Energy Update: Support on the Horizon! Latest RESS Developments
20 September 2019
At an industry forum on 13 September 2019 the Department of Communications, Climate Action and the Environment (DCCAE) provided an update on the design of the Renewable Energy Support Scheme (RESS) and the timelines for its implementation. We outline some of the key features of the DCCAE update and offer some observations.
The Department confirmed that the RESS 1 auction would take place “within the timelines set out in the Climate Action Plan”. Specifically, the programme is as follows:
- December 2019 – complete the detailed design and commence pre-qualification for the RESS auction
- January 2020 – complete the operational procedures for the RESS auction and process registration and complete training
- February 2020 – deliver the qualification information pack and obtain state aid approval
- March 2020 – accept qualification submissions
- April 2020 – deliver the qualification results and decisions on eligibility for the RESS auction to potential participants
- May 2020 – issue final qualification decisions and deliver the auction information pack
- June 2020 – hold the RESS 1 auction
- [2022?] – the project delivery timeline for RESS 1 has not been finalised yet but it is likely to be 2022
What we know!
It appears from the update that the detailed design won’t be complete until December 2019. The DCCAE has, however, provided an update into the various aspects of the RESS 1 auction that we expect will be reflected in that detailed design.
Support to successful projects will be provided through a two-way contract for differences (CFD) arrangement around a “floating feed in premium”, comparing a strike price with a reference market price, on the basis of the project’s metered output. The payment structure is to be settled through to PSO process in a manner “similar to the current REFIT settlement” process and will require a PPA with a licensed electricity supplier. So-called “supplier lite” structures will also be compliant.
This design feature is slightly surprising. The design of the SEM wholesale electricity market has a strong “plug and play” ethos, and it is not clear why RESS support could not simply have been awarded by requiring successful projects to sell directly into the wholesale market, in parallel with the provision of a CFD with a strong central counterparty. Entry into a PPA was indeed a requirement for REFIT-supported projects, but even that structure was widely regarded as an anachronism that pre-dated the SEM. While the PPA structure has served the industry well in providing a conduit for the support of renewable generators, we are surprised to find it continuing into a new era.
The actual auction quantity for RESS 1 is still yet to be determined. The DCCAE has suggested it may be within the range of 1,000 GWh - 3,000 GWh. The process to determine the final quantity is itself to be set out in the final design.
How to measure it
One aspect of the high level design of the RESS that had given us pause for thought is that the DCCAE tends to frame the “size” of the scheme in terms of output volume (GWh) rather than generation capacity (GW). This could potentially lead to problems for successful projects, if their support expired upon the delivery of a certain output volume, as it would be very difficult for a project to predict when this might happen, and to tailor its project financing accordingly.
However, the latest DCCAE update has confirmed that while output volume will be important in setting aggregate targets for the RESS scheme, these output targets will not affect the “settlement” of individual projects. Technology-specific capacity factors will be used to convert the output volume targets into GW capacity targets, and any project that is successful in falling within the capacity to which support will be allocated, will have its CFD settled based on metered generation.
A bond will be required by eligible participants in advance of offer submission. The “bid” that each participant will be required to make, will be the strike price that will apply to its CFD if its bid is successful – i.e. each successful project will be “paid as bid”. “Winners” of the auction will be selected, on a technology-neutral basis, by ordering bids in ascending price order.
“Pay as bid” may come as a disappointment to some, as “pay as cleared” was initially indicated in the RESS high level design paper. There is some speculation that “pay as bid” is seen to open the door to corporate PPA support through the “stacking” of revenue. However, the practicalities of this are not particularly obvious, as power should not be sold twice and in accordance with the Implementation Agreement, discussed below, it is intended that a RESS-supported generator would waive its right to receive Guarantees of Origin for the power generated.
The eligibility criteria
DCCAE have issued some interesting comments on the eligibility criteria, including:
- The requirement for additionality: a bid must relate either to a new or a “repowered” renewable energy project. The definition of “repowered” has not yet been specified, and in our experience this can involve a degree of complexity.
- Each project must have full planning permission.
- A project must either be “grid contracted” or listed by EirGrid or ESB Networks as an ECP1 project which is eligible to be processed to receive a valid connection offer of sufficient capacity to carry the capacity of the project bidding on RESS 1. A project that has declined to contract an ECP1 offer within the acceptance period of the offer will not be eligible. This suggests that contracted ECP1 projects will be able to participate, no matter how distant their contracted connection date.
- The site of the project must be specified and the bidder must demonstrate control of the site for the purpose of developing and operating the project, i.e. it should have sufficient legal interest in the relevant project site and – we assume – the site of the grid connection, in order to be eligible to participate in the auction process.
- The project must demonstrate evidence of “community offering”.
- The directors of each project must provide “typical” certifications with respect to the corporate organisation, financial capability and independence of the bidder from other bidders. The “independence” requirement requires clarification as we presume the DCCAE does not intend to exclude proven large-scale developers from submitting a number of bids for separate projects that they own and control.
Benefits and obligations
Successful bidders will be required to enter into an implementation agreement, which will confirm the project will be entitled to receive a letter of offer and this will enable the project to execute a PPA with an electricity supplier. It is anticipated that support for a successful project will last up to 15 years.
The implementation agreement will impose obligations upon the bidder to ensure certain milestones are achieved. Indicative timelines have been provided on those milestones and most of these timelines appear reasonable. The DCCAE has indicated that a breach of these timelines could lead to the RESS offer being rescinded, and the proposal is that the implementation agreement will require the posting of a performance security bond on a per megawatt basis. This bond would be called in the event of the termination of the implementation agreement for failure by the project to achieve milestones.
Community Benefit Fund
As expected, there is a requirement that a successful project pays €2/MWh into a community benefit fund, and that this money will fund selected local causes, with priority given to causes situated within 10 kilometres of the project. The fact that this is levied on a per-MWh basis means that the community levy is being applied proportionally between different technologies. The earlier concerns of solar, relating to the prejudicial effect of a per-MW levy due to the technology's relatively low capacity factor, should therefore not apply.
A successful project will need to demonstrate that this fund has been established within 120 days after the RESS offer implementation agreement has been entered into. This fund is to be set up and coordinated by developers with certain administrative requirements imposed by the DCCAE. Many developers will be familiar with the types of structures required for a community benefit fund of this nature, including the appointment of community liaison officers and websites with project information and committee details. The administration of funds of this nature, however, should not be under estimated.
Community Investment Scheme
A requirement for a community investment scheme remains as part of the auction qualification requirements – including a declaration by the developer that those requirements will be met or even exceeded. However, the DCCAE has indicated that the satisfaction of this investment requirement does not necessarily require an equity proposal. The final details are to be included in the RESS information pack.
The latest update from DCCAE on the RESS timelines and an outline of the anticipated detail design of the RESS auction scheme is a very welcome development in the Irish renewable energy sector. It is critical that the Government maintains the momentum of the RESS scheme to ensure the continued efficient deployment of renewable generation in Ireland at some of the lowest costs to consumers seen globally. Any prolonged delay to the introduction of the scheme may result in disruption to the supply chain and availability of skills and experienced practitioners in the sector.
For more information on this latest RESS update, contact a member of our Energy, Utilities & Projects team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.