Energy Institute

What are constraint payments?

Constraint payments are made to a generator whose output is moved by the System Operator (SO) from its optimum market position. “Constraints” and their associated payments can apply to any generator, and are not unique to wind, as generation can be constrained up, or down, for reasons of transmission network limitations and reserve requirements.

To enable the efficient and secure operation of the electricity system, generation is dispatched at certain levels to prevent equipment overloading, excessive voltages or system instability1.  All generators above a certain size threshold, including wind farms, respond to dispatch instructions from the Market Operator (MO) and System Operator (SO) – EirGrid and SONI. Generators are normally dispatched on a strict economic merit order basis where lowest cost generators are given priority. EU and Government energy policy also requires that generation from renewable energy sources is assigned priority grid access so the System Operators ensure that all of the electricity available from renewable sources is utilised before fossil fuelled sources are despatched. This is subject to exception in the case where system security may be compromised. Occasionally, due to critical system services or transmission line overloads, the output of some lower cost generators may be constrained down and higher cost generators run in their place. According to circumstances the generator that is constrained may or may not be compensated for the loss of market access for their output.

The terms “constraint” and “curtailment” have a particular meaning in the Single Energy Market in Ireland. Constraints (either up or down) refer to a change to any generator’s output from the planned “market schedule” due to transmission network limitations or operating reserve requirements. For example, generators may be requested to produce spare capacity (reserve) which can be quickly brought online if needed to ensure security of the system. Curtailment on the other hand is (so far) unique to wind and arises when wind output exceeds what the system can accommodate securely. The SOs must ensure that the power system is safe and secure at all times. Too much wind energy can cause instability in the system and has to be curtailed or when there is a lack of capacity in the transmission circuits it is ‘constrained’ to the same effect. At such times the SO may have to instruct the wind-farms to generate less power than they could, in which case constraint payments are given to wind generators with “firm” network access to recompense their loss, and are included in our energy costs (Fig. 2). Other similar variable renewable generation such as utility scale solar PV may also be subject to curtailment in future.

Figure 2. Single Electricity Market components (all-island) from 2008 to 2015

SEMO (2016). Market Data. Available Online

  • Constraint payments
  • Capacity payments
  • Energy payments

Thermal generators that avoid the cost of their fuel input may not suffer such a great financial loss when constrained as renewable generators that have no fuel input. Wind energy has close to zero marginal cost of production and, in order to benefit from priority despatch, must take the market price without affecting it, i.e. must be a price-taking plant. Renewable generators’ financial viability may be heavily dependent upon achieving their full potential annual output. EU system operators are required to report annually on the levels of renewable energy curtailment in their jurisdictions and on the measures taken to minimize this.

There are many variables that may affect the level of constraint payments including fuel prices, the amount of wind generation connected to the system, the level of demand, the available interconnector capacity and the state of flexible generation such as pumped storage. Overall payments for constraining off electricity supply from all plants in the all-island electricity market, not just to wind, totalled approximately €160 million in 2015; down from almost €180 million in 2014 (Fig. 3). The greatest amount of curtailment or constraint in the All-Island electricity system arises because of a deficit of cross-border interconnection capacity. The transmission system operator has estimated that this results in an annual cost in excess of €25 million being incurred from re-dispatch of generation from the market optimal2.

Figure 3.Total constraint payments (ex-post) from 2008 to 2015 in the all-island market

SEMO (2016). Market Data. Available Online

  • Constraint payments

The SOs are required to report annually to our regulator, the Commission for Energy Regulation and to the Utility Regulator in Northern Ireland on the management of constraints. Wind energy that is available but cannot be accepted onto the system is referred to as ‘dispatch-down’. The report details the measures taken to dispatch-down renewable energy for system security reasons, and on the corrective measures that the SOs intend to take in order to prevent inappropriate dispatching-down. Dispatch-down due to overall power system limitations is curtailment, while dispatch-down due to a local network limitation is a constraint.

In 2014, the total wind energy generated in Ireland and Northern Ireland was 6,436 GWh. In Ireland, the dispatch-down energy from wind resources was 236 GWh; this is equivalent to 4.4% of the total available wind energy3.

Interconnection to the UK is reducing wholesale electricity prices for Irish consumers, improving the security of supply and has the additional benefit that on exceptionally windy days we can export that extra wind energy and avoid constraint payments to wind farms 4. On days with too much wind, we can either bear the cost of curtailing wind farms with the waste of wind-power that entails, or we can avail of interconnection to avoid these costs 5. The total wind dispatch-down volume on the island of Ireland was reduced by almost 50% in 2013 due to interconnector trading 6.