RESS 1 was the first Renewable Energy Support Scheme run by the Government of Ireland. These schemes were established as part of the Climate Action Plan 2019. These support schemes use a competitive auction process to determine which projects receive government support and they form an important part of the strategy to meet our target of delivering 80% of electricity from renewable sources by 2030.
Auction submissions for the first RESS auction were received between 21 and 28 July 2020. The provisional results were published on 4 August 2020 with the final results published on 10 September 2020.
Of the 114 projects that applied to participate, 109 qualified, 3 did not and 2 formally withdrew their applications. Only one of the 109 qualifying projects did not submit an offer price before the deadline. Of the remaining 108, 82 were successful and comprised of 63 solar projects and 19 onshore wind projects.
Participation in RESS 1 required the satisfaction of certain conditions including provision of a performance bond of €25,000 per MW of capacity offered, which is a significant cost. Participants were also required to submit a declaration to the Minister for Communications, Climate Action & Environment confirming that funding to construct the project and achieve commercial operation was in place for the project. If they failed to do so by 31 December 2021 the Minister was entitled to drawdown up to a maximum of 25% of the performance bond. Failure to do so by 30 June 2022 resulted in the RESS letter of offer being revoked and the remaining portion of the performance bond being drawn down.
While information on the number of projects that submitted this declaration is not publicly available, on the basis of research carried out by MHC, only 12 of the 82 successful projects appear to have reached financial close using third party project finance to fund the construction of the projects. This is a surprisingly low number even taking into account a relatively low strike price and challenges in being the first projects to participate in a new auction regime.
Some RESS 1 projects may still be bank-financed this year, but due to construction timelines and the requirement for RESS 1 projects to reach their commercial operation date (COD) before 31 December 2023, this is likely to have required a significant equity injection prior to receiving bank funding.
Anecdotal evidence also suggests a significant number of smaller projects were funded from balance sheet, as well as a number of large projects which have proceeded by way of forward sale arrangements which has enabled projects meet internal investment hurdle criteria.
Of the remainder, there will likely be several successful applicants who did not proceed with participating in RESS 1 and will not reach commercial operation before 31 December 2023. The consequences for these projects include that their RESS 1 letter of offer will be revoked and their performance bond will be drawn down. The RESS 1 terms and conditions provide that extensions to these projects are only permitted to participate in future RESS competitions once the original project has discharged all obligations under its RESS 1 implementation agreement.
Upward trends in RESS 2
Following RESS 1 and in keeping with ongoing commitments under the Climate Action Plan, the RESS 2 auction timetable was published in October 2021. The RESS 2 final auction results were published on 15 June 2022. Of the 153 projects that applied to participate, 130 qualified (including 15 community projects), 3 did not and 20 formally withdrew their applications. All of the qualifying projects submitted an offer price before the deadline. Of the remaining 130 applicants, 80 were successful and 50 were unsuccessful.
The successful projects in RESS 2 represent a potential increase of nearly 20% in Ireland's current renewable energy generation capacity. They will be delivered between 2023 and 2025, and anecdotal evidence currently suggests a larger uptake on the financing of successful projects in that auction. It will be interesting to see how this anecdotal evidence translates into further research to be conducted by our team in the future on the number of RESS 2 projects that have reached financial close.
For a variety of reasons, the level of project financing on RESS 1 was low. However, this low level of uptake is not conclusive as to the number of projects that will become operational from other funding sources in time to receive RESS support. Any projects that were successful applicants on RESS 1 but did not ultimately proceed to commercial operation should take legal advice on the Terms and Conditions for RESS 3 – which have just been published - to determine if they can participate in that auction as an alternative route to market.
The provisional auction results for RESS 3 are expected on 26 September 2023 and final results on 9 October 2023.
For more information, contact a member of our Banking or Energy teams.
The content of this article is provided for information purposes only and does not constitute legal or other advice.