reporting and incentives under pr4 - cru · 2019. 1. 24. · reporting and incentives under pr4...
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Reporting and Incentives under PR4
EirGrid Response to CRU Consultation
26 January 2018
Reporting and Incentives under PR4 EirGrid Response to CRU Consultation • 26/01/18
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Executive Summary
EirGrid believes that the overall concept of an incentive mechanism should seek to
encompass the full spectrum of statutory and license duties and not overly focus any one
aspect of the TSO’s business at the direct expense of the others. Such an approach
provides a portfolio of incentives balanced across all the lenses of the business and
EirGrid believes that the proposals set out be CRU in its consultation on Reporting and
Incentives under PR4 (‘the Consultation Paper’) are well aligned with the concept of
such a mechanism and strongly supports this move.
EirGrid welcomes the move to increase transparency and accessibility in reporting and
will embrace these new requirements. A number of detailed comments have been
provided in this response which EirGrid believes will further benefit this process, and
would welcome engagement from the CRU in that regard.
The incentive framework applied to the TSO needs to support and drive forward the new
rapidly changing operational landscape which encompasses a high level of renewable
energy, a truly integrated market and a European perspective on security of supply,
while maintaining or improving quality and performance for the benefit of all customers. It
is therefore important that targets are set in the context of the challenges the TSO will
face in the future and not by its performance in the past.
EirGrid welcomes the CRU’s proposal that system performance should continue to be
incentivised against the metrics used in PR3 as System Minutes Lost (SML) and System
Frequency, and has provided commentary on the challenges the TSO faces in relation to
maintaining high performance in the face of new challenges in this response.
EirGrid believes that if meaningful incentives are set which are realistic yet challenging,
with an appropriate balance between the potential benefit to consumers and potential
reward to the business, then – as in a competitive market – both the consumer and
business will have the potential to benefit. With this in mind EirGrid welcomes the CRU’s
proposal to focus not just on network delivery but on the entire process of network
planning. This approach will drive an increased benefit to stakeholders, and EirGrid has
set out a number of proposals in this response which it believes will assist CRU in further
developing an approach which appropriately incentivizes the business to bring optimal
benefit to stakeholders.
The strategic incentive arrangements have the potential to drive significant value for
consumers. EirGrid therefore welcomes CRU’s initial proposals and has set out a
detailed response which it believes will help define and further enhance the
arrangements. EirGrid supports the CRU’s statement that it reserves the right to consult
further on this portion of the overall framework and would welcome further engagement
in this area.
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It is essential that the cumulative effect of all incentives placed on a company are taken
into consideration when developing any one facet as it is this overall cumulative effect
that must be balanced against a company’s ability to perform its functions. In this context,
while outside the scope of this consultation, it should be noted in the CRUs
considerations and in the final decision paper that the proposed PR4 incentives are in
addition to the existing incentive placed on EirGrid and its counterparty SONI in regard to
their management of Imperfections. This incentive was placed on the TSOs by the
SEMC.
EirGrid welcomes the CRU’s proposals on Innovation Funding and is supportive of that
set out. It is important that consideration is given to the role the TAO plays in progressing
innovative projects and how these projects are carried out with regard to the
Infrastructure Agreement (IA) and other obligations.
It is in the context of all the above points that EirGrid has sought to respond to the
proposals set forth by the CRU in the Reporting and Incentives under Price Review 4
consultation and welcomes the opportunity to engage with the CRU on the specifics of
this response and the development of the various criteria for the assessment of
performance under a number of the proposals.
Reporting and Incentives under PR4 EirGrid Response to CRU Consultation • 26/01/18
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Contents
Executive Summary ............................................................................................................. 1
Contents ............................................................................................................................... 3
Introduction .......................................................................................................................... 4
Structure of the Response .................................................................................................. 4
Transmission – Reporting ................................................................................................... 5
Proposal 1 – Output Based Reporting ................................................................................ 5
Proposal 2 – CAPEX Monitoring......................................................................................... 6
a. Broadening the range of activities ........................................................................ 7
b. From quarterly to annual ..................................................................................... 7
c. An annual Investment Planning and Delivery Report (IPDR) ............................... 7
Proposal 3 – CAPEX Adjustment Process .......................................................................... 8
Transmission – Incentives .................................................................................................. 9
Proposal 4 – System Performance TSO ............................................................................. 9
System Minutes Lost ............................................................................................... 9
System Frequency ................................................................................................ 10
Overall comments ................................................................................................. 11
Proposal 5 – Investment Planning and Delivery TSO ....................................................... 11
EirGrid’s Proposals to incentivise Investment Planning and Delivery ..................... 12
Proposal 6 – Investment Planning and Delivery TAO ....................................................... 14
Proposal 7 – Outage Management ................................................................................... 14
a. PR3 Arrangements ............................................................................................ 15
b. Use-it-or-lose-it allowance ................................................................................. 15
Proposal 8 – Stakeholder Engagement ............................................................................ 15
Proposal 9 – Delivering against strategic incentives ......................................................... 17
a. Delivery of Enhanced System Coordination ....................................................... 18
b. Delivery of Enhanced System Operation ........................................................... 20
c. Delivery of Enhanced System Capacity ............................................................. 23
2017 Deliverables .................................................................................................. 24
Proposal 10 - Innovation .................................................................................................. 25
Reporting and Incentives under PR4 EirGrid Response to CRU Consultation • 26/01/18
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Introduction
The CRU decision on the Transmission System Operator (TSO) and Transmission Asset
Owner (TAO) revenue for the period 2016 to 2020 (CER/15/296) (‘The Decision Paper’)
indicated that the CRU would consult separately on incentives during the fourth Price
Review (PR4) revenue period.
EirGrid believes that incentives are a core element of a robust regulatory model. If
meaningful incentives are set which are realistic yet challenging, with an appropriate
balance between the potential benefit to consumers and potential reward to the business,
then – as in a competitive market – both the consumer and business will have the
potential to benefit.
EirGrid welcomes the publication of the CRUs consultation paper, CER/17/335, on
Reporting and Incentives under Price Review 4 (‘the Consultation Paper’) and,
recognising that we are 2 years into the PR4 period, further welcomes the clarity that the
incentive arrangements for system performance and project delivery that pertained
under PR3, and against which the TSO has continued to operate, are to be rolled
forward for calendar year 2016 and 2017.
The CRU’s consultation sets out 18 proposals, 10 of which relate to Transmission
activities and 8 related to Distribution activities. EirGrid’s response sets out the
company’s views on the 10 Transmission related proposals. Where these proposals are
to be jointly placed on the TSO and ESB Networks (ESBN), in its capacity as TAO,
EirGrid has engaged with ESBN in the development of the proposed next steps.
Structure of the Response
The response is split into two sections:
1. Transmission – Reporting; and
2. Transmission – Incentives.
In each section EirGrid provides its response to the proposals set out in CER/17/335 in
chronological order, while also setting out its collective view of the transmission reporting
proposals.
Reporting and Incentives under PR4 EirGrid Response to CRU Consultation • 26/01/18
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Transmission – Reporting
EirGrid is supportive of the move to more transparent and accessible reporting and is
keen to work with both ESBN and CRU to ensure that the reporting requirements that
CRU has set out in the Consultation Paper are carried out. EirGrid has provided detailed
comments on the three proposals put forward by CRU in the Consultation Paper which it
believes will assist in further progressing this aim.
EirGrid supports the CRU’s statement that it would be beneficial to increase
transparency in transmission network reporting for all stakeholders and welcomes the
CRU proposal to adopt a more user friendly approach in this regard. EirGrid has worked
extensively with the National Adult Literacy Agency (NALA) in developing an approach to
drafting its various public facing documents using plain English, and was awarded
NALA’s Plain English Award in early 2017 for the document ‘Have your say – how we
develop the electricity grid and how you can influence our plans’.
EirGrid would note however that it believes that the CRU has been unnecessarily critical
of its current reporting standards both within Proposal 1 and again when contrasting with
DSO Reporting standards under Proposal 11. CRU states that the information provided
currently is superficial and uninformative. The current System Performance reports and
other reports (Forecast Statements etc.) are produced to meet EirGrid’s respective
licence obligations or in the case of Capex Reports the requirements as set out in CRU
directions, the scope and form of same having been agreed with the CRU.
Proposal 1 – Output Based Reporting
Proposal 1 relates to the introduction of a consolidated TSO/TAO Annual Performance
Report (APR) along with proposals on the format and content of this report.
Historically while joint reports on discreet deliverables have been produced, the proposal
to introduce an Annual Performance Report encompassing the breath of the
transmission system across the TSO and TAO is a significant step change.
EirGrid has engaged with ESBN on the proposals and the companies are jointly
committed to working together to deliver the APR.
It was unclear from the proposals as set out if this APR is intended to be in addition to or
in place of the existing performance reporting carried out by the businesses. EirGrid
welcome the clarity provided by the CRU that the APR is not intended to replace any of
the TSO’s licenced reporting obligations, but is instead intended to take a high level view
of information already produced in various technical documents and convey it in a
manner which is easily digestible for all stakeholders.
EirGrid would welcome confirmation of this understanding in the final decision
paper.
Reporting and Incentives under PR4 EirGrid Response to CRU Consultation • 26/01/18
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Annex 2 of the Consultation Paper set out draft principles for the Annual Performance
Report. A draft scope, outlining potential topics within the report was also included.
To move from these high level proposals and also conscious that there may be further
feedback arising from the consultation process itself, it will be necessary to engage with
both ESBN and the CRU following publication of the CRU’s decision paper to set out a
workable structure and level of content for the APR. As such it would not be feasible for
the TSO and TAO to provide the first such report in the timeframes indicated in the
Consultation Paper (mid 2018).
Further to discussion with the CRU it was agreed that EirGrid and ESBN would set out a
timetable for the development and delivery of the first APR report. Subject to further
engagement with the CRU, EirGrid and ESBN have agreed on the timetable set out in
Table 1.
Date Action
Q1 2018 CRU Decision
Q2 2018 TSO / TAO develop & submit proposal to CRU
Q3 2018 CRU considers proposal & provides guidance
Q4 2018 TSO / TAO prepare & submit 2018 APR Table 1: Agreed EirGrid / ESBN timetable for new reports
It is anticipate that throughout this timeframe and in particular in Q3 there will be ongoing
and iterative engagement with the CRU on the structure and intended content of the
document.
EirGrid and ESBN would welcome further engagement with CRU in the coming
weeks to confirm agreement on the timetable.
In regard to subsequent APR reports (2019 onwards) the TSO and TAO propose to
publish these on an enduring annual basis in Q3 of each year. This would ensure that
robust input information on network development and system performance (for the TSO
this is typically available via the respective reporting process end June annually) is
available to the TSO and TAO for inclusion in the report.
EirGrid and ESBN would welcome confirmation of the envisaged publication
timeframe for the APRs in both 2018 and on an enduring basis in the Final
Decision.
Proposal 2 – CAPEX Monitoring
EirGrid and ESBN currently report on Network Capex Developments in accordance with
the CRU Direction, CER/11/116. Under this process EirGrid and EBN jointly report on a
Quarterly and Annual basis. Proposal 2 of the Consultation Paper sets forward an outline
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for a new CAPEX Monitoring framework. This proposal is broken down into three points
(a, b and c) which EirGrid has addressed individually below.
a. Broadening the range of activities
EirGrid supports the CRU’s proposal to increase the scope of reporting to include all
elements of the investment planning and delivery process. EirGrid believes it is important
to capture how network investment needs are identified, how options to meet this need
are identified and how the best option is chosen.
b. From quarterly to annual
EirGrid supports the removal of the quarterly CAPEX reporting requirement. However for
clarity EirGrid and ESBN in accordance with CER/11/116 currently also reports on
Capex on an annual basis; though it is noted that this report is confidential to the parties
and not for publication due to its content.
This annual CAPEX Outturn Report tracks actual incurred capital expenditure at an
individual projects level against that originally forecast. It is also central in providing
transparency to the CRU on the evolution of the Network Capital programme over the
PR period. The annual report sets out changes in actual and forecast project spend,
completion dates and, where significant, the drivers for same. It includes details of
changes to the programme; projects added, removed or deferred. The report also
includes a view on the total forecast outturn spend of the full programme in the PR4
period against the provisions under PR4. These reports will be core pieces of supportive
data when reviewing the overall CAPEX spend at the end of PR4.
Further to engagement with CRU, EirGrid understands that the only current reporting
obligation that is proposed to be removed is the quarterly CAPEX Monitoring Reports.
EirGrid and ESBN will still be required to provide the annual ‘confidential’ Capex Outturn
Report to the CRU and the new annual report referred to in Proposal 2 is separate and in
addition to this Capex Outturn Report.
EirGrid would request that CRU confirm this understanding in its final decision
paper.
c. An annual Investment Planning and Delivery Report (IPDR)
The CRU is proposing that the TSO and TAO jointly produce a consolidated summary
report on investment planning and delivery for external stakeholders. As with Proposal 1
above, EirGrid welcomes the move to increase transparency and is committed to
working with ESBN in the delivery of such a report.
Reporting and Incentives under PR4 EirGrid Response to CRU Consultation • 26/01/18
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EirGrid currently produces, in accordance with its Statutory and Licence requirements, a
number of reports which set out its work in planning the network. These include the
Transmission Development Plan (TDP)1, the Ten Year Transmission Forecast Statement
(TYTFS), Ireland’s Grid Development Strategy and the imminent Tomorrow’s Energy
Scenarios Transmission System Needs Assessment (TESNA). Extensive work is put into
these reports in order to ensure that they meet the highest standards of plain English,
and are as accessible as possible for all of EirGrid’s stakeholders. Due to the nature of
the TSO’s obligations these reports can often be extensive and are by necessity
technical in nature in places.
EirGrid is thus in support of a report which would allow it to communicate the benefit it
brings to electricity consumers in a concise manner. EirGrid would expect that the IPDR
would be produced against the plans set out in these reports and in the context of the
targets by which the TSO’s performance will be measured as proposed in its response to
Proposal 5 below.
EirGrid would anticipate that the IPDR would be submitted in conjunction with the APR.
Proposal 3 – CAPEX Adjustment Process
EirGrid welcomes Proposal 3 as set out in the Consultation Paper and has no significant
comments in relation to same.
However, EirGrid is concerned with one particular statement in the Consultation Paper
which states that there is a risk that current consumers are making payments “on
account” for assets which are not going to be built. This statement is inaccurate and
misleading. Only efficiently incurred actual spend on projects is recoverable by EirGrid or
ESBN and, as noted above, full details of such spend is provided to the CRU on an
annual basis through the annual CAPEX Outturn Report.
EirGrid would request that this statement is retracted and corrected in the Final
Decision. Left unchanged it has the potential to lead to significant confusion as it
is contrary to the correct stated arrangements as confirmed by both EirGrid and
CRU in respect to the development of projects.
1 This publication also includes and Environmental Appraisal Report and a Public Consultation Report.
Reporting and Incentives under PR4 EirGrid Response to CRU Consultation • 26/01/18
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Transmission – Incentives
This section sets out EirGrid’s views on the seven proposals put forward by CRU in its
consultation which relate to transmission incentives for the TSO and the TAO.
EirGrid’s direct costs represent less than 2% of the value chain, while it has direct
influence on 10-15% and varying degrees of influence on 50% plus. It is EirGrid’s
influence on the value chain that needs to be unlocked and thus the focus of incentives
must be on outputs and outcomes. It is in this context that EirGrid has sought to support
and expand on the CRU’s proposals.
Proposal 4 – System Performance TSO
EirGrid welcomes the CRU’s proposal that system performance should continue to be
incentivised against the metrics used in PR3; System Minutes Lost (SML) and System
Frequency. These measures are a recognised, robust way of measuring the reliability
and quality of supply delivered by an electricity transmission system. EirGrid also
supports the CRU’s proposal to maintain the same pot allocation as was used in PR3.
However, while EirGrid does believe that the principle of continued improvement is a
good one, as stated in the Executive Summary it is firmly of the view that efficient targets
should be set in the context of challenges the business will face in the future and not by
how it has performed in the past, as this does not accurately reflect the changing nature
of the transmission system and the resulting additional challenges in maintaining system
performance. EirGrid has addressed points specific to both SML and System Frequency,
and the respective challenges the business will face over the remainder of PR4 for each,
individually below.
System Minutes Lost
Continuity of electricity supply is of critical importance to both domestic and industrial
customers. In a highly competitive global marketplace, continuity of supply is crucial to
attracting inward investment and ensuring economic growth, especially in the hi-tech
sector. A changing conventional generation portfolio and increased penetration of
variable renewable generation on the island of Ireland make it more difficult for EirGrid to
maintain current high levels of security of supply.
EirGrid has maintained downward pressure on SML through diligent frequency
management, developments in the area of generator performance incentivisation and
monitoring and through the transmission system protection upgrade programme.
Looking forward improvements in generator performance delivered through the various
DS3 programme work streams will have a large part to play in ensuring that standards
are maintained. EirGrid will have to manage an unprecedented level of change, risk and
uncertainty on the power system as additional wind generation and new technologies
connect to the system, new scheduling and dispatch arrangements come in to effect
under I-SEM, and as recommendations of the DS3 programme are implemented.
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Given the importance of continuity of supply and the need for increased vigilance during
this period of change EirGrid believes that continued appropriate focus to maintain
performance in this key area should be placed on the TSO. However that performance
should be set against realistic targets.
For EirGrid to receive the full incentive amount for under the current proposals SML it
would be necessary to run a perfect system, as the upper bound is 0 SML. Running a
perfect system is not a realistic expectation and it is not in the spirit of good regulation to
set impossible targets for a company. Indeed, in seeking to achieve such unrealistically
high targets, EirGrid would have to concentrate a disproportionate number of resources
to carry out this work. This may have an adverse effect on other areas of TSO
performance.
Noting the challenging and rapidly changing environment, EirGrid believes that the
targets under PR3 should be maintained. Additionally, an ex post framework should be
in place to account for major storms or force majeure incidents that result in SML that is
outside the control of the TSO. Performance should not be penalised in these scenarios.
EirGrid would welcome engagement with CRU in this regard.
System Frequency
In terms of System Frequency, EirGrid’s performance in recent years belies the
significant challenges that EirGrid has faced in terms of the increase in the penetration of
variable renewable generation and the resultant decrease in overall system inertia.
When compared with neighbouring synchronous systems like that of Great Britain, the
synchronous system of Ireland and Northern Ireland is leading the way in resolving the
complex technical challenges that integration of high levels of renewable generation
present. Operational policies and procedures are reviewed on a continuous basis and
EirGrid cooperates closely with SONI to ensure that the synchronous system on the
island is operated securely in both jurisdictions.
A power system with a high penetration of variable non-synchronous wind generation
poses significant challenges for frequency control over a number of time frames. EirGrid
recognises this and seeks to meet many of these challenges through the DS3 Frequency
Control and Rate-of-Change-of-Frequency (RoCoF) work streams. These work streams
involve ‘breaking new ground’ from a variety of perspectives and developments in these
areas may not keep pace with the rate at which renewable generation connects to the
system. Furthermore, under I-SEM, unit nominations and scheduled exchanges with
Great Britain will be allowed to vary up to one hour before real time. The new market
arrangements will also mean that balancing actions organised ahead of time may be
unwound in the market. A one hour window for organising and executing balancing
actions will leave the TSOs less capable of dealing with large deviations from the
forecast schedule. These challenges will continue to increase in the coming years.
Under the current proposal the incentive is such that EirGrid would have to operate a
perfect system in order to achieve the upper bound of the incentive payments, setting it
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against 100% System Frequency. Setting such unrealistic targets may be
counterproductive in terms of strategic incentives and innovation.
As with SML, noting the challenging and rapidly changing environment, EirGrid believes
that the targets under PR3 should be maintained.
Overall comments
EirGrid supports the principle of continued improvement of performance. However, in
this specific case, based on the constantly developing nature of the transmission system,
it is already a significant challenge for the company to maintain its current level of
performance. On balance, electricity consumers in Ireland receive a great benefit from
this high performance and with that in mind EirGrid firmly believes that it should continue
to be incentivised against the system performance targets set in PR3.
EirGrid respectfully requests that the CRU reconsider the proposed targets for
these incentives and are happy to engage with CRU as needed in this regard.
The Consultation Paper also states that it was considering the application of an
improvement factor. As noted above, EirGrid would respectfully point out that the targets
as proposed would require perfect system performance for a maximum incentive reward.
It is therefore challenging to envisage how an improvement factor could be applied, as
perfection cannot be improved upon.
EirGrid welcomes CRU’s confirmation that the targets as applied in PR3 will be rolled
forward for 2016 and 2017 and any incentive reward calculated on this basis.
Proposal 5 – Investment Planning and Delivery TSO
EirGrid welcomes the engagement with CRU in relation to Proposal 5 in advance of this
response and supports the view that incentivising the efficiency and rigour of the TSO
processes for identifying the need for additional network capacity, identifying and
evaluating different technical and commercial options for meeting such needs, and
supporting the delivery of investment projects to increase or maintain network transfer
capabilities, as set out in the Consultation Paper, is what drives benefit to stakeholders.
EirGrid also supports the maintenance of the reward pot of 2.4% of TSO Internal OPEX.
However, EirGrid does not believe the ‘balanced scorecard’ audited approach as
proposed in the Consultation Paper is workable, and is too subjective and vague as
written. EirGrid believes that effective incentives should follow the SMART standards - to
be specific, measurable, achievable, relevant and time based. EirGrid has set out a set
of proposals below which it believes will assist the CRU in defining a more workable set
of arrangement and would welcome further engagement with the CRU in agreeing a
framework which benefits consumers.
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EirGrid’s Proposals to incentivise Investment Planning and Delivery
EirGrid’s Have Your Say document sets out EirGrid’s six step Framework for Grid
Development (‘the Framework’). These are:
1. How do we identify the future needs of the electricity grid?
2. What technologies can meet these needs?
3. What’s the best option and what area may be affected?
4. Where exactly should we build?
5. The planning process.
6. Construction, energisation and benefit sharing.
EirGrid would propose an incentive mechanism which rewards the efficiency and rigour
of this process on a project and programme basis. Under the previous arrangements the
Network Delivery Incentive mechanism was focused on time based assessment and
performance. EirGrid does not believe that this is a robust approach, particularly for
Steps 1-3 of the Framework. Timeliness is not the key deliverable for these activities,
rather that investment decisions should be robustly considered and in line with statutory
and licence requirements, to develop a safe, secure, reliable, efficient, and economic
network that is compliant with the Transmission System Security and Planning
Standards (TSSPS) as approved by the CRU.
Mechanism for Steps 1-3 EirGrid is constantly responding to new changes and drivers on the system. It is a very
dynamic environment where new drivers (which can change system needs) can
materialise at very short notice e.g. significant new customer connections, both
renewable generation and data centres. Responding and managing resources in this
environment requires a very flexible approach, and the need to adapt proposals to
ensure an optimum solution is high.
At the early stages of option identification there can be a significant range of options
available to meet the need. It is therefore challenging to define scope or time it would
take to identify the optimal option which could easily be applied across all projects
ranging from upgrades to new EHV infrastructure.
Engagement with stakeholders is essential to the successful completion of Steps 1-3,
both the response to and number of stakeholders which will be involved in the
consultation will be highly variable. Success will be dependent on meeting the needs of
these stakeholders. An incentive based on managing the process within a time
constraint would send out a negative message on the commitment of the TSO to engage
fully and would not be consistent with new legislative requirements for consultation. Any
final decision related to Proposal 8, the Stakeholder Management Incentive, should also
be reflective of the interplay between engaging with stakeholders and planning the
network.
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Taking these points under consideration, EirGrid believes its performance under Steps
1-3 should be by reference to whether it has carried out its work efficiently against the
following criteria:
Identified all the needs in accordance with the TSSPS
Prioritised the needs appropriately
Allocated resources appropriately
Proposed an appropriate list of solution options
Chosen a preferred option which is the optimum solution using a multi criteria
decision making approach.
Steps 4-6 In relation to Steps 4-6 the work required on projects during these steps is well defined,
and EirGrid has large degree of control or influence over this work. Therefore, it is more
suited to a more traditional project management approach, where the measurement is
focused on delivery relative to project plan; budget adherence; and governance
compliance.
For the delivery element, Step 6, EirGrid would favour that these incentive targets are
common/shared in so far as possible with that placed on the TAO. Delivery of each
project from issuance of the “Committed Project Parameters” by the TSO to final
energisation and close-out of the project requires a very close working and collaborative
approach from the TSO and TAO to ensure efficient and timely delivery of the project.
The TSO and TAO should be judged equally on the development of a robust project
scope and project implementation plan which culminates in the TSO and TAO signing a
Project Agreement. Subsequent to signing a Project Agreement, it would be appropriate
that the TSO and TAO are both incentivised for delivery of the project against the
timelines set out at Project Agreement. In this phase of the project, significant
collaboration is required between the TSO and TAO in terms of way-leaving, land access
and scheduling the transmission system outages required to deliver the project given the
Split Responsibility Model. In so far as possible a common/shared incentive would
ensure that the TSO and TAO deliverables through the project lifecycle are considered in
totality to drive the optimum benefit for customers and consumers.
EirGrid supports the CRU’s objective, which seeks to incentivise the delivery of the
overall project rather than individual project milestones in isolation. It is measuring
performance against the ultimate delivery of projects which is fundamental to bringing
the most benefit to consumers in this regard.
Overall Comments EirGrid supports the rationale for why the TSO should be incentivised for its performance
across the range of work carried out in the planning and delivery of investment projects.
It is essential however that the incentive does not affect or is not incorrectly interpreted
as a mechanism to affect EirGrid’s discretion to prudently plan and deliver the network.
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EirGrid thus believes that with some amendments to the incentive mechanism based on
the comments and proposals set out above the new arrangements will deliver for
consumers.
The Framework for developing the grid and the governance arrangements in place in
EirGrid ensure that these tasks are carried out efficiently. EirGrid believes that the
comprehensive documentation underpinning the Framework can be used to support the
reporting and incentive arrangements.
EirGrid would welcome further engagement on these proposals with CRU prior to
publication of a final decision.
In terms of the [reward] of performance, it would not be feasible to seek to apply any new
arrangements retrospectively. EirGrid believes that, consistent with the arrangement
under Proposal 4, performance for calendar years 2016 and 2017 should be against the
PR3 framework, as noted EirGrid and ESBN have continued to operate under these
arrangements in the absence of PR4 specific incentives. Further, to meet the revenue
and tariffing timelines, which require a submission to the CRU in April, it is not realistic
for EirGrid to make a submission based on a decision that is expected to be made public
in March.
EirGrid would request that the CRU confirm this to be the procedure for the 2016
and 2017 incentive pots.
Proposal 6 – Investment Planning and Delivery TAO
In relation to the incentive for the TAO to deliver network projects, EirGrid has no
comment other than to refer CRU to the points made under the Steps 4-6 subsection of
Proposal 5 in relation to ensuring the delivery portion of EirGrid’s targets are aligned with
those of the TAO in order to ensure that the TSO and TAO are working together to
deliver projects in as efficient a manner as is possible.
EirGrid would note on point of clarification; in Section 4.3 of the Consultation Paper it
states: ‘the extent to which the TSO carries out the works it is scheduled to carry out in
the construction and energisation of new transmission infrastructure’. EirGrid assumes
this is a typo and should read TAO and that this will be clarified in CRU’s decision paper.
Proposal 7 – Outage Management
EirGrid welcomes CRU’s recognition that there can be a tension between the least cost
outage plan for the TAO and the least cost outage plan for the transmission system as a
whole. As noted in the Consultation Paper, the TSO does have a responsibility to make
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the right decisions to vary the outage plan. As such, EirGrid believes that it is important
that both the TSO and the TAO are incentivised for taking actions which reduce costs on
the transmission system as a whole, and thus electricity consumers. It is also essential
that the TAO can recover any reasonable costs incurred in carrying out this work. EirGrid
believes that to deliver maximum benefit there should be two separate components to
this incentive which are addressed separately below:
a. PR3 Arrangements
EirGrid has engaged with ESBN and CRU and is in alignment with ESBN in the view that
the mechanism to reward the TAO for meeting the 3-weekly outage plans published on
the TSO website should remain as it was in PR3.
b. Use-it-or-lose-it allowance
The second aspect of Proposal 7 is related to a proposed “use it or lose it” allowance to
fund, by agreement with the TSO, actions to reduce the duration or timing of planned
outages at short notice. EirGrid believes that this allowance should reflect the work done
by both the TAO for carrying out its actions and also the TSO for making efficient
choices on when to request a variation, and should not only be used to incentivise short
notice variations to the outage plan.
Earlier and better planning for capital project and maintenance outages allows the
development of a least cost outage plan for the system as a whole. It facilitates
enhanced grid delivery, more customer connections in a given year and better alignment
of maintenance works, with subsequent benefits for customers. The development of the
annual outage plan is a key deliverable for each outage season. This plan is developed
by the TSO with significant input from the TAO. The optimal plan is developed taking the
entire programme of works into account and where possible this plan is implemented
throughout the season to deliver the required programme of works with the minimum
impact on customers and the end consumer.
The TSO is therefore of the view that an incentive should also apply to reductions in
duration or changes to planned outages over the timescale of the full outage
programme.
To put an incentive on only short notice changes may result in short notice changes to
customers which could be avoided if it is possible to agree these changes further in
advance or outages not being scheduled if changes cannot be agreed far enough in
advance to allow resources/materials in place to proceed.
Proposal 8 – Stakeholder Engagement
EirGrid recognises the importance of continued, open and transparent engagement with
our Stakeholders. We are continually working to improve our processes and approach to
engagement across our various stakeholder groups. In recent years EirGrid has
introduced Community Liaison Officers (CLOs) and Agricultural Liaison Officers (ALOs)
EirGrid would welcome further engagement on these proposals with CRU.
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who do considerable work in engaging with concerned parties and land owners in
ensuring that there is complete transparency with regard to the projects being
undertaken, for example.
EirGrid welcomes CRU’s recognition of the importance of stakeholder engagement and
the benefits that it can bring and supports the introduction of an incentive in this area.
EirGrid however has a number of concerns with the proposals as set out.
We note the CRUs desire to be able to compare method, engagements and
outcomes between the network businesses. However, is should be noted that the
network companies do not all share the same stakeholder base and even where
there is commonality the relationship and thus interactions are very different and
necessarily so. EirGrid engages with a wide variety of stakeholders, including:
individuals within communities where projects are being undertaken, land
owners, generators and parties interested in connecting to the transmission
system, large demand customers, media and politicians and of course the TAO
and DSO themselves.
As such we would welcome the opportunity to engage with the CRU to ensure that there
is clarity as to the stakeholder base CRU is envisaging under these arrangements and to
understand how, noting the above, inter-company comparisons could/would be
undertaken.
EirGrid welcomes the proposal that a stakeholder panel would be established to
assist with the evaluation of any submissions and believe this a more robust
approach they one where assessment is led solely by the CRU. However, such a
panel should be carrying out any assessments against a set of pre-defined
objectives, as is the case with Ofgem’s measurement of the DNO’s performance
in Great Britain.
During EirGrid’s development of its TSO stakeholder engagement plan it would welcome
engagement with the CRU to ensure there is clarity and consistency as to its intended
scope and the metrics and targets by which EirGrid’s performance will ultimately be
measured. As stated under Proposal 5, any stakeholder engagement incentives should
recognise the interplay with planning the network.
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Proposal 9 – Delivering against strategic incentives
There is significant value in putting in place strategic incentives and EirGrid welcomes
their inclusion in the Consultation Paper. EirGrid believes that the proposed approach
requires further consideration as it is too subjective and vague on how the performance
of the TSO will be measured. The method of reviewing whether EirGrid has
outperformed reasonable expectations does not provide a clear SMART set of criteria to
assess performance and does not align with best regulatory practice. The CRU has
reserved the right to consult further following the evidence submitted by the TSO, and
EirGrid would strongly support the CRU undertaking such a consultation and are willing
to engage on an ongoing basis with CRU until a set of workable arrangements for this
incentive are reached.
With regard to the specific categories which CRU has proposed, a number of these fall
outside of EirGrid’s control and would therefore not be workable. The allocation of non-
firm access rights to new generation and the upgrading of access rights from non-firm to
firm are both the subject of strict regulatory rules and thus it is unclear how EirGrid could
outperform reasonable expectations. EirGrid is not averse to targeted incentives on offer
delivery, for example, as was in place for Gate 3, but such incentives could only be
considered once the Enduring Connection Policy as set by CRU is known. EirGrid
understands that as part of the ongoing Enduring Connection Policy process a workshop
was held in CRU offices on 24 January where the possibility of incentivising EirGrid
against its implementation of CRU’s directions was discussed. Engagement in this
regard is ongoing.
In terms of the participation on the demand-side in the provision of services, EirGrid is
obligated not to unduly discriminate between service providers/connected parties, as
such EirGrid believes it would be more appropriate for it to be incentivised to ensure
services are economically and efficiently delivered to the benefit of consumers rather
than focused on any one particular type of provider.
With regard to setting a portion of the strategic incentive against EirGrid’s performance in
the implementation and efficient operation of I-SEM, EirGrid understands this to be
referring to the period post go-live.
In terms of the efficient operation of I-SEM, this is heavily regulated by both European
and SEM Committee decisions. It is thus unclear what an outperformance of reasonable
expectations could be intended to cover and therefore more specificity would be
welcome in this regard. EirGrid would note that a significant element of the TSO’s
operations in I-SEM will be in managing Imperfections under the new arrangements. As
this activity is already incentivised on an all-island basis by the SEM Committee, it is
important that any arrangement reflects the overall cumulative suite of incentives the
business must perform against.
EirGrid welcomes the proposal to incentivise the dynamic adjustment of permitted
transfer capabilities in circumstances that would otherwise cause constraints, and the
ability to accommodate an increasing proportion of non-synchronous generation within
Reporting and Incentives under PR4 EirGrid Response to CRU Consultation • 26/01/18
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the total generation mix. EirGrid previously made a detailed submission to the CRU in
January 2017 which set out strategic incentive proposals which were closely related to
incentivising these two items. EirGrid raised this at recent engagements with CRU, and
was advised that if it was of the view that this remained relevant it should outline the
proposals in this response for consideration against that set out by CRU. EirGrid has
reviewed and updated its proposals below for CRU consideration:
a. Delivery of Enhanced System Coordination
With the decentralisation of electrical power production in Ireland to a distributed
generation system, both TSO and the Distribution System Operator (DSO) must be
incentivised to develop enhanced TSO-DSO system operation. This will require
exchange of information and co-ordination of practice. The TSO will seek to develop
enhanced system operation techniques and applications in partnership with other market
players, in particular ESBN, in its capacity as DSO, to optimise transmission system and
distribution network operation. The TSO’s and DSO’s ability to perform in this regard will
be dependent on engagement and performance of third parties. As such regulated
external parties should have complementary incentives and any deficiencies in third
party performance must be allowed for in the respective assessment of outcomes.
For this category, EirGrid proposes that incentives could be placed against deliverables
falling under the broad headings of ‘Rate of Change of Frequency’, ‘Distributed Voltage
Control’, ‘Coordinated Frequency and Voltage Control’ and ‘New Technologies’.
(i) Rate of Change of Frequency (RoCoF) One of EirGrid’s key tasks as TSO is to maintain balance between electricity supply and
electricity demand. Electrical frequency is the measure of balance between supply and
demand. When supply and demand are balanced, the electrical frequency is at 50 Hz.
We must maintain this balance on the system all day, every day.
Imbalances between supply and demand occur from time to time on the power system.
For example, if a large electrical generator suddenly disconnects and its electrical power
is lost. In this scenario, the supply from the system is temporarily below the demand and
the system frequency begins to fall. The TSO is responsible for restoring the balance in
the seconds and minutes after the event occurs. Restoring the balance returns the
electrical frequency to 50 Hz (within required limits).
Of particular interest during a system imbalance event is the rate at which the frequency
falls. This is known as the Rate of Change of Frequency (RoCoF). Events that result in
high RoCoF levels can potentially lead to instability in the power system. All power
systems, including the Irish power system, have inertia. Inertia is a resistance to change
in motion. The inertia on the power system resists the RoCoF and helps maintain system
stability.
To resolve this issue we have engaged in an industry-wide project which involves
ensuring that electrical generators can withstand high RoCoF events and ensuring that
the Distribution System Operator (DSO) can operate its network securely during high
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RoCoF events. We have engaged in a joint project with ESB Networks to resolve the
RoCoF issues in Ireland.
The coordinated project requires collaboration between the TSO and DSO to deliver on
the objectives of operating the power system with higher levels of renewable generation.
It should be noted that as the RoCoF project continues the dependency on completion of
work by external parties’ increases. An incentive could be established to promote
collaboration and ultimately deliver the network changes that are required to deliver on
the RoCoF project by 2019.
2018 - 2020 Deliverables
1. Conventional Generation studies and testing
2. Operational changes
(ii) Distributed Voltage Control EirGrid and ESBN have responsibilities to manage and maintain voltage levels on their
respective networks. Voltage control is an essential activity for both parties and
coordination of control is required to ensure that electrical power is delivered to the end
customer in a secure and efficient manner.
The installation of increased levels of distributed and embedded renewable generation,
such as wind and solar, will make voltage control on both the transmission and
distribution system more complex. Distributed voltage control schemes and policies will
facilitate coordination between the TSO and DSO in controlling voltage at the interface
between the transmission and distribution networks. This may include nodal voltage
controllers and smart power factor control of embedded units.
Successful development and implementation of such schemes will require close
collaboration between the TSO and DSO.
2018 - 2020 Deliverables
1. Nodal Controller trial underway
2. Operational Protocol document for Nodal Controller developed by TSO and DSO
3. TSO readiness for Nodal Controller deployment for system services
(iii) Coordinated Frequency and Voltage Control As generation becomes more distributed and demand participation becomes more
prevalent, there will be a requirement for the TSOs to obtain frequency control
capabilities from distribution-connected sources. The TSO will require access to the
capabilities of embedded generators which will require DSO collaboration.
This will involve, for example, making changes to existing protection and control settings
on distributed generation and agreeing TSO-DSO protocols for gaining access to
embedded generation and demand response.
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In addition, in order for DS3 System Services to be procured and effectively deployed
from distribution-connected providers, it will be necessary for the TSO and DSO to agree
operational protocols and potentially develop IT systems.
EirGrid believes that, while both the TSO and DSO should be incentivised to ensure that
the necessary settings changes and new agreements / systems are delivered in a timely
and coordinated manner. In this paper EirGrid is only making proposal related to the
TSO objectives.
2018- 2020 Deliverables
1. Contracting approach agreed between TSO and DSO for system services
arrangements
2. Operational policies / protocols and control settings established for agreed
distribution-connected generation and demand response sites
(iv) New Technologies The increasing penetration of embedded solar and distributed storage (e.g. electric
vehicles, residential storage) will provide significant benefits along with new challenges
to ensuring a safe, secure, reliable and efficient supply to consumers. It will be
necessary for the TSO and DSO to work together to establish the smart grid measures,
agree operational protocols, and potentially develop IT systems that will facilitate
successful integration of embedded solar / storage.
2018 - 2020 Deliverables
1. Complete Phase 2 & 3 of the Qualification Trial Process
2. Publication of technical standards and operating protocols for new technologies
b. Delivery of Enhanced System Operation
It is necessary for the TSO to work towards solving the challenges presented by the
energy policy objectives while continuing to maintain the operation of a safe, secure,
efficient and reliable power system. To facilitate this, the TSO will need to develop and
deploy a number of new and enhanced operational processes and applications over the
next period. This will also present the TSO with an opportunity to investigate and deliver
additional key system operational benefits, learnings and efficiencies. The TSO
proposes that incentives for this category could be placed against work packages and
deliverables falling under three broad headings – SNSP, decision making tools and
system services.
The objective of the ‘Delivering a Secure Sustainable Electricity System (DS3)’
Programme is to meet the challenges of operating the electricity system in a safe, secure
and efficient manner while facilitating higher levels of renewable energy. DS3
incorporates mutually reinforcing innovative technical, engineering, economic and
regulatory initiatives. It is divided into three pillars - System Performance, System
Policies and System Tools
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DS3 is not only making the necessary operational changes to manage more renewable
generation, it is also about the evolution of the wider electricity industry and
implementing changes that benefit the end consumer. From the onset, the integration of
wind generation presented a range of challenges previously unseen in the power sector.
Through collaboration with the regulatory authorities and the wider electricity industry,
DS3 has developed a number of innovative and progressive solutions to date.
(i) System Non-synchronous Penetration The TSO has a responsibility to enable increased levels of renewable energy generation
on the power system while making sure that the system is operated safely and securely.
In 2010 our analysis identified 50% as the current maximum allowable level of renewable
generation on the power system, referred to as the System Non Synchronous
Penetration (SNSP) limit. To meet governments’ renewable energy policy objectives,
the Irish system would have to operate at up to 75% SNSP. It should be noted that any
increase from 65% SNSP will rely on the success of the RoCoF project and as
previously stated the RoCoF deliverable is dependent on completion of work by external
parties.
In October 2015, the TSO carried out a system trial where the maximum SNSP level was
increased to 55% successfully, allowing a move SNSP to 55% on a permanent basis
from 1 March 2016. EirGrid TSO will work with SONI TSO to increase the all-island
SNSP limit in the coming years from 55% to 75% by 2020 in increments and proposes
interim annual targets for an increase in SNSP limit of 5%.
2018 - 2020 Deliverables
1. Movement of operational SNSP constraint to 65%
2. Movement of operational SNSP constraint to 70%
3. Movement of operational SNSP constraint to 75%
(ii) System Services One of the key work streams in the DS3 Programme is the System Services work
stream. The aim of the System Services work stream is to put in place the correct
structure, level and type of services in order to ensure that the system can operate
securely with higher levels of non-synchronous renewable generation (up to 75%
instantaneous penetration). Operating in this manner will reduce the level of curtailment
for wind (and solar) farms and should deliver significant savings to consumers through
lower wholesale energy prices.
The SEM Committee decided that the implementation of the DS3 System Services
arrangements would be divided into two phases. The enduring arrangements will deliver
competitive procurement, where appropriate, for 14 services. A cost-reflective tariff will
be applied to services where there is insufficient competition. During the interim period,
the TSOs will contract for services with all eligible providers, who will be paid at a rate,
approved by the RAs, for the volume of services they are able to deliver in each trading
period.
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Ensuring appropriate incentives are in place for investment in needed system
performance capability will be a critical success factor in facilitating a power system that
meets Ireland’s multi-policy objectives. An incentive could be introduced to promote
timely delivery of the arrangements and ensure that the benefits of System Services can
be realised as quickly as possible.
2018 - 2020 Deliverables
1. Three remaining services (FFR, FPFAPR, DRR) procured in 2018
2. Ongoing procurement with policy in place for existing providers to increase
capability
3. Fully-automated performance monitoring system in place
4. Review of success of the arrangements (no. of new providers, take-up of
services etc.) completed and modifications proposed to CRU if required.
(iii) Decision Making Tools The evolving power system requires new principles and practices of operation, with the
resultant requirement for development and implementation of new control centre tools
and capabilities. In keeping with the natural flow of DS3 from system performance to
system policies to system tools, many of the new tools requirements will be driven by the
outputs of other DS3 workstreams, especially those in the policy area. The evolving I-
SEM design will also drive the requirement for new tools.
The projected increase in electricity production from renewable sources, in particular
wind and solar energy, will have significant implications for the control of system
voltages in steady-state and transient scenarios. Similarly, the future generation portfolio
will create considerable challenges for system frequency control.
Control centre tools generally fall under one of the following categories – forecasting,
scheduling, control or monitoring. However, given the increased complexity involved in
operating the power system, there will be increased focus required on tools to assist with
situational awareness and decision-making in the control centres.
2018 - 2020 Deliverables
1. Tools live in the Control Centre by 2020:
a. Look-Ahead WSAT: enables Grid Controllers to analyse the stability of
the power system in the near future, facilitating optimal system operation
with higher levels of wind integration
b. Voltage Trajectory Tool: enables Grid Controllers to assess the impact of
varying sources of reactive power across the power system to ensure
that local voltage management issues are managed.
c. Ramping Tool: enables Grid Controllers to accurately schedule and
dispatch the Ramping Margin services, and manage changing demand
and generation profiles, with increased wind integration.
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c. Delivery of Enhanced System Capacity
Due to the significant changes being presented to the transmission system, many of the
historical approaches to system development and operation may no longer be relevant,
suitable or sufficiently robust. Where the old approaches are not applicable, new
technologies and techniques must be actively sought out and/or developed by the TSO
other stakeholders. EirGrid must be incentivised to deploy new transmission
technologies and techniques on the system with a view to delivering a range of potential
benefits and efficiencies including better utilisation and enhancement of the existing
infrastructure capability combined with integrating, at system level, the large scale
deployment of new technologies (e.g. wind farms, DSM, Smart metering, HVDC
technologies, electric vehicles).
PR3 has also had in place an incentive against “Delivery of Enhanced Network
Capacity”; however this has been limited in its ability to capture all that is at the heart of
innovation in the interests of customers and itself requires re-design in order to better
support the objectives of innovative development of the grid and grid infrastructure.
For this category, the TSO proposes that incentives could be placed against deliverables
falling under the broad headings of ‘Distributed Power Flow Control’ and ‘Innovative
Infrastructure Solutions’.
(i) Distributed Power Flow Control Distributed power flow control devices operate by diverting power flows to under-utilised
circuits (overhead lines and underground cables), thereby maximising the use of the
existing transmission network and potentially avoiding or deferring network investment.
These transmission devices can be fitted to existing overhead lines in order to alter their
electrical characteristics, effectively increasing or decreasing the line impedance. Often,
when a transmission circuit overloads, other circuits in the network have spare capacity.
By adjusting the impedance of heavily loaded circuits, it may be possible to mitigate
overloading and use existing spare capacity.
For example, the TSO intends to trial two different distributed power flow control devices,
both of which perform a different function, and which could be used separately or in
combination. The aim is to assess the capability of these devices to increase or
decrease overhead line impedances to mitigate or prevent overload of other circuits. If
successful, distributed power flow controllers could be deployed to alleviate system
constraints and allow for increased output from wind generation (or other high merit
order generation). Trialling of these devices is expected to take place over the period
2016 – 2018.
2018 - 2020 Deliverables
1. Pilot trial completed of alternative devices and test results reported
2. If initial deployment successful, incorporate into TSO technology toolbox and
network planning process.
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(ii) Innovative Infrastructure Solutions The TSO is mindful of the impact of transmission infrastructure development on the
environment and we are keen to seek out innovative ways to adapt how we approach
the deployment of infrastructure so we can minimise the impact on the local
environment. Innovative solutions that reduce the impact on local communities and the
environment will help enable necessary infrastructure delivery through greater
community acceptance. The TSO is working on a range of initiatives in this sphere.
For example, the TSO is currently investigating an approach to delivering an innovative
infrastructure solution involving a trial to up-voltage an existing 220 kV tower. The
approach would involve the replacement of the top section of the tower support structure
to facilitate a higher voltage level (400kV). The impacts on communities and landowners
will be reduced as existing towers will be reused. Public planning, construction and
overall deliverability risks are reduced in comparison to the development of a new line
and route.
Assuming positive results during the trial, the TSO would aim to deliver a pilot project to
increase the voltage rating of an entire 220 kV overhead line towards the end of the PR4
period.
2018 - 2020 Deliverables
1. Trial at independent test facility completed and test results reported
2. Trial building one single circuit and one double circuit tower to de-risk a full
deployment by developing the necessary installation and maintenance practices
EirGrid would request that CRU proceed with the option to further consult on
these proposals and would welcome further engagement on same.
2017 Deliverables
The Consultation Paper states that the pot will be spread across 2017-2020. As 2017 is
complete, it would not be possible to retrospectively apply new proposals. EirGrid had
submitted 2017 specific proposals in January 2017. EirGrid would propose that its 2017
performance is by reference to that submission.
EirGrid would welcome the view of CRU in this regard.
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Proposal 10 - Innovation
EirGrid is largely happy with Proposal 10 as set out by CRU, and welcomes its inclusion.
There are a small number of clarifications which EirGrid would seek to raise in this
regard however:
1. While EirGrid of course endeavours to bring benefits with all of its innovative
projects, innovation by its very nature is uncertain. Not all innovative projects may
succeed, and some may not display the benefits immediately. The wording of
Proposal 10 would indicate to EirGrid that CRU reserves the right to halt funding
of an innovative project immediately if it is not seeing a benefit. There is always a
risk with innovation and EirGrid would seek assurances that if it is taking risks to
bring about innovative solutions it should not be financially penalised in the event
that the benefit of such innovation is not immediately apparent or indeed if in the
trialling of an innovative project it is deemed to be unsuccessful in delivering the
intended outcomes.
2. EirGrid would also seek clarity on what the CRU views as sufficiently innovative.
Innovation can be classified as transformative and incremental. The proposals as
written seem to only concentrate on transformative innovation; EirGrid would like
clarity on how CRU proposes to reward incremental innovation.
3. It is important to acknowledge the role the TAO has in the delivery of the
innovative projects which EirGrid plans. Some of the new technology adopted for
these projects may require new equipment and it may take time to adapt to the
transmission system. It is important to give consideration here to the interplay
between both parties and how any such projects are progressed with
consideration to the Infrastructure Agreement and any other obligations.
Additionally, any additional costs to the TAO due to this should also be taken into
consideration.