconnector can also help

wind and solar energy avoid curtailment by allowing surplus output to be exported during

periods where supply outstrips demand.

1.4. Purpose of this Paper

The purpose of this paper is to outline the CRU determination following an assessment on

the Greenlink interconnector application seeking to understand whether the interconnector

would be in the public interest.

1.5. Legal and Policy Context

The CRU has several competences in relation to assessing electricity interconnection

projects and deciding on their regulatory treatment. An overview of those competencies

under the Irish and the European law is provided in a CRU information paper (CRU18056).

When assessing electricity interconnection applications, the CRU is mindful of the

Government’s policy on electricity interconnection. Moreover, the CRU takes into

consideration the European guidance and best practices for such assessments.

6 Regulatory framework that sets the maximum (cap) and a minimum (floor) on the level of revenues that can be gained/lost by interconnector project promoters.

https://www.greenlinkinterconnector.eu/


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The CRU notes that Element Power has submitted the Greenlink Interconnector application

and requested from the CRU to make a determination pursuant to Section 2A of the

Electricity Regulation Act 1999 (as amended) (the Act) that it is in the public interest for

Greenlink to be considered to be part of the transmission system for the purposes of

calculating charges and imposing charges for use of the transmission system, and approve

the proposed charging methodology for Greenlink pursuant to section 35 of the Act which is

based on a 25 year Cap and Floor regime.

1.5.1. Electricity Regulation Act 1999, Section 2A

Under the Act interconnector developers may apply directly to the CRU for a determination

on their application.

Section 2A of the Act states that an interconnector owned by a person other than the Board

(i.e. ESB) may, where the CRU determines that it is in the public interest, be considered to

be part of the transmission system for the purposes of calculating and imposing charges for

the use of the transmission system (as set out in Section 35 - Charges for connection to and

use of transmission or distribution system).

1.5.2. Electricity Regulation Act 1999, Section 9

Pursuant to Section 9 of the Act, the CRU has responsibilities which include:

• protect the interests of final customers;

• promote competition, efficiency and the use of renewable and sustainable energy;

• not discriminate unfairly between relevant stakeholders;

• contribute to the development of the internal market and to the development of

compatible regulatory frameworks between regions of the European Union, by

engaging, co-operating and consulting with other national regulatory authorities, the

Agency and with the European Commission in regard to cross-border issues;

• cooperate with other regulatory authorities at a regional level to foster operational

arrangements to enable an adequate level of interconnection capacity within the

region and between regions to allow the development of effective competition and

improvement of Security of Supply; and

• cooperate with other regulatory authorities at a regional level to develop rules on

access to cross border infrastructure including allocation of capacity and congestion

management.

1.5.3. Electricity Regulation Act 1999, Section 16A

Section 16A of the Act provides that, with the consent of the Minister, the CRU may secure

the construction of an interconnector by:

• a competitive tender;


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• an authorisation granted to a person without a prior competitive tender where the

person demonstrates, to the satisfaction of the CRU, that the granting of an

authorisation, subject to such conditions as the CRU deems necessary and

appropriate, is in the long term interests of final customers; or

• requesting the transmission system operator to provide for the construction of an

interconnector in its development plan.

1.5.4. ENTSO-E’s TYNDP

The European Commission selects PCI projects from a list of projects included in ENTSO-

E’s pan-European network development plan for the next ten years (TYNDP). The principal

aim of the plan is to provide a consistent view of the pan-European electricity infrastructure,

signal potential gaps in future investment and capture the wider dynamics of the European

electricity market. ENTSO-E use several scenarios to represent future developments of the

power system. ACER recommends that project promoters use TYNDP scenarios in their

CBAs submitted to NRAs, while noting that additional robust scenarios can also be provided.

ENTSO-E update their plan every two years.7 The previous edition, the TYNDP 2016, was

published in December 2016. The 2018 edition is currently under preparation.8

1.5.5. ENTSO-E’s CBA Guideline

The ENTSO-E has developed guidelines for the CBA of grid development projects, including

interconnectors9. According to these guidelines, the scenarios considered in the economic

assessment should:

• be coherent, comprehensive and internally consistent;

• consider interaction of economic key parameters such as economic growth, fuel

prices, CO2 prices, etc. as well as the impact of any significant risk affecting the

results of the CBA over the investment horizon; and

• be characterised by:

• a generation portfolio, including a forecast of power plant installations and

retirements, type of generation, etc.;

• a demand forecast, e.g. impact of efficiency measures, rate of growth, shape

of demand curve, etc.; and

• exchange patterns with the systems outside the studied region.

The ENTSO-E Guideline also provides an economic assessment framework that considers a

project’s benefits, cost and impact on society, as summarised in the figure below.

7 See TYNDP website for updates. 8 As such, CRU CBA modelling is based on draft TYNDP 2018 scenarios. 9 ENTSO-E Guideline for Cost Benefit Analysis of Grid Development Projects, 29th July 2016

http://tyndp.entsoe.eu/tyndp2018/

https://docstore.entsoe.eu/Documents/TYNDP%20documents/Cost%20Benefit%20Analysis/160729_CBA%202%200_draft%20for%20ACER%20opinion.pdf


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Figure 3: ENTSO-E economic assessment framework

ACER recommends that project-specific CBAs are consistent with the ENTSO-E’s economic

assessment framework.

1.5.6. CRU’s policy to date

Since late 2015, the CRU has published six documents which outline the CRU process in the

development of a regulatory framework for assessing electricity interconnectors, in particular

those with a PCI status. These documents are listed below:

• CER/15/269: Information on PCI Incentive Methodology in accordance with Article

13(6) of EU Regulation 347/2013;

• CER/15/284: Consultation on Review of Connection and Grid Access Policy: Initial

Thinking & Proposed Transitional Arrangements;

• CER/16/239: Information on Policy for Electricity Interconnectors – Consultation

Process and Call for Initial Comments;

• CRU17300: Direction on Grid Connections for Electricity Interconnectors with PCI

status;

• CRU18056: Information on Electricity Interconnectors;

• CRU18119: Consultation on Greenlink Electricity Interconnector;

• CRU18131: Consultation on Assessment Criteria for Electricity Interconnection

Applications.

• CRU18221: Decision on Assessment Criteria for Electricity Interconnection

Applications.

https://www.cru.ie/wp-content/uploads/2015/07/CER15269-PCI-Process-CER-Incentives-and-Risk-Assessment-Methodology-for-PCIs.pdf

https://www.cru.ie/wp-content/uploads/2015/07/CER-15284-Review-of-Connection-and-Grid-Access-Policy.pdf

https://www.cru.ie/wp-content/uploads/2016/07/CER16239-Policy-for-Electricity-Interconnectors-Consultation-Process-and-Call-for-Initial-Comments.pdf

https://www.cru.ie/wp-content/uploads/2017/10/CRU17299-Information-Note-Direction-to-EirGrid-on-Grid-Connection-for-Electricity-IC-with-PCI-status.pdf

https://www.cru.ie/wp-content/uploads/2018/03/CRU18056-Electricity-Interconnectors-Information-Paper.pdf

https://www.cru.ie/wp-content/uploads/2018/06/CRU18119-Greenlink-Interconnector-Application-Consultation-Paper.pdf

https://www.cru.ie/wp-content/uploads/2018/07/CRU18131-Consultation-Paper-Policy-for-Electricity-Interconnectors-Assessment-Criteria.pdf

https://www.cru.ie/wp-content/uploads/2018/09/CRU18221-Policy-for-Electricity-Interconnectors-Assessment-Criteria-for-Electricity-Interconnection-Applications-Decision-Paper.pdf


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1.5.7. Government’s Policy on Electricity Interconnection

When assessing electricity interconnectors, the CRU is mindful of the Government’s policy

on electricity interconnection. Relevant Government’s policy documents:

• Government Policy Statement on the Strategic Importance of Transmission and Other

Energy Infrastructure;

• Ireland’s Transition to a Low Carbon Energy Future 2015-2030;

• Draft National Policy on Electricity Interconnection in Ireland: Public Consultation;

• National Policy Statement on Electricity Interconnection.

1.6. Structure of this Paper

This paper is structured as follows:

• Section 1, provides an introduction to the CRU and provides background information

to this paper.

• Section 2, provides a summary of the responses received and the CRU’s position.

• Section 3, provides an overview of the CRU CBA of Greenlink.

• Section 4, summarises the key findings of the CRU assessment.

• Section 5, outlines the CRU’s determination on the application “Public Interest Test”.

• Section 6, provides the next steps with regards to the Greenlink Interconnector

application.

https://www.dccae.gov.ie/documents/Govt%20Policy%20Statement%20on%20Transmission%20and%20Other%20Energy%20Infrastructure.pdf

https://www.dccae.gov.ie/documents/Govt%20Policy%20Statement%20on%20Transmission%20and%20Other%20Energy%20Infrastructure.pdf

https://www.dccae.gov.ie/en-ie/energy/publications/Documents/2/Energy%20White%20Paper%20-%20Dec%202015.pdf

https://www.dccae.gov.ie/en-ie/energy/consultations/Documents/34/consultations/Interconnector%20Policy%20Consultation.pdf

https://www.dccae.gov.ie/en-ie/energy/publications/Documents/19/National%20Policy%20Statement%20on%20Electricity%20Interconnection.pdf


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2. Summary of Responses Received

On 18 June 2018 the CRU published a consultation on the Greenlink electricity

interconnector application. The CRU requested comments on the questions raised in the

consultation paper. There were:

• Are there any other specific factors that the CRU should consider in assessing the

Greenlink CBA?

• Is there any additional information the CRU should consider when determining

whether the Greenlink interconnector is in the public interest or not?

• Are there any other specific factors that the CRU should consider in assessing the

Greenlink technical overview report?

• Are there other specific factors that the CRU should consider in selecting the

appropriate regulatory approach?

The CRU received 18 responses to the consultation paper, of which none were confidential.

The main points made by respondents are summarised below. The submissions are

published on the CRU’s website alongside this paper.

2.1. Are there any other specific factors that the CRU

should consider in assessing the Greenlink CBA?

In the consultation paper (CRU18119) the CRU requested respondents’ views on the factors

that the CRU should consider in its CBA of Greenlink. The majority of respondents stated

that Security of Supply and de-rating factors should be considered.

Several respondents noted that it is necessary to examine whether Greenlink would lead to

any increase in costs elsewhere in the energy system, that the energy user would be

required to cover. A number of respondents highlighted that the impact on existing gas-fired

power plants should be considered, in particular where additional interconnection results in

lower Load Factors.

Some respondents noted that the CRU should consider if investment in alternative

infrastructure be more beneficial to Irish consumers.

With respect to Brexit impacts, a few respondents noted that related impacts on efficiency of

interconnector flows and costs between the two countries need to be taken into account. One

respondent noted that the CRU should consider if the I-SEM would still be a single market.

A number of respondents suggested that the level of reliability of Greenlink needs to be

taken into account.

The majority of respondents stated that the CRU CBA needs to look at whole-system costs

including deep reinforcement costs, any knock-on effect on the wider market and any

ramifications for energy policy goals such as decarbonisation, sustainability and competition.


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CRU Response

The CRU has considered the points submitted regarding the Greenlink CBA assessment.

The CRU notes that while interconnectors may provide security of supply benefits, as some

respondents acknowledge, those benefits are difficult to quantify. An interconnector provides

security of supply benefits if it improves the power system's ability to ensure adequate

supplies to meet demand. Security of supply events (i.e. instances when supply falls short of

demand) tend to be relatively rare, and therefore the analysis of security of supply benefits

requires a probabilistic assessment of many system conditions (including temperature, wind

speed, generator outage patterns, correlation with other markets, etc.). Such data was not

readily available, and therefore the CRU CBA did not quantify security of supply benefits in

this manner. Instead, a simpler security of supply analysis was conducted with the available

data, which is described below in section 3 of this paper.

Some stakeholders have raised the issue of de-rating factors for interconnectors in the

context of security of supply. These de-rating factors determine the amount of capacity that

interconnectors can offer into the Capacity Market. If the interconnectors clear in the

Capacity Market but fail to provide that amount of de-rated capacity during stress events, it

may have security of supply implications. The CRU has modelled a sensitivity on the

Greenlink interconnector availability. In the sensitivity the CRU has assumed an availability

rate of 70% for Greenlink instead of 97%. This sensitivity shows that when Greenlink

availability is lower, there are more flows on other interconnectors to Ireland, e.g. EWIC or

Moyle. The sensitivity also shows that although net benefits are lower compared to the case

where Greenlink availability is assumed to be 97%, the interconnector still generates positive

net benefits to Irish consumers and other stakeholders.

In relation to additional costs in the energy system, the CRU has monetised Social Economic

Welfare (i.e. consumer surplus, producer surplus, congestion rents, etc.) and security of

supply.10 In its CBA the CRU has sought to estimate the potential impact of the

interconnector on gas tariffs through its impact on power sector gas demand (i.e.

interconnector imports displacing some domestic gas-fired generation). This is discussed

further in section 3 of this paper.

The CRU notes the respondents’ comments in relation to investment in alternative

technology solutions. Regarding investments, the CRU notes that in a free market economy,

a vast majority of investment decisions should be driven by market forces. The Government

may seek to incentivise investments in particular technologies to achieve its national and EU

policy objectives. The CRU’s role is to ensure a well-functioning and efficient energy market

for the benefit of Irish consumers, rather than determining or promoting certain investment

decisions.

The CRU has considered the potential impact of Brexit on the Greenlink interconnector.

CRU’s Brexit sensitivity assumes that GB is no longer part of the EU’s Internal Energy

10 Any benefits associated with the integration of renewable generation and CO2 emissions were already monetised under Social Economic Welfare.


18

Market but that the Republic of Ireland (ROI) and Northern Ireland (NI) remain coupled. This

is discussed further in section 3 of this paper.

The CRU is aware that availability of EWIC and Moyle has been relatively low in recent

years. In its CBA the CRU has assumed the same (relatively high) level of availability of all

new and existing interconnectors. The higher availability of existing interconnectors results in

more conservative CBA results for Greenlink, since existing interconnectors would compete

with Greenlink.

In relation to other costs, the CRU CBA of Greenlink has considered whole-system costs.

These include:

• shallow connection costs;

• ongoing maintenance costs;

• network reinforcement costs; and

• Greenlink capital and operational expenditure.

The CRU notes that EirGrid assessed the need for any additional transmission network

needs that are driven by the connection of Greenlink to the Irish system. EirGrid’s analysis

shows that the solutions required are relatively minor in relation to the scale of Greenlink’s

application and consist of a number of 110kV network solutions.

2.2. Is there any additional information the CRU

should consider when determining whether the

Greenlink interconnector is in the public interest or

not?

Element Power submitted the Greenlink interconnector application under Section 2A of the

Act and required the CRU to consider whether Greenlink is “in the public interest”. The CRU

requested respondents’ opinions on the public interest assessment. The majority of

responses received agreed with the CRU’s approach to conduct its own CBA of Greenlink

and identify the potential benefits and costs to Irish consumers.

Several respondents highlighted that the CRU should consider EU and National renewable

targets and policy objectives. The respondents highlighted that Greenlink could help to

integrate renewables and reduce wind curtailment.

A number of respondents stated that the CRU needs to consider the interaction with the gas

market. The respondents noted that additional interconnection could have an impact on the

gas network and could ultimately increase the price of gas and electricity.

A few respondents noted that the CRU should consider the potential impact of Brexit when

determining whether the Greenlink Interconnector is in the public interest or not and

consideration should also be given to the potential impact on other European energy

projects.


19

The majority of respondents noted that the Security of Supply should be taken into

consideration. One respondent noted that Greenlink can make a positive contribution to

Security of Supply and system reliability.

Some respondents noted that the most efficient solution for meeting national and EU targets

may be delivered by alternative technology solutions. The respondents noted that alternative

options should be considered.

CRU Response

The CRU has considered the points made by all respondents regarding the public interest.

The CRU has conducted its own CBA of Greenlink to test the boundaries of Element Power’s

own CBA of the Greenlink interconnector and the key inputs and assumptions which may

drive better or worse outcomes for Irish consumers and other stakeholders, i.e. whether the

Greenlink interconnector is likely to be in the public interest. This is discussed further in

section 3 of this paper.

In its CBA the CRU has also undertaken a high-level assessment of other Greenlink impacts,

including on Irish gas transmission tariffs, Security of Supply, Renewable energy sources

integration (RES), and the Greenlink interconnector impacts under a Brexit scenario. In

addition, the CRU examined how other potential interconnectors connecting Ireland to other

countries (e.g. another interconnector to France) would impact the incremental benefits

driven by Greenlink.

With regards to Security of Supply benefits, the CRU notes that the analysis of Security of

Supply benefits requires a probabilistic assessment of many system conditions (including

temperature, wind speed, generator outage patterns, correlation with other markets, etc.).

The CRU notes that Element Power did not conduct a probabilistic assessment of Security of

Supply benefits. Instead, Element Power used the de-rating factor of the Greenlink

interconnector multiplied by the Capacity Market clearing price.11 The CRU considered the

Security of Supply benefits driven by Greenlink in one of its scenarios using a simplified

approach that is based on ten different climatic years.12 Further information on the Security of

Supply benefits can be found in section 3 of this paper.

In relation to alternative technology solutions to meet national and EU targets. As noted

above, Government may seek to incentivise investments in particular technologies to achieve

its national and EU policy objectives.

2.3. Are there any other specific factors that the CRU

should consider in assessing the Greenlink technical

overview report?

In the consultation paper (CRU18119) the CRU requested respondents’ views on the

Greenlink technical overview report and other specific factors that the CRU should consider.

11 See section 3.4. 12 See section 3.5.


20

Several respondents believe that the proposed technology for Greenlink is now quite

extensively established and a high level of performance and reliability in service can be

expected. However, some respondents noted that the CRU should seek further information

regarding the technical details. Some of the respondents advised that before any final

decision is made on the Greenlink interconnector, a detailed technical assessment should be

carried out.

One respondent raised concerns regarding the risks posed to the project from shipping traffic

in the area, particularly given past events relating to interconnectors/pipelines and anchors

from ships.

Another respondent suggested the consideration of interconnector ancillary services, sub-

synchronous response and ramp rates in the CRU assessment.

One respondent noted that the CRU should ensure that the Greenlink interconnector

complies with all of the EirGrid system requirements and satisfies Grid Code conditions and

will support system security requirements as necessary including ancillary services and DS3

provisions.

CRU Response

The CRU notes the views and comments submitted regarding the Greenlink technical

requirements.

The CRU notes that this paper is focused on the public interest test. The CRU accepts that

further detail and clarity need to be provided by Greenlink developers to the CRU for a

detailed technical assessment of the Greenlink interconnector before any final project

assessment decision is made. In the next stage of the assessment, the CRU will require

Greenlink developers to submit details on the seabed surveys and additional technical & cost

details.

With reference to the EirGrid system requirements and Grid Code conditions, the CRU notes

that the interconnector operator licence requires the interconnector owner to comply with the

provisions of the Grid Code, Distribution Code, Metering Code and the SEM Trading and

Settlement Code.

2.4. Are there other specific factors that the CRU

should consider in selecting the appropriate

regulatory approach?

Ofgem has provisionally granted a Cap and Floor for Element Power, which would apply to

50% of the project costs and revenues.13 Element Power proposed a symmetrical Cap and

Floor regulatory approach to the one provisionally granted by Ofgem, which would apply to

the remaining 50% of the project costs and revenues.14 In the consultation paper

13 Ofgem, Decision on the Initial Project Assessment of the Greenlink interconnector, 30th September 2015 14 p9, Greenlink interconnector application


21

(CRU18119) the CRU requested views from respondents regarding the proposed regulatory

approach for Greenlink.

There was a broad support for further CRU consultation on the appropriate regulatory

regime. The respondents in general recognised the need for a careful consideration on a

Cap and Floor regulatory regime.

One respondent noted that the duration of the Cap and Floor regime needs to be defined.

The same respondent requested a clarification of whether the regulatory regime would

remain fixed for the duration of the regime.

A number of respondents were concerned that variability in the operation of the

interconnector could have an impact on network tariffs for Irish electricity consumers, which

could have broader economic impacts.

Another respondent advised to take into account possible Brexit scenarios and a recent

decision by the French Regulator (CRE) in their deliberation 2017-25315.

One respondent noted that the CRU should set out a clear set of Key Performance Indicators

(KPI) to ensure that the interconnector is operated as efficiently as possible.

CRU Response

The CRU considered the views and recommendations submitted regarding the regulatory

approach for the Greenlink interconnector. The CRU notes that this paper is focused on the

CBA of Greenlink and the public interest question. The CRU also noted that if the CRU CBA

revealed that Greenlink would generate overall (net) benefits to Irish consumers, then the

CRU would consider and consult upon the appropriate regulatory regime that is justified by

public interest, e.g. a Cap and Floor regime for Greenlink.




2.5. Other comments

A few respondents noted that the Greenlink interconnector application should be assessed

against the criteria set out in (CRU18131). One respondent noted that Greenlink’s Brexit

scenarios modelling should be shared publicly.

15The CRE delayed a decision on a proposed interconnector to the UK pending Brexit negotiations -https://www.google.ie/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwibkMfgk-rcAhUQM8AKHXM_DHcQFjAAegQIABAC&url=https%3A%2F%2Fwww.cre.fr%2Fen%2Fcontent%2Fdownload%2F16726%2F206259&usg=AOvVaw03tuj9Bf-UmmBlx6MVCu96

https://www.google.ie/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwibkMfgk-rcAhUQM8AKHXM_DHcQFjAAegQIABAC&url=https%3A%2F%2Fwww.cre.fr%2Fen%2Fcontent%2Fdownload%2F16726%2F206259&usg=AOvVaw03tuj9Bf-UmmBlx6MVCu96




22

CRU Response

The CRU notes that the assessment criteria for electricity interconnector applications

(CRU18131) is developed for the assessment of applications the CRU has received, or will

receive, from the developers of the electricity interconnection projects. The CRU assessed

the Greenlink interconnector application considering the CRU criteria.16 In addition, the CRU

CBA modelling approach of Greenlink is based on ENTSO-E Guideline.

The CRU highlights that following Greenlink’s project submission in December 2017, it

submitted additional analysis on:

• The potential Security of Supply benefits associated with Greenlink; and

• The impact of Greenlink on Social Economic Welfare in a Brexit world.

16The CRU carries out a holistic assessment against all of the criteria and its decision will depend on the specific case. In other words, the application will be viewed in the round against the criteria, and failure to provide certain information or meet certain criteria will not necessarily mean that the application will be rejected or negatively assessed.


23

3. CRU CBA of Greenlink

The CRU reviewed the CBA of Greenlink interconnector submitted by Element Power and

considered that further analysis was needed to understand the boundaries of impacts on

consumers and other stakeholders before a determination can be reached on whether the

Greenlink interconnector is in the public interest. The CRU has conducted its own CBA of

Greenlink supported by independent economic and technical advisors. The results of the

CRU CBA of Greenlink are summarised below.

3.1. Methodology and Modelling Approach

To assess the potential costs and benefits of Greenlink, the CRU has modelled three

scenarios and two sensitivities of the European electricity market to assess the impact of

Greenlink on Social Economic Welfare. The CRU’s CBA modelling approach is based on

ENTSO-E CBA Guideline.17

The CRU has modelled scenarios based on the TYNDP 2016 and 2018 scenarios produced

by ENTSO-E.

For TYNDP 2016, ENTSO-E developed four ‘visions’ out to 2030 along two main

dimensions:

• The x-axis represents the degree of European cooperation to reduce greenhouse gas

emissions by 80-95% on 1990 levels by 2050; and

• The y-axis relates to the relative speed of green transition.

Both axes provide a spectrum of progress. Vision 1 projects the slowest progress in

decarbonising electricity generation (see figure 4 below).

Figure 4: TYNDP 2016 Visions

17 See section1.5.5 for details.


24

For TYNDP 2018, ENTSO-E considered three storylines for 2030 and 2040. The CRU has

modelled the two storylines highlighted in light blue below:

• Sustainable Transition; and

• Global Climate Action.

Figure 5: TYNDP 2018 Scenarios

The scenarios modelled (highlighted in light blue in Figures 4 and 5 above) were:

• TYNDP 2016 Vision 1 (V1)18 – Out of the TYNDP 2016 Visions, Vision 1 projects the

slowest progress towards decarbonisation, and therefore provides the lowest case for

renewables deployment. This scenario resulted in the lowest benefits compared to

other scenarios (snapshots years 2020 and 2030);

• TYNDP 2018 Sustainable Transition (ST) 19 – Out of the three possible storylines,

ST represents the most likely future in 2030, but also the ‘lower’ of the storylines, with

electrification of heat and transport occurring at the slowest pace. ST 2030 was

selected over DG 2030, as the latter presents a future that departs significantly from

current projections (snapshot years 2025, 2030 and 2040); and

• TYNDP 2018 Global Climate Action (GCA) – Beyond 2030, the CRU has also

modelled GCA in 2040 (in addition to ST), as the emphasis in this storyline is on rapid

18 The CRU notes that the TYNDP 2016 V1 scenario was modelled for 10 climatic years reflective of a variety of system conditions including temperature, wind speed, generator outage patterns, correlation with other markets, etc. The potential Security of Supply impacts of Greenlink (discussed below) were also considered for this scenario. 19 The TYNDP 2018 ST and GCA scenarios are based on one climatic year that represents average conditions with respect to weather, demand, and plant availability (i.e. 2007). Additionally, we note that the TYNDP 2018 scenarios used for this analysis are still in draft form.


25

decarbonisation and large-scale renewables, which both have an impact on the

benefits provided by interconnectors20 (snapshot year 204021).

The CRU has considered these scenarios with and without an additional interconnector

project to France (referred to as ‘IE-FR interconnector’ in figures and tables).

A summary for the adopted scenarios is set out in the figure below.

Figure 6: Scenarios and Simulations

To quantify the costs and benefits of Greenlink, the simulations with and without Greenlink

were compared, as shown in the figure below:

Figure 7: Quantifying the change in costs and benefits due to Greenlink

In addition to the scenarios, the CRU has modelled two sensitivities on the ST scenarios.

These sensitivities are:

• Brexit sensitivity – to model the potential impact of Brexit on Greenlink; and

20 Although the TYNDP 2018 Distributed Generation (DG) pathway is also an interesting scenario for the EU electricity system, the CRU has not modelled this pathway for the assessment of the Greenlink CBA. The DG pathway is driven by prosumers, decentralised development, with focus on end-user technology, high penetration of electric vehicles, the assumption that PV and batteries are widespread and that high levels of demand side response are available. 21 This scenario is not active until 2040 and offers an alternative future to the ST scenario post-2030, whereby sudden action is taken, and rapid decarbonisation occurs after 2040, above that projected in the ST scenario.


26

• System Non-Synchronous Penetration (SNSP) – the SNSP limit of 75% of non-

synchronous generation22 was added to the ST scenario. The SNSP includes the

non-synchronous generation and net interconnector imports as a percentage of the

demand and net interconnector exports. This was done for SEM only as CRU

assumes that only the day-ahead markets are coupled, and the SNSP limit applies in

other trading timeframes, i.e. the intraday and balancing markets.

A summary for the adopted sensitivities is set out in the figure 8 and figure 9.

Figure 8: Brexit Sensitivities

Figure 9: SNSP Sensitivity

The CRU has also undertaken a high-level assessment of other Greenlink impacts, including

on Security of Supply and on Irish gas transmission tariffs as a result of changes in gas fired

generation in the SEM.

3.2. CRU CBA Results of Greenlink

In this section, the CRU presents the results of its CBA for the modelled scenarios and

sensitivities.

The CRU has monetised the benefits and costs of:

• Improved security of supply (€);

• Social Economic Welfare (€);

• Total interconnector project expenditures (€).

The CRU has also quantified:

• RES integration (MWh);

• CO2 emissions (tonnes).

22 Non-synchronous generation, i.e. wind, solar, interconnection


27

The benefits of RES integration and CO2 emissions are monetised as part of Social

Economic Welfare.

In the following sub-section, the CRU compares Element Power’s CBA results against its

own CBA results of the Greenlink interconnector.

For comparison purposes and consistency with ENTSO-E CBA Guideline, the CRU excluded

two items from Element Power’s costs and benefits calculations:

• Market integration23; and

• Cap and Floor payments.

The CRU has also discounted the Element Power CBA results using a 4% (instead of 3.5%)

discount rate for comparison purposes.24

The CRU notes that the scenarios modelled are also different from those modelled by

Element Power. For example, the CRU low scenario based on TYNDP 2016 V1 assumed

higher fossil fuel prices than the Low scenario in the Element Power CBA. Similarly, the CRU

has modelled the TYNDP 2018 scenarios while Element Power used scenarios developed

in-house by their economic advisor.

The CRU has not quantified any additional (dis)benefits associated with ancillary services,

capacity market, network losses25, cap and floor payments or power purchase agreements

as these impacts are not part of the ENTSO-E CBA Guideline. Furthermore, the CRU did not

assess the impact on market power caused by the addition of Greenlink as this analysis

requires confidential data as input. Additionally, the impact of future assets on current market

power is a short-term aspect while the assessment of an investment decision is a long-term

commitment.

3.3. CRU CBA Results Across all Scenarios

In the following sub-sections, the CRU explains the Social Economic Welfare impacts and

resulting changes in consumer surplus and producer surplus for all three scenarios.

Figures 9 and 10 summarise CRU’s quantification of the impacts of Greenlink on Social

Economic Welfare for SEM, as well as the results of Greenlink’s CBA.

23 This benefit is driven by two main factors: (1) the (positive) impact of the interconnector on the average price that wind/solar generators can earn (e.g. because with higher interconnector capacity they can export some of their excess generation to higher-priced markets, and thus earn higher market price on average); and (2) the assumption that all new generators are supported by long-term Power Purchase Agreements (PPAs). CRU agrees with (1) - this is also captured in CRU’s CBA. With regards to (2), CRU notes that some generators are likely to be supported by PPAs or CfDs but not all of them are likely to have such contracts in place. Additionally, (2) is fully distributional - i.e. it is a transfer between producers and consumers, and it does not affect net social welfare. As such, including (2) in social welfare results in a transfer from producers to consumers in such a way that consumers appear better off. 24 Consistent with ENTSO-E PCI CBA guidance and Ireland public sector guidance of assessment of capital projects 25The CRU has modelled an energy markets model, and as such, cannot quantify any (dis)benefits related to internal constraints or system losses.


28

Figure 10: CRU CBA results for Greenlink (change in SEM welfare impacts)

Figure 11: Element Power CBA results for Greenlink (change in SEM welfare impacts)

3.3.1. TYNDP 2018 ST vs Element Power Reference Case

For the TYNDP 2018 ST scenario26, CRU CBA results are compared to Element Power’s

Reference Case CBA. As described above, Element Power’s Reference Case CBA results

are adjusted to remove distributional items and a 4% discount rate is used. The results are

summarised below.

Table 1: Element Power Reference Case CBA – NPV results

€m NPV @ 4% (real 2017) Ref. Case with Greenlink only Total NPV – with Greenlink & IE-

FR interconnector

Change in producer surplus -410 605

Change in consumer surplus 1,150 -29

26 The ST scenario assumes Greenlink has an availability rate of 97%.


29

Change in interconnector

surplus27 -36 -185

SEM (net benefit) 704 391

In contrast, CRU’s TYNDP 2018 ST CBA results yield the following impacts in NPV terms:

Table 2: CRU CBA – NPV results

CRU TYNDP 2018 ST (€m, real 2017) Total NPV – with Greenlink only

Total NPV – with Greenlink & IE-FR interconnector

Change in producer surplus -2,329 525

Change in consumer surplus 3,365 -3

Change in congestion rent -255 -156

Greenlink project expenditure -241 -241


In summary, a comparison of CRU’s TYNDP 2018 ST simulations and Element Power’s

Reference Case CBA highlights the following key points regarding the CRU’s public interest

test:

• The overall net social welfare impact of Greenlink on SEM in Element Power’s

Reference Case scenario is positive both with and without another interconnector to

France. In CRU’s TYNDP 2018 ST scenario, in a simulation without another

interconnector to France, Greenlink has a positive impact on net social welfare in

SEM. However, in a simulation with another interconnector to France, net social

welfare in SEM remains positive, but is considerably lower.

• In Element Power’s Reference Case scenario, Greenlink has a positive impact on

SEM net social welfare with and without another interconnector to France. However,

the drivers of the positive change in net social welfare differ depending on the

interconnector simulation. In the case with another interconnector to France,

Greenlink drives a positive impact on producer surplus on SEM. In contrast, in the

case with Greenlink only, Greenlink increases SEM consumer surplus and reduces

producer surplus (SEM interconnector surplus reduces in both cases).

• Similarly, in CRU’s TYNDP 2018 ST simulations, SEM net social welfare is positive

both with and without another interconnector to France. However, at a consumer

level, Greenlink marginally decrease consumer surplus where another interconnector

to France is assumed in the modelling and, as is the case in Element Power’s

Reference Case, it is electricity producers in SEM that predominantly benefit from the

development of Greenlink where another interconnector to France exists.

• The positive consumer surplus in CRU’s simulations is driven by lower electricity

prices captured in the SEM market due to the addition of Greenlink.

27 Element Power’s item “Change in interconnector surplus” is equivalent to CRU’s congestion rent and Greenlink project expenditure combined.


30

• A comparison between Element Power’s Reference Case CBA and CRU’s TYNDP

2018 ST simulations, highlights that changes in Social Economic Welfare related to

Greenlink are sensitive to the development of an additional interconnector in Ireland.

From the Irish consumer perspective, Greenlink drives significant benefits in NPV

terms where no additional interconnector is in service, but under the assumption that

Greenlink co-exists with another interconnector, the incremental benefits driven by

Greenlink are significantly reduced.

3.3.2. TYNDP 2016 V1 vs Element Power Low Case

For the TYNDP 2016 V1 scenario, the CRU compares its CBA results to Element Power’s

Low Case CBA as both are relatively conservative scenarios for the Greenlink CBA. The

results are presented below.

Table 3: Element Power Reference Case CBA – NPV results

€m NPV @ 4% (real 2017) Low Case with Greenlink only Ref. Case with Greenlink & IE-FR

interconnector

Change in producer surplus -106 -48

Change in consumer surplus 143 -35

Change in interconnector surplus -107 -96

SEM (net benefit) -70 -180

In contrast, CRU’s CBA results using the TYNDP 2016 V1 scenario yield the following

impacts in NPV terms:


CRU TYNDP 2016 V1 (€m, real 2017) Total NPV – with Greenlink only


Change in producer surplus 668 640

Change in consumer surplus -294 -406

Change in congestion rent -84 -59


Greenlink security of supply benefits

8 0

SEM (net benefit) 56 -67

A comparison of CRU’s TYNDP 2016 V1 simulations and Element Power’s Low Case CBA

highlights the following key points regarding the CRU’s public interest test:

• The overall net social welfare impact of Greenlink on SEM in Element Power’s Low

Case scenario is negative under both cases. However, CRU’s TYNDP 2016 V1

scenario is positive with Greenlink only, and negative with Greenlink and another

interconnector to France.


31

• In Element Power’s Low Case scenario with Greenlink and another interconnector to

France, CBA results suggest that the addition of Greenlink would reduce producer,

consumer and interconnector welfare. However, importantly in the case without

another interconnector to France, Greenlink still increases SEM consumer surplus,

although SEM net social welfare overall reduces.

• In contrast, in CRU’s TYNDP 2016 V1 simulations, SEM net social welfare is positive

in a case without another interconnector to France but negative in a case with

another interconnector to France. However, at a consumer level, the addition of the

Greenlink interconnector reduces consumer surplus in both cases (with and without

another interconnector to France) and it is SEM producers that predominantly benefit

from the development of Greenlink (through increased producer surplus).

3.3.3. TYNDP 2018 GCA vs Element Power High Case

For the TYNDP 2018 GCA scenario, CRU CBA results are compared to Element Power’s

High Case CBA. The results are summarised below.

Table 5: Element Power High Case CBA – NPV results

€m NPV @ 4% (real 2017) High Case with Greenlink only Total NPV – with Greenlink & IE-FR

interconnector

Change in producer surplus -92 533

Change in consumer surplus 919 305

Change in interconnector surplus 228 -97

SEM (net benefit) 1,056 741

CRU’s CBA results for TYNDP 2018 GCA scenario yield the following impacts in NPV terms:


CRU TYNDP 2018 GCA (€m, real 2017)

Total NPV – with Greenlink only Total NPV – with Greenlink & IE-FR interconnector

Change in producer surplus -1,290 494

Change in consumer surplus 2,156 74

Change in congestion rent 16 32



A comparison of CRU’s TYNDP 2018 GCA simulations and Element Power’s Reference

Case CBA highlights the following key points regarding the CRU’s public interest test:

• The overall net social welfare impact of Greenlink on SEM in Element Power’s High

Case scenario and CRU’s TYNDP 2018 GCA scenario is positive, with and without

another interconnector to France.


32

• In Element Power’s High Case scenario there is a positive change in consumer

surplus with and without another interconnector to France, although producer surplus

reduces in the case with Greenlink only.

• In CRU’s TYNDP 2018 GCA simulations, SEM net social welfare is also positive both

in a case with and without another interconnector to France. However, at a consumer

level, CRU’s simulations suggest that the change in SEM consumer surplus in a case

with Greenlink and another interconnector to France is lower than in Element Power’s

High Case with another interconnector to France.

3.4. RES Integration

The CRU’s TYNDP 2018 GCA scenario has very high RES penetration and introducing an

interconnector has a much larger impact on avoided curtailment than in a scenario with lower

RES penetration (i.e. TYNDP 2016 V1). The table below shows how Greenlink affects RES

curtailment (TWh) in all three scenarios and how this compares to Element Power’s results.

Table 7: Impact on curtailment of SEM wind and solar generators – CRU vs Element Power comparison

Impact on curtailment of SEM wind and solar generators over the period 2023-2047

Total avoided curtailment (TWh)

Wind Solar

CRU28 Element Power

CRU Element Power

Reference Case including IE-FR interconnector

3.9 5.5 0.2 0.8

Reference Case excluding IE-FR interconnector

8.5 10.7 0.3 0.8

Low Case including IE-FR interconnector 0.0 0.3 0.0 0.0

Low Case excluding IE-FR interconnector 0.7 1.2 0.0 0.0

High Case including IE-FR interconnector 16.3 5.4 2.2 1.7

High Case excluding IE-FR interconnector 22.0 8.8 2.4 1.8

The CRU notes that adding Greenlink results in a considerable reduction in RES curtailment

in Ireland, implying greater RES integration benefits from the addition of Greenlink across all

scenarios. This is consistent with the findings of Element Power.

3.5. Impact of Greenlink on Security of Supply

The CRU has estimated the Security of Supply benefits from Greenlink using 10 different

climatic years in Artelys Crystal Super Grid software. The simulation results were extracted,

and Security of Supply benefits were calculated by multiplying the ACER Value of Lost Load

28 Based on CRU’s TYNDP scenarios. TYNDP 2018 ST is compared to Element Power’s Reference Case. TYNDP 2018 GCA is compared to Element Power’s High Case. TYNDP 2016 V1 is compared to Element Power’s Low Case.


33

(VoLL) for each country with the Expected Energy Not Served (EENS). This approach is

different from the ENTSO-E approach of modelling Security of Supply, which uses Monte

Carlo analysis, requiring a larger number of stochastic simulations and the use of a different

software.

Element Power’s approach to quantifying Security of Supply benefits, as part of the

Greenlink CBA, is also different from ENTSO-E’s approach. Element Power used the de-

rating factor of the Greenlink interconnector multiplied by the Capacity Market clearing price

(used as a proxy for the value of generation capacity in the Irish system). Using a capacity

market model, Element Power estimated only the impacts on generators’ capacity market

revenues – this approach appears to be more in line with a capacity adequacy study rather

than a Security of Supply analysis and does not assess the impact of Greenlink on expected

energy not served in Ireland and neighbouring countries.

The CRU’s SEM Security of Supply analysis results are shown in the figure below. The

results show that the introduction of Greenlink could reduce EENS within SEM, albeit the

level of EENS present in the scenarios without new interconnectors is small. Therefore, the

reduction in EENS, and the monetised Security of Supply benefit caused by Greenlink, is

negligible.

Figure 12: SEM EENS with and without Greenlink

This analysis suggests that Security of Supply benefits for SEM could reach up to

approximately €6m in NPV terms (for the period 2023 to 2047), in the Greenlink only

simulation. In contrast, the modelling results in a world with another interconnector to France

have no EENS or loss of load hours for SEM. Hence, there are no additional Security of

Supply benefits associated with the introduction of Greenlink.

The figure below shows EENS with and without Greenlink across the 10 climatic years (test

cases). While some countries other than GB and Ireland also experience some expected

unserved energy (MWh) and therefore, loss of load (hours) without Greenlink, with the

exception of Belgium in Test Case 8, the level of expected unserved energy does not change


34

with the addition of Greenlink. Thus, the CRU finds Security of Supply benefits only in Ireland

and Belgium.

Figure 13: EENS in V1 2030 with and without Greenlink

The monetised Security of Supply benefit for Belgium is small and is only experienced in

Test Case 8, where EENS is reduced slightly with the introduction of Greenlink. Using a

weighted-average of the VoLL for non-domestic sectors in Belgium, based on ACER’s recent

VoLL study, of approximately €4,000/MWh, the Security of Supply benefit to Belgium are

estimated to be approximately €1.5m on an NPV basis, notably lower than the amount

expected in SEM. Adding another interconnector to France has no impact on this benefit.

3.6. Impact of Brexit on Greenlink

The CRU has modelled Brexit sensitivities on the TYNDP 2018 ST scenario. Within this

sensitivity, it is assumed that NI and ROI remain coupled, e.g. SEM, but that GB is no longer

coupled with the rest of Europe. Therefore, friction is present between GB and the countries

it is connected to via an interconnector.


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Two levels of friction were modelled using the following assumptions29:

• For GB, friction has been implemented firstly through market inefficiency costs. The

CRU has tested two levels of market inefficiency costs: 0.25 EUR/MWh and 0.50

EUR/MWh. These were applied to all GB interconnectors – represented as a

transmission cost in the CRU energy market model.

• The CRU has also modelled friction through lower effective interconnector capacity,

due to coordination problems that occur within in a ‘decoupled’ market, where the

interconnector flows are unlikely to follow price differentials at all times. Interconnectors

are therefore unlikely to be used at full capacity30.

The CRU has compared the Brexit sensitivities (where a friction is introduced to power flows

between GB and EU markets) with and without an additional interconnector to France to

quantify the additional (dis)benefits from Greenlink under Brexit31. The results of the Brexit

simulations are presented below:

Figure 14: CRU CBA – Country breakdown of net welfare change under Brexit with Greenlink only

The addition of Greenlink under a Brexit sensitivity results in a positive change in consumer

surplus, i.e. €4,129m in SEM. However, when both Greenlink and another interconnector to

France co-exist under a Brexit sensitivity, the change in consumer surplus driven by

Greenlink is significantly lower, i.e. €46m in SEM.

29Note that the chosen approach does not result in interconnector flows against price differentials, i.e. from higher-priced markets to lower-priced markets, but the simulated flows are less than optimal. 30 This was applied by reducing the actual capacity of all GB interconnectors, reducing them to 80% of total capacity. For example, it can be assumed that Greenlink’s capacity effectively available is 80%, i.e. 400 MW instead of 500MW. Reduced capacity was applied to all GB interconnectors. 31 Note that the chosen approach does not result in interconnector flows against price differentials, i.e. from higher-priced markets to lower-priced markets, but the simulated flows are less than optimal.


36

Figure 15: CRU CBA – Country breakdown of net welfare change under Brexit with Greenlink and another

interconnector to France

The table below compares the Brexit sensitivity results to the ST scenario (without Brexit).

The change in SEM net benefit under Brexit is lower than under the ST scenario due less

efficient trades between countries. However, the change in SEM consumer surplus is greater

under Brexit compared to the change in SEM consumer surplus under the ST scenario. This

is because the addition of Greenlink in a market with trading frictions provides an additional

link to import/export route and hence consumers are better off than without the addition of a

new interconnector.

Table 8: CRU CBA ST scenario vs. Brexit Sensitivity - NPV results32

Breakdown (€m, real 2017) ST scenario Brexit sensitivity33

Total NPV – with Greenlink only


Total NPV – with Greenlink only


SEM 539 125 490 199

Change in producer surplus -2,329 525 -3,277 434

Change in consumer surplus 3,365 -3 4,129 46

Change in congestion rent -255 -156 -121 -41

Greenlink project expenditure

-241 -241 -241 -241

The graph below shows the consumer surplus in absolute terms (NPV) in the Republic of

Ireland for the ST scenario and the Brexit sensitivity. Consumer surplus is negative because

it is represented as costs incurred by consumers, hence the negative sign. The yellow bars

32 The CRU modelled two levels of market inefficiency costs: €0.25/MWh and €0.50/MWh applied to GB interconnectors in both directions. The CRU’s modelling suggests that these market inefficiency costs generate very similar electricity prices and CBA results. As such, the CRU presents its analysis for the €0.50/MWh market inefficiency cost only. 33 Market inefficiency cost – 0.5 EUR/MWh


37

show the change in consumer surplus from the addition of Greenlink, i.e. the change is

positive.

Figure 16: Consumer surplus in absolute terms (NPV) in the Republic of Ireland: ST scenario and Brexit

sensitivity (0.5 €/MWh transmission cost)

In the round, under the Brexit sensitivity modelled by the CRU, the addition of Greenlink

generates benefits to SEM consumers, while where Greenlink and another interconnector to

France co-exist, the change in consumer surplus in Ireland due to Greenlink is only marginal.

Comparing the ST scenario to the Brexit sensitivity highlights the following:

• When Greenlink is in service, there is an improvement in consumer surplus (i.e.

€2.6b) in the ST scenario. This is also the case in the Brexit sensitivity, where the

improvement in consumer surplus is even more pronounced (i.e. €3.2b). However,

consumer surplus is even lower under Brexit (€-30.8b) than under the ST scenario (€-

30.7b) with Greenlink only. This suggests that under Brexit, Greenlink could provide

more benefits to consumers than under a No Brexit scenario.

• When looking at scenarios that also include another interconnector to France, there is

an improvement in consumer surplus compared to the ST scenario Base Case

without any new interconnectors (1) and with Greenlink only (2) but the addition of

Greenlink when another interconnector is already in service has no impact on

consumer surplus. This is also true in the Brexit sensitivity where the same level of

consumer surplus in a simulation with another interconnector only (7) and with both

Greenlink and another interconnector (8).

• The differences between (3) and (7) and (4) and (8) suggest that there are more

benefits related to the addition of another interconnector to France than Greenlink in

a Brexit sensitivity.


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3.7. Impact of Greenlink on Gas Transmission Tariffs

The CRU has analysed the modelled impact of Greenlink on gas demand in Ireland in its

CBA simulations, and has then undertaken simplified modelling of potential impacts on gas

transmission tariffs for the TYNDP 2018 BE 2025 snapshot year, resulting from changes in

the generation mix related to the Greenlink interconnector.

The CRU then calculated an implied percentage change in total gas demand34 (assuming

other gas demand components remain fixed as per GNI assumptions) and fed it through the

proprietary GNI Matrix Model35.

The CRU’s approach can only provide an estimate of the impact of the interconnector on

power sector gas demand and gas transmission tariffs, i.e. the percentage change in tariffs.36

However, CRU acknowledges that additional aspects might impact gas tariffs. For instance, if

the profile of gas generation across the year changes because of new electricity

interconnectors, then the way shippers book gas transmission capacity may also change. For

example, this could take the form of a shift to booking shorter-term products away from

annual capacity bookings, with a knock on impact on the calculation of annual capacity tariffs

each year. The CRU has not attempted to model changes in capacity bookings as this would

need to make assumptions of how generators would re-optimise their booking strategies in

light of new electricity interconnectors in Ireland.

CRU analysis of the change in power sector gas demand suggests that the addition of

Greenlink would have a small negative impact on annual power sector gas demand (a

reduction of 2.1% see the figure 17 below), and an even smaller corresponding impact on

total annual gas demand (a reduction of 0.9%37). Furthermore, total peak-day demand for

gas is expected to decrease marginally with the addition of Greenlink (by c.0.03%38).

34 The impact of an x% change in power sector gas demand on total gas demand is calculated based on the Gas Networks Ireland (GNI) 2017 Network Development Plan (NDP) sector composition projections for 2025/26. Note that total system demand in the NDP includes the ROI, NI and the Isle of Man (IOM). 35 For the purposes of this analysis, GNI allowed revenues are set as per PC4 forecasts for 2021/22 and extrapolated forward in time, assuming that they are unaffected by the new interconnector(s). Additionally, CRU’s analysis is limited to the impact on GNI tariffs and only considers existing domestic entry/exit points (i.e. the following were out of scope: (i) Corrib component of the Bellanaboy capacity entry tariff, (ii) Gormanston and Twynholm exit tariffs, and (iii) any potential new entry/exit points that may become operational in the meantime). 36 Note that the assumed electricity demand in the TYNDP 2018 (and 2016) scenarios is significantly lower than in EirGrid’s Generation Capacity Statement (on which the Gas Networks Ireland (GNI) 2017 Network Development Plan (NDP) is based). All else equal, this would imply significantly lower gas demand (and likely higher gas tariffs) under the TYDNP scenarios. These differences are out of scope. 37 Calculated based on a forecast from GNI that power sector gas demand will represent 42% of gas total demand in 2025. See table A2-10 in GNI’s 2017 Network Development Plan (NDP). 38 This figure reflects the impact of a 0.1% reduction in peak day power sector gas demand observed in CRU’s results, scaled by the percentage contribution of peak day power sector gas demand to total peak day demand. This percentage is forecasted to be 47% in 2025 as per Table A2-7 in GNI’s 2017 Network Development Plan (NDP).

https://www.cru.ie/wp-content/uploads/2017/12/CRU17341-GNI-NDP-2017.pdf





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Figure 17: Total power sector gas demand in 2025 in the Republic of Ireland (TYNDP 2018)

This analysis of the impacts from changes in power sector gas demand in 2025, would

suggest Greenlink will have relatively minor impacts on gas tariffs.

Specifically, there would be a negligible impact on entry and exit commodity charges

(charged per MWh and reflective of total annual gas demand), and a minor impact on entry

and equalised exit capacity charges (charged per peak day MWh and reflective of forecast

peak day bookings).

Where both Greenlink and another interconnector to France co-exist, the interconnectors

would have a negligible impact on entry commodity charges, an impact of approximately

0.5% on exit commodity changes and equalised exit capacity charges, and a minor impact

on entry capacity charges.

Table 9: Estimated interconnector impact on GNI gas tariffs (in percentage terms)

Interconnector impact on gas tariffs Greenlink only Greenlink & IE-FR

interconnector

Entry commodity charge negligible negligible

Exit commodity charge negligible +0.454%

Equalised exit capacity charge negligible +0.535%

Entry capacity charges – Bellanaboy +0.013% +0.029%

Entry capacity charges – Moffat +0.026% +0.057%

Entry capacity charges – Inch +0.073% +0.163%


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4. CRU CBA Summary

This section of the paper sets out the key findings from the CRU CBA of Greenlink:

• Although there are differences between CBA modelling scenarios and assumptions

adopted by the CRU and Element Power, overall the CRU CBA results are consistent

with the findings of Greenlink. They show that Greenlink has the potential to deliver

benefits for Irish consumers where significant decarbonisation of electricity generation

occurs.

• The CRU modelling indicates that in relatively conservative scenarios of

decarbonisation of electricity generation in Europe, Greenlink does not drive benefits

for Irish consumers.

• In a scenario where another new interconnector is added alongside Greenlink, i.e.

another interconnector to France, consumer benefits from Greenlink appear to be

significantly reduced.

• There are potential security of supply benefits for the Single Electricity Market (SEM)

with the introduction of Greenlink.

• The CRU Brexit sensitivity39 assumes that there would be trading frictions40 between

GB and the countries it is connected to via an interconnector. Trading frictions

between countries would result in less efficient trading, less efficient interconnector

usage, greater price divergence, and hence potentially higher cost for consumers. As

a consequence of these frictions, the overall net benefits in SEM are lower under the

Brexit sensitivity than under a no Brexit scenario. Because of the underlying

inefficiencies, introducing a new interconnector may unlock more benefits to Irish

consumers compared to a no Brexit scenario where no trading frictions are present.

• The addition of Greenlink would have a small negative impact on annual power sector

gas demand and an even smaller corresponding impact on total annual gas demand.

• Both CRU’s CBA and Element Power’s CBA show that Greenlink reduces RES

curtailment and improves captured electricity prices for Irish consumers, i.e. average

annual electricity prices are expected to be lower in the SEM when Greenlink is in

service compared to prices that would be captured without Greenlink.

39 See Section 3.5 for a description of the Brexit sensitivity. 40 Trading frictions were modelled as a transmission cost on all GB electricity interconnectors.


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Table 10: Summary of CRU CBA results

€m NPV @ 4% (real 2017)

TYNDP 2018 ST Greenlink only

TYNDP 2018 ST with Greenlink & IE-FR interconnector

TYNDP 2016 V1 Greenlink only

TYNDP 2016 V1 with Greenlink & IE-FR interconnector

TYNDP 2018 GCA Greenlink only

TYNDP 2018 GCA with Greenlink & IE-FR interconnector

SEM 539 125 56 -67 640 359

Change in producer surplus

-2,329 525 668 639 -1,290 494

Change in consumer surplus

3,365 -3 -294 -406 2,156 74

Change in congestion rents

-255 -156 -84 -60 16 32

Greenlink project costs

-241 -241 -241 -241 -241 -241

Security of supply benefits

NA NA 8 0 NA NA


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5. CRU’s Determination

In the previous sections of this determination paper the CRU has outlined its position on the

issues raised in the consultation paper and its views on the responses to that consultation as

well as the results of its CBA analysis of Greenlink. This section of the paper sets out the

CRU determination following an assessment and consultation on the Greenlink application,

primarily looking at whether the Greenlink interconnector is in the public interest.

As the CRU noted in the Greenlink consultation paper (CRU18119), assessing the Greenlink

interconnector application involves two stages:

• the first stage is testing the public interest case of the proposed interconnector; and

• the next stage is to decide which regulatory approach is justified based on the public

interest test.

This determination paper focuses on the first stage, i.e. the public interest test. The precise

details of any Cap and Floor regime would need to be consulted upon and determined at a

later stage.

The CRU has reviewed the consultation responses and considered the points raised by

respondents. In addition, the CRU has conducted its own CBA of Greenlink to test the

boundaries of Element Power’s own CBA of the Greenlink interconnector and the key inputs

and assumptions which may drive better or worse outcomes for Irish consumers and other

stakeholders. The CRU has modelled ENTSO-E TYNDP scenarios and compared the CBA

results to those of Element Power.

The CRU CBA of Greenlink indicates that, at the time of assessing the Greenlink application

and based on the draft ENTSO-E TYNDP scenarios, Greenlink has the potential to provide a

net benefit to the Irish consumers and Ireland as a whole. As such, the CRU has determined

that the Greenlink interconnector application passes the public interest test.

Notwithstanding this determination on the public interest test, if any subsequent information

is given to the CRU before making its final decision would lead the CRU to consider that the

basis of its public interest test decision has materially changed, then the CRU may revisit this

determination. In this case, the CRU may re-run its analysis in order to confirm whether or

not the project continues to be in the publics’ interest.

The CRU notes that Element Power is required to regularly update the CRU on progress

against their key project development milestones. Furthermore, the CRU expects the

Greenlink developers to give formal written notice of any material change to the project

design.


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6. Next Steps

As part of the next stage, following by sufficiently detailed financial and technical

submissions from the Greenlink developers the CRU expects to consult on a Cap and Floor

regime in H1 2019.




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