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Change could mean lower prices

Last updated on 11/05/2016

Reform of the all island Single Electricity Market (SEM) has been forecast to put up bills but now there are grounds for believing it will cut charges

The move to the new arrangement which has been entitled the Integrated Single Electricity Market or I-SEM and is required by the EU will involve the auctioning of capacity payments. These are a reward to generators for keeping their plant available for use. And they make up roughly a fifth of the wholesale price

Currently the value of these capacity payments is decided by regulators according to a formula. They’re worth about £60 a year for each kilowatt of generation

But an auction carried out by the National Grid in Great Britain just before Christmas saw generating companies ready to provide their plant at around £20 a year for each kilowatt of capacity.

If an auction here were to replicate these results, it would mean a cut in the wholesale price of over 10% and a cut in domestic charges of just over 5%.

I stress these are back of the envelope calculations and I have to point out that I-SEM doesn’t come in for another year but it is food for thought

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