SSE notes that this consultation has two separate consultation questions in the body of the paper. We have endeavoured to provide sufficient rationale for our position in answering both of these questions. For the avoidance of doubt this is a non-confidential response.

Question 1. Do you agree with our proposal, to extend the DS3 System Services Regulated Arrangements until DASSA Go Live and the future arrangements for the procurement of non-reserve services, as presented in this chapter? Please provide a detailed rationale if you consider alternative arrangements need to be considered.

Response to Option 4

In the absence of any better option provided, we acknowledge that option 4 is the least-worst option. We consider that this scenario should have been foreseen by EirGrid several years ago when industry raised concerns regarding the transition and a cliff edge.

The logistical sequencing could have accounted for this investor risk in scheduling, planning and go-live as part of the overall FASS project. And there is no evidence to really support the unfeasibility of the other 3 options presented. We also note that industry is still unclear for instance about the purpose and scale of layered procurement at this stage, to even understand whether it would have been a suitable option.

Consultation industry workshop

On the 20th of March, EirGrid conducted a stakeholder workshop to better explain the content of the consultation paper and gather views. EirGrid also responded to previous industry queries. We welcome the additional detail provided at the recent workshop relating to this consultation and the endeavour to respond to queries relating to this consultation. However, whilst we value the opportunity to be able to discuss and provide feedback during a workshop, there is a strong tendency for new information to be presented at these workshops that is not already contained in the consultation.

Industry’s primary formal mechanism to comment on proposals is through a consultation and the substance contained in this published document. It can be the case that greater detail only comes to light following the opening of a consultation and this should be highlighted to industry. But it is then not clear that these further developments such as continued DS3 gates, have actually been factored into the consultation itself, and the timeline for the preferred option4. Procedurally this is not best practice.

Whilst we accept that the other options in the paper may well be less feasible, it is unfortunate that the degree of detail in the workshop could not have been provided in the consultation paper at the outset. This would have better shown the considerable thought and analysis EirGrid had done and would better improve stakeholder confidence.

EirGrid could improve their record on market confidence through more transparent detail of their thought process, actual analysis and details of options in a consultation and revealing of more of the actual options considered by EirGrid in publications for industry comment. We have made this comment in recent future power market industry surveys.

Concerns with DS3 option

The original DS3 design provided for two 18-month roll over periods. These two periods as used consecutively would have ended on the 1st May 2026. The proposed option 4 is an extraordinary roll over period beyond May 2026.

The SEMC has been very clear in the past that they did not wish to roll over the DS3 arrangements further. We note that at the industry workshop; it was verbally communicated that the SEMC were not opposed to option 4. As above, this is not ideal or best practice. Without certainty that this option will be approved, there is a lack of certainty for investors, making it difficult to be definitive in our response.

We appreciate that the TSO has mapped the process of a further DS3 extension beyond May 2026 as clearly as the TSO considers possible. However, the expected additional DS3 rollover implementation timeframe does not consider, in our view, many factors that impact implementation:

Whilst we appreciate that holding further DS3 gates has been formally confirmed to EirGrid by SEMC as being approved, it is unclear if logistics for conducting these future DS3 gates has been considered as part of the 3-month implementation window that recommends option 4 as the only option.
The system services ruleset was consulted on recently and industry was clear that we wanted to progress to FASS and not focus overly on the ruleset, so long as the DS3 arrangements were not extended again. As D3 Regulated Arrangements are being rolled over, limitations under the ruleset must be addressed (and consulted on), as it can affect current projects expecting a procurement mechanism for their services.
We appreciate that EirGrid have verbally reiterated that they would consider a tariff review in the usual way, but the paper fails to consider that industry has been clear the impact that reduced tariffs and the continued retention of a €235m allowance is having to system services investment.
The legal feasibility of “side letters” for only some services at a time (i.e. side letters for non-reserve services continuing longer than for reserves if DASSA goes live in time, and ahead of non-reserve FASS), seems to not have been factored in. Single service providers of many services may need a different approach. Furthermore, we are not clear whether the procurement for new services via new contracts in continuing DS3 gates has been mapped into the 3-month implementation window either.
We note in the paper a reference that Electricity Balancing Guidelines do not apply as the DS3 as these arrangements are not procuring balancing capacity, i.e. that EBGL would not prevent this rollover. However, the only interpretation we have at present to support this, is a SEMC consultation (not a decision). In this consultation, DS3 is considered non-EBGL relevant as it is a regulated arrangement. However, if FASS/DASSA are delayed beyond go-live of Celtic, DS3 would not be compliant with EBGL and system service procurement at that stage, would be expected to be market-based (and EBGL came into force in 2017).
The implementation challenge for the proposed long stop date/or other pre-defined milestones is unclear, but we presume it is being proposed to be consulted on and implemented within the 3-month implementation timeframe, which is extremely unlikely.

System Services Allowance

Industry has been vocal on the inappropriateness of retaining the €235m cap which was designed to be in place only until 2020 when it was expected competitive arrangements would be established and was based on a much lower SNSP ambition which has now been consistently exceeded. System services are critical for the ambitions in Shaping our Electricity Future and meeting our emissions targets by supporting intermittent renewables penetration and also by supporting grid stability. The original DS3 process and design decisions and consultations indicate that in 2014, the volume cap of €235m was established. This was meant to support a glidepath of 2016-2020 of DS3 Regulated Arrangements, (with an expectation of a review in 2020). Instead DS3 arrangements have persisted until 2025 and now into late 2026, potentially early 2027.

The criticality of these services is acknowledged in requirements such as EBGL where these services are assumed to be majority standard products and procured in a market-based manner. This focus means that there is an assumed intrinsic value in the market for these services, that these services have the ability to be defined in such a way to make them procure-able in a market framework, and that they are important for a TSO to have for system balancing. None of this is acknowledged when the procurement of these continues to be tied to a fixed allowance, based on an outdated model of future need and outdated expectation of the volume of renewables on the system.

There has been significant value erosion in the allowance for system services. The 235m cap is now equivalent to 194m in 2020 real terms. This impact will continue with the retention of the allowance at this suppressed level. The System Service allowance requires a review to reflect the increased volume and value of these services. Without a realistic review and without it being expanded to allow for the increased volume of system services that is needed as SNSP increases, there is no investment signal for system services to be ready ahead of DASSA. SSE and industry have communicated this position in the past in relation to DS3 and it continues to be relevant.

Another way to approach the need for review of the allowance and tariffs in a proactive manner is to consider the counterfactual and the impact this would have to the system. The counterfactual being an unstable system because system services cannot be procured either through lack of investment or lack of funds for procurement.

The impact also would be:

a risk to the customer of minutes lost and the detriment to economic output
the cost to the SEM of an unstable system
the system challenge of meeting the loss of a single largest in feed, with for example no reserve services to mitigate this (we acknowledge that Grid Code mandates certain unit capability that would be system service provision. Grid Code we expect will require review with reference to EBGL).

In this scenario we can plot below what the daily cost of an unstable system would be based on existing values of VOLL and 25% of VOLL:

Question 2: Do you agree with the TSOs’ proposal, to extend the DS3 System Services Regulated Arrangements until the earlier of (i) a long stop date or (ii) the go-live date of new procurement arrangements for system services (FASS go-live), which would be triggered by certain pre-defined events applicable to each individual service, for both reserve and non-reserve services, as presented in this chapter? Please provide a detailed rationale if you consider alternative arrangements need to be considered.

We appreciate that the suggestion of a long stop date is designed to provide some certainty. We also acknowledge that this question references that the DS3 rollover would cease at the earlier of the long stop date or certain pre-defined events that are tied to both DASSA and FASS mechanisms. In our view, the long stop date will be insufficient if it does not already consider the impact of staggered DS3 procurement between DASSA and FASS, i.e. procurement mechanisms need to be both in place for reserve and non-reserve services before DS3 ceases.

The mechanics for this option have been poorly explained in the paper. The details were somewhat better explained at the industry workshop. It is a sensible suggestion, but we expect EirGrid to clearly define and consult on this suggestion because this is the only part of the paper that makes the DS3 rollover viable. How this additional backstop mechanism will be enforced, signalled to participants and the notice period then for the DS3 rollover to cease in line with these thresholds, all needs to be mapped and communicated. This will unlikely align with the proposed 3-month timeframe for the DS3 rollover to be implemented.

Conclusion

Whilst we appreciate that there are limited options available, we are not clear that the DS3 roll over proposal in option 4 has provided sufficient comfort that the implementation timeframe is sufficient or that the roll over period will be the last roll over for DS3. The suggestion of long stop date or another mechanism to ensure that DS3 remains in place for a sufficient period is sensible but needs much further development as it makes the DS3 roll over option reasonable. The €235m allowance and tariff arrangements we appreciate are a regulatory decision, but option 4 is not viable unless the system services allowance will realistically be reviewed and adjusted as this represents a further period in which system service providers are required to accept reduced tariffs for their services.

Future Arrangements for System Services – DS3 System Services Tariffs to FASS (‘The Gap’) Consultation Paper - Submissions

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