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Boost for renewables development in Ireland - new government proposals

The Irish Government has now confirmed its proposals for the next round of support for new renewables development in Ireland.

Subject to EU State Aid approval, the Renewable Electricity Support Scheme (RESS) intends to deliver up to 12,000 GW/hrs of generation up to 2030 and contribute to Ireland’s targets under the EU Renewables Directive. The primary support mechanism will be delivered through a series of competitive auctions and these will be designed to encourage a mix of renewable generation sources.

Confirmation of the proposals represents a major boost for the Irish renewables industry and will allow for an increasing diversity of technologies in a market previously dominated by wind.

Background of the RESS

The new Irish Renewable Electricity Support Scheme (RESS) has its origins in the Irish National Mitigation Plan published in 2017 which provided high-level plans for the transition to a low carbon and climate-resilient economy in Ireland by 2050. As part of the plan it was recognised that significant further incentives were required for Ireland to meet its renewable generation targets for 2020 and 2030 under the EU Renewables Directive. However, the Irish Government also recognised both the need to ensure value for money and compliance with EU State Aid rules, and also expressed an intention to promote community participation in future renewables projects.

Capacity auctions

From the outset it was clear that the intended mechanism for support would be through a competitive auction, but initial proposals were that any auction(s) would be technology neutral. This raised concerns that wind energy would dominate at the expense of other technologies including, in particular, solar. Prior to the publication of the National Mitigation Plan, some 5GW of solar capacity had been earmarked by developers in anticipation of a support mechanism to promote this nascent technology in Ireland. Initial proposals for the RESS were met with concern by non-wind developers, but those concerns have perhaps been allayed somewhat by the final proposals.  

The published RESS proposes a series of capacity auctions between 2019 and 2025. The auctions are being staged in this way to take account of 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. This also allows for the capacity to be auctioned at each stage to be determined flexibly on the basis of supply and demand at the time of the auction.

By including single technology caps in each auction (except potentially the first in 2019) more generation diversity will be introduced and nascent technologies such as solar PV will have the opportunity to gain a foothold. Technologies will also be assessed prior to an auction in terms of whether subsidies are still necessary, again to encourage less established technologies and increase the generation mix.

Community participation

A further significant factor in the RESS programme will be the promotion of community participation – this was an important aspect of the proposal originally highlighted in the National Mitigation Plan.

Projects seeking support under the RESS will need to meet pre-qualification criteria including offering the local community an opportunity to invest in and take ownership of a portion of renewable projects in their area. The precise shape of this has not yet been confirmed, but community participation/investment will not be unfamiliar to developers that have worked in other countries such as the UK, Denmark and Germany.

Funding

In terms of the financial structure, the RESS is intended to be a 2-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).

What next?

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. But the intention to encourage more diverse renewable generation has to be welcomed.

It is perhaps disappointing for the solar industry in particular that the 2019 auction may not have a single technology cap as solar PV may not yet be fully competitive with wind. There has been an expectation now for a number of years that at least 1.5GW of solar capacity would become available, and the industry may have to wait for the 2020 auction to gain a foothold in the market. However, projects bidding in the 2019 auction will have to be grid connected by the end of 2020, and so the availability of viable grid connections and full planning permission will also be a significant factor in which projects can compete in the auction. This in itself may allow solar and other developing technologies to compete in the auctions.

Undoubtedly confirmation of Ireland’s RESS proposals for 2019 and beyond is to be welcomed, and this support will provide further stimulus to the Irish renewables market. Whilst 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 provide some comfort. This will allay initial concerns that a fully technology neutral auction process would stifle increased diversity in the market, but how the proposals will ultimately play out in practice will only become apparent further down the line when the final design of each auction is announced.

What is clear, however, is that Ireland has provided a path for substantial further renewables development well into the 2020s and this will sustain a valuable market for developers and investors over the next decade.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.



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