Battery Storage and the DS3 System Services Volume Capped Fixed Contracts

Thursday, May 16, 2019

The first stage of the selection process for the DS3 System Services Volume Capped competition is underway. This DS3 System Services competition aims to procure between 91MW and 140MW of Services under fixed contracts in accordance with the SEM Committee’s Decision on DS3 System Services Fixed Contracts Procurement Arrangements (SEM-18-049). This competition focuses on “high availability technologies” such as battery storage, flywheels and demand side units whose availability are not linked to energy market dispatch. It is expected that battery energy storage will secure most of the contracts awarded under the competition.

In this first stage (scheduled to complete shortly), candidates must meet the appropriate contractual and technical pre-requisites in order to then be selected to progress to the second stage and be invited to tender for the provision of the System Services. The winning bids will be ranked based on price.

In respect of the technical requirements, Providing Units will be required to provide a sub-set of DS3 System Services as well as Over-Frequency Response. Service Providers with non-firm connections will take the risk of network unavailability due to network limitations and will not be remunerated if unavailable in such circumstances. The maximum contracted volume per separate grid connection will be set at 50MW.

In advance of the second stage of the tender process, EirGrid published on the 15^th of May 2019 a draft of the template contract to be awarded to the successful Service Providers. This draft contract takes into account the responses received by EirGrid to the Consultation on the DS3 System Services Volume Capped Fixed Contracts dated the 25^th of October 2018.

Some of the noteworthy provisions contained in the draft contract include:

• The maximum duration of the contract will be eight years which includes a build period of up to two years from contract execution (the “Target Go-Live Date”) plus a maximum of six years duration for the payment of the Services.
• EirGrid will have a right to terminate the contract if the Providing Unit has not commenced providing the Services by the Target Go-Live Date.
• Prior to entering into the contract, the Service Provider must have received a connection offer for the Providing Unit.
• Payment will be contingent on compliance requirements being met.
• No payments will be made where the Providing Unit is prevented from providing the Services by reason of Force Majeure or the Providing Unit is de-energised, decommissioned or disconnected pursuant to its connection agreement, interface agreement or use of system agreement or pursuant to the provisions of the contract.
• A performance bond (or in certain circumstances an alternative form of collateral may be accepted) will be required to be provided by the Service Provider prior to entering into the contract as a means of incentivising service delivery by the Target Go-Live Date.
• EirGrid may extend the deadlines for achievement of the performance milestones and the Target Go-Live Date where delays in service delivery have been caused by acts or omission of EirGrid itself or by Force Majeure.
• EirGrid will be entitled to terminate the contract where there is a failure to make the Services available such that the Availability Performance Scalar value is 0 for three consecutive months.
• Providing Units will be given a scheduled outage allowance of 1.4% per calendar year and will not be treated as unavailable for any scheduled outage where its outage rate is below this allowance. Any unused allowance can be carried over into the subsequent year.
• Providing Units will not be permitted to simultaneously receive payments under both the Regulated Arrangements and the Volume Capped Arrangements for the provisions of the same sub-set of Services.

The conclusion of the first stage of the selection process of the DS3 System Services Volume Capped competition is imminent with EirGrid shortlisting candidates who will be invited to tender for the contracts. We have advised on a number of investments and development opportunities in this area over the last few months, in particular for clients with experience in battery energy storage and the provision of System Services in other markets. Many energy market players are eagerly awaiting the outcome of this competition.

For more information on DS3, battery storage or any other aspects of the Irish energy market, please contact Siobhán McCabe, Partner and Head of Energy at Philip Lee.

Article written with the assistance of Harry O’Malley.