Energy Update: Final Consultation on Ireland’s Renewable Electricity Support Scheme
02 October 2017
The Irish Department of Communications, Climate Action & Environment (DCCAE) has published what it describes as the “final” consultation on the design and development of a new Renewable Electricity Support Scheme (RESS) for Ireland. In the interests of securing the next generation of Irish renewable electricity project, interested parties are urged to engage with this process. This may be the final opportunity to do so and submissions or comments will be accepted up to 4pm on Friday, 3 November 2017.
The Irish government is pursuing a target of 40% electricity consumption from renewable sources by 2020 in order to meet the obligations imposed on Ireland by the 2009 EU Renewable Energy Directive. Between 2009 and 2015, the pursuit of this target was supported by the availability in Ireland of three REFIT feed-in tariff schemes.
However, the last of the REFIT schemes closed to new applicants at the end of 2015. Since the publication of DCCAE’s White Paper entitled ‘Ireland's Transition to a Low Carbon Energy Future 2015-2030’ (White Paper) in late 2015, the Irish government has repeatedly flagged its intention to develop a successor support scheme. The latest RESS consultation is a close-to-final stage in that development process.
The new RESS scheme is being designed with the objectives of maintaining the target 2020 level of 40% RES-E out to 2030, as well as delivering sufficient renewable electricity to meet any additional national and EU renewable energy and decarbonisation targets that may be imposed.
In addition to attaining target volumes of renewable energy, and consistent with standard international practice, RESS aims to control support costs by setting strike prices through the use of auctions.
A RESS rehearsal
The RESS consultation is structured around an “emerging scheme design” which represents DCCAE’s current position following an initial public consultation that it published in 2015, and a series of economic assessment papers that it has commissioned.
The key aspects of this design are:
- Community participation as a condition of RESS support. Community participation in Irish renewable energy has been an expressed priority of DCCAE since its White Paper. It is now proposed that a pre-qualification criterion for a project’s participation in the RESS will be that “the community” has been offered an opportunity to invest in that project.
A framework of “Trusted Intermediaries” and “Trusted Advisors” is also proposed in order to facilitate this community participation. In our view, this design element carries the potential to mire the RESS scheme in complexity and puts it at risk of falling foul of retail investment regulations. It could also lead to local disputes at the margins of whatever is ultimately defined to be the relevant “community” for a particular project. These requirements are also likely to favour the larger developers and may, perversely, make smaller community-scale projects unviable.
- The use of “pay-as-cleared” auction mechanisms to allocate support. Auctions were never a feature of the REFIT support schemes. As a result, the Irish development sector will need to reconfigure its approach to procurement so that a sufficient number of competing projects can participate effectively in any auction process. Lessons learnt in GB’s CfD programme are likely to be of benefit here. The door has also, potentially, been left open for exceptions to the auction process for small-scale generation or emerging technologies.
- “Floating Feed-In-Premium” as the form of support. Although not defined in detail, this appears to be equivalent to a contract for difference. Again, experience acquired in relation to the GB CfD programme should prove useful here.
- Auction “size” denominated in energy (MWh), rather than generating capacity (MW). Payments under the REFIT support schemes were denominated, for each supported project, by capacity (MW) and period of support. By contrast, it is proposed that support payments under RESS will be denominated by energy (MWh). Receiving support payments that are denominated in MWh, while also facing financing costs that are calculated per period, requires a participating developer to have a firm view of the likely lifetime performance of its project. It does, however, provide greater budgetary certainty to the Irish government.
- Flexibility as to the type of generating technology that will be supported. Despite the occasional reference in the consultation paper to “technology neutrality”, DCCAE’s clear emphasis is on preserving its freedom to target specific renewable generation technologies for support. This is consistent with the White Paper’s contemplation that bioenergy, solar photovoltaic (PV) and offshore energy will be included in Ireland’s energy mix as they become cost-effective. A genuine “technology neutrality” approach might, by contrast, be expected to favour the lowest cost technology at the expense of all others.
- Flexibility as to the extent and timing of the auctions. DCCAE expresses a preference for “auctioning … smaller volumes annually or biennially”, but provides no further details. This suggests that longevity in the Irish renewable development sector will require agility, and an appetite for repeated engagement with the auction process. This flexibility is reflected in the consultation’s treatment of technological neutrality. DCCAE reserves its right to amend auction categories on a yearly basis, with “look backs” to identify viability gaps. These can then be addressed by targeting specific emerging renewable technologies for support.
Of some concern is the fact that the consultation does not include a comprehensive treatment of the relationship between RESS support and other necessary permits. However, there is a suggestion that planning permission and grid connection may serve as preconditions for participation in the scheme. Given that:
- an auction participant will need a well-developed view of the likely lifetime performance of its project, and
- lifetime project performance will be influenced by future grid development and the connection of interacting projects,
a more explicit discussion of connection policy, which is currently under review by the Commission for Regulation of Utilities, would have been helpful.
It remains to be seen whether DCCAE will address these issues explicitly in the RESS scheme when it is finally published and implemented. As an alternative, the market may be left to form its own assessment as to the level of risk associated with these and other points.
The Irish government’s latest RESS consultation is a welcome development towards meeting Ireland’s future electricity-related climate goals. It has the potential to establish a sustainable and competitive support scheme for renewable energy that draws upon lessons learnt in the neighbouring GB market.
In particular, the GB auction results of September 2017, following the second CfD round, look extremely attractive from a value-for-money perspective. However, in order for similarly attractive prices to be achieved in Ireland, significant structural reforms need to be made to Ireland’s consenting and grid connection regimes. No concrete steps have been taken yet to address these issues.
Initial indications are that large-scale on-shore wind, and perhaps solar, are best placed to take advantage of the opportunities presented by the new RESS. However, there is also the potential for elements of the proposed scheme to prevent its efficient implementation, by introducing unnecessary complexity.
Industry participants are urged to make their views, on all aspects of the scheme, known to DCCAE before 4pm on Friday, 3 November 2017.
For more information on the consultation and how it affects your business, please contact a member of our Energy & Utilities team.