Post - Blog
By Andrew Ryan
Hydrogen Americas Summit
It has been a long time coming, but the Irish government has finally announced its new support scheme for renewables for the next decade. This is undoubtedly good news for the clean energy industry and will be a significant stimulus for new and hopefully more diverse renewables development in Ireland.
The new Irish Renewable Electricity Support Scheme (RESS) originated in the Irish National Mitigation Plan in 2017, which sets out high level plans for the transition to a low carbon and climate-resilient economy by 2050. The plan recognised that significant further incentives were needed for Ireland to meet its 2020 and 2030 renewable generation targets under the EU Renewables Directive. Inevitably, EU state aid constraints and an emphasis on securing value for money mean that the proposals are more restrained than previous subsidy schemes. However, confirmation of the RESS is a major boost for the Irish renewables industry and should allow for more diverse technologies in a market dominated by wind.
The RESS proposes a series of capacity auctions between 2019 and 2025. From the outset it was clear that the intended mechanism for support would be a competitive auction. This raised concerns that wind would dominate at the expense of other technologies, particularly because initial proposals were for technology neutral auctions. The final proposals should allay those concerns to a large extent.
The inclusion of single technology caps in each auction (except potentially the first one in 2019) will give nascent technologies like solar PV the opportunity to gain a foothold. Before each auction, technologies will be assessed in terms of whether subsidies are still necessary, again to encourage less established technologies. The RESS also allows for flexibility in the amount of capacity in each auction on the basis of supply and demand at the time of the auction.
It is perhaps disappointing that the 2019 auction may not have a single technology cap, as non-wind technologies may not yet be fully competitive with wind. For example, solar PV was expected to contribute at least 1.5GW of capacity but has yet to make many inroads. The solar industry may have to wait a little longer for the 2020 auction. That said, projects bidding in the 2019 auction will have to be grid connected by the end of 2020 so the availability of viable connections and full planning permission will be a significant factor. This might be good news for developing technologies, but bid price will be the ultimate determining factor and they may still struggle to compete.
A further significant factor in the RESS programme will be the promotion of community participation – a key goal of the Irish government. Projects seeking support under the RESS will need to meet pre-qualification criteria including offering the local community an opportunity to invest in a proportion of renewable projects in their area. Fully community-led schemes will also have slightly less onerous auction entry requirements. The precise shape has not yet been confirmed, but community participation/investment will not be unfamiliar to developers that have worked in other EU countries. This could be an interesting area for funders to explore that have inhabited this space in other jurisdictions or are looking at smaller scale projects.
In terms of the financial structure, the RESS is intended to be a two-way contract for difference funded by a Public Service Obligation levy (i.e. ultimately met by electricity consumers). Payments to generators will be through a “Floating Feed in Premium” based on generation output, a strike price and a market reference price. The reference price will be based on the day-ahead price under the I-SEM (the new Irish energy market).
For electricity consumers in Ireland, the government emphasises that the auction design aims to minimise increased costs. Staged auctions every couple of years account for anticipated reductions in technology costs over this period, meaning that consumers (as the ultimate funders of RESS) will not be locked in to higher costs for the duration of the scheme.
Schemes that secure capacity in an auction will be of interest to investors and those familiar with Contract for Difference style subsidies such as those in the UK will have some idea of how the market is likely to take shape. A further variable to consider for those stepping into the Irish market will be the new I-SEM and how this will impact on electricity prices, which in turn will impact subsidy levels. The I-SEM is intended to go live in October 2018 so there will be some bedding in before any auctions under the RESS. Nevertheless, both the new auction process and electricity market introduce extra layers of regulatory/price risk that might deter more conservative investors for early stage projects.
As ever, careful assessment of the detail of each auction will be required and the final shape of each auction has yet to be confirmed. However, the intention to encourage diversity and increase opportunities for community-scale schemes is welcome.
While there may be disappointment in some quarters that support is not intended to be technology specific, the proposed use of “interventionist levers” to deliver a broader technology mix will allay initial concerns that a fully technology neutral auction process would stifle increased diversity. How the proposals play out in practice will become apparent further down the line. The final design of each auction will be critical as will the establishment of the new I-SEM electricity market and a better understanding of how it will impact on electricity prices.
What is clear, however, is that Ireland has provided a path for substantial further renewables development well into the 2020s and this will promote and sustain a valuable market for developers and investors over the next decade.
Andrew Ryan is a partner and clean energy specialist at TLT in Northern Ireland