Why do some plants receive money while not producing electricity?
As we have seen with capacity payments, electricity generators receive payments for being available to produce electricity. Following a competition contracts were put in place to provide much-needed generation capacity at a time (circa 2005) when electricity blackouts were a real prospect. The contracts were tailored to reward the availability of the plants to generate electricity. Under certain circumstances these plants could, up to 31st March 2016, receive payments while not actually producing electricity.
In 2005 when the Irish economy was booming, there were fears that there would not be enough electricity generating plants to meet the rising demand of the Celtic Tiger 1. A decision was made by the Commission for Energy Regulation (CER) to run a competition to build generating plant to avoid the risk of electricity shortages in the booming economy 2. Tynagh Energy and Aughinish Alumina were the two plants selected in this competition.
Press reports have described Tynagh as a plant that was more profitable shut down than operating 3 but this was because several factors such as the falling demand for electricity during the recession, the growing penetration of wind, and the East-West interconnector meant that the requirement for Tynagh to operate and produce electricity after 2008 was much less than expected (Figure 2). However, if the plant is not operating, it cannot earn revenue on the electricity market. To get the plant built in the first place the contract under which it was procured in 2005 guaranteed that if it were not used, it would still be compensated for its fixed costs as provided for in the contract.