New generators planned to protect against likely power shortages

Homes and businesses will pay about €200 million a year to fund new power plants that are due to begin generating electricity in 2024 and 2025.

Electricity grid operators in the Republic and Northern Ireland last week announced they had contracted new and existing players to build new generators over the next three years to head off likely power shortages.

Figures show that companies, including ESB, Bord Gáis Energy, Castlelost Flex Gen and new player Kilshane Energy, will receive a total of €2.05 billion in "capacity payments" over 10 years for building the new plants on top of the money they will earn from selling electricity to the wholesale market.

Companies that buy power in the wholesale market, and supply it to homes and businesses, fund the payments through a capacity charge tariff. They then pass this cost on to their electricity customers.

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Generators will get capacity payments totalling €216 million in 2024/2025 under the contracts announced last week.

Some of those deals only last for one year, but any business building new generators were awarded 10-year contracts. They will collect €205 million in total annually for the life of those agreements.

Among the other beneficiaries was data centre business Crag Digital, which was awarded a contract for 30 mega watts a year. The company is building a back-up generator at its site in Clondalkin, Dublin, that will supply power to the national grid at times of peak demand.

Capacity payments

Capacity payments are paid to generating businesses for keeping power plants available to provide electricity as and when the system needs it. They are tied to each individual power station’s capacity.

The payments are meant to offset building and running costs. Those planning to build new generators are given 10-year contracts to aid them in raising finance for the projects.

Auctions, including the T-3 process announced last week, are meant to favour companies seeking lower capacity payments, as the cost is ultimately passed on to electricity customers.

The Single Electricity Market Committee set the capacity payments awarded at last week's auction at €146,920 per mega watt a year. This is three times higher than the €38,150 payment set in auctions run since 2019. However, they failed to lure enough new power plants to meet fast-growing electricity demand.

T-3, as it was dubbed, got pledges from companies to build gas-fired power plants with the capacity to provide 1,400 mega watts of electricity. One mega watt is considered enough to power 1,000 average homes.

Developers must build the new power plants by 2024/2025 and will have to meet different planning and connection milestones between now and then to fulfil their contracts. Any business that fails to do this faces fines.