The SEM Committee has recently published two important consultations proposing changes to the Capacity Remuneration Mechanism (CRM). While distinct in scope, both form part of a wider programme of work as the SEM prepares for a renewed State Aid application ahead of the current approval expiring in 2028. Together, they raise fundamental questions about how the CRM should evolve to remain fit for purpose in a tightening, decarbonising electricity system.
The first consultation explores how explicit cross-border participation should be introduced into the CRM, driven by EU requirements for State Aid approval. This would allow foreign capacity, initially from France via the Celtic Interconnector, to participate directly in the SEM capacity auctions. The SEM Committee sets out high-level principles and design options, recognising that these arrangements will need to endure throughout the next State Aid period.
In principle, we recognise the need to comply with EU requirements and engage constructively on how cross-border participation could be facilitated. However, our members are cautious about how much value this will realistically deliver for Irish consumers, particularly when weighed against the complexity being proposed. The SEM is already facing acute adequacy challenges, with domestic capacity margins under sustained pressure. Against that backdrop, there is concern that introducing the additional complexity of direct foreign participation risks undermining the need for ensuring sufficient firm capacity is built and retained at home. Our position is that the impact of foreign participation on indigenous generation should be limited as far as possible within the bounds of EU legal obligations.
More fundamentally, we question whether explicit cross-border participation will materially enhance security of supply in the SEM. Stress events are often correlated across neighbouring systems, and interconnector availability cannot be assumed when it is most needed. Furthermore, we highlight that the consultation appears to assume that markets operate in an equivalent manner across jurisdictions when, in practice, significant asymmetries remain between the SEM and neighbouring markets (including differences in Reliability Option design). For our position on cross border participation in CRM and suggestions for auction design and other related aspects, see the link to our full response below. Overall, we wish to emphasise that these are not abstract concerns, but practical issues that go to the heart of how adequacy is delivered in a small, island system.
The second consultation focuses on decarbonising the existing CRM design, responding to evolving State Aid and climate policy requirements. We support the objective of better aligning the CRM with decarbonisation goals and welcome the SEM Committee’s engagement with industry on potential options. That said, we believe further considerations are warranted.
In particular, while there is slightly more support for the concept of a Green Scalar than a Green Bonus, both proposals raise questions. We are doubtful that a one-year Green Bonus would create a material investment incentive within the remaining lifetime of the current CRM, with the addition of one year to the contract duration being equivalent to the Early Delivery Incentive but less valuable given the net-present value impact of an additional year being added at year T-1 versus the contract being extended at year T+10. Without clarity on the emissions threshold and hydrogen-readiness requirements, it is difficult to assess bankability or respond to the incentive within a short development cycle.
The Green Scalar is conceptually more flexible and potentially more forward-looking than the Green Bonus, however its effectiveness is similarly dependent on parameter calibration. Without an indicative range for scalar values and emissions bands, our members cannot meaningful assess likely behavioural response.
Taken together, these consultations underline the balancing act facing policymakers as the SEM moves towards its next State Aid application. We agree that reform is necessary and that compliance with EU requirements is unavoidable. However, how these changes are designed and sequenced matters. Stability, clarity and proportionality will be critical to maintaining investor confidence and ensuring the CRM continues to deliver what it was designed to do: keep the lights on at least cost, while supporting the longer-term transition to a low-carbon electricity system.
We look forward to continuing to engage constructively with the SEM Committee as this work progresses and to helping shape solutions that are workable, robust and grounded in the realities of the SEM.
See our full responses here:
20260306 Final EAI Response to SEM-25-071 – CRM Cross-Border Participation Consultation.pdf
20260227 Final EAI Response to SEMC Consultation on Options for Decarbonisation of the CRM.pdf