How is it decided which plants produce our electricity at any given time of the day?

The schedule of plants selected to run is determined every day and 24 hours in advance to meet the forecast electricity demand. However, it is adjusted in real time in response to unforeseen events such as electrical faults or plant breakdowns ¹. While the final determinant of whether a plant will run or not will often be the price of its power, its location has to be taken into account as congestion can arise on the grid with serious consequences for the management of the power system. Certain generators, such as renewables, get priority dispatch as required by EU law.

The Market Operator (MO) invites bids from generators for the supply of electricity for every half-hour interval of the day ahead (Fig. 2). Generators bid a price for the electricity they are offering to produce. They bid in at their marginal cost, which is their direct cost of operating and producing power. For every half-hour of the day the MO estimates the likely demand and, after taking account of any wind power that will be produced, the MO schedules sufficient generation to meet the expected demand (Fig. 3). The MO schedules the lowest bid first, then the next lowest and so on until the demand is met. All generators scheduled to run are remunerated at the rate of the last bid to be accepted ².

Some types of plant such as the coal-fired station at Moneypoint are expensive to build but cheap to run. With low marginal costs, they bid in very competitively (at a low price) and as a result run most of the day producing electricity. When a plant bids in at a low price and is scheduled to generate electricity for most of the time it becomes a base-load plant.

Low-carbon renewable energy generators, such as wind and biomass, enjoy a special status designed to incentivise investment in them ³. They are given priority access to the grid so they don’t have to bid in – in other words they are price takers. If renewable energy generators are available to run and producing power the System Operator (SO) must accept the power they generate. If they are constrained off, which the SO may do for technical reasons, they must be compensated ⁴.

Combined heat and power plants also enjoy a special status. This is because their emissions are lower by being highly efficient in their fuel use. Highly efficient is defined in legislation as over 80% efficient and plants capable of operating at that efficiency have priority access to the grid ⁷. With the assurance that they have a market for the electricity they produce, CHP plants can concentrate on using the heat effectively and so meet the qualifying fuel efficiency requirement.

Most fossil fuel generators compete on price but some have valuable technical characteristics that make them competitive in situations where, for example, the power demand is changing fast. In this situation a generating plant with good ‘load following’ characteristics will be more competitive than less flexible plant. Similarly, where a plant is required to operate for only a matter of hours in a year the generator may provide a very low cost plant and accept the low efficiency that goes with it to reduce the overall cost of this “peaking” plant service.  Peaking plants account for only a small amount of the total generators’ revenues but they earn high margins ⁸.