2015 was another busy year for the Irish energy sector, as the industry works toward delivering the government’s target of 40% of electricity generated from renewable sources by 2020.  This target is being pursued largely through the construction of wind farms across Ireland.  However, the legal and regulatory background to the Irish energy sector continues to evolve, and we now briefly explore three key issues.

Key topics in 2015 included: 

Energy White Paper

Integrated Single Electricity Market

REFIT: End of an Era

Energy White Paper

December 2015 saw the publication, by the Irish Department of Communications, Energy and Natural Resources, of its latest Energy White Paper, entitled “Ireland’s Transition to a Low Carbon Energy Future”.  As is pointed out in the document itself, the White Paper does not include detailed policy proposals, but is instead intended to provide “a framework to guide [energy] policy between now and 2030”. 

Against that backdrop, the paper’s key messages include: 

  • Ireland’s energy future will involve the minimisation of the emission of carbon and other greenhouse gases; but
  • reaching this objective will require a “transition”.

These messages will come as no surprise to any informed observer of recent global and European developments on climate change and energy policy. 

What is of more interest are the emphases that emerge from the detail of the White Paper.  In particular:

  • citizens and communities participate greater in the energy sector, including engagement in policy-making and planning, and participation in a “national energy forum”.  The forum is to include representatives of a range of community, political, economic and environmental groups and is intended to maximise and maintain consensus around broad energy policy decisions.  In light of the increasingly vocal activities of Irish energy sector protesters in recent years, the proceedings of the forum will be watched with interest;
  • opportunities for community participation in energy projects, both by way of ownership and other “benefit sharing”, will be explored.  Any mandatory policy initiatives in this area will clearly be of acute interest to project developers; and
  • Ireland’s existing renewable electricity target - 40% supplied from renewable sources by 2020 - remains unchanged.  It is anticipated that the next phase of the energy transition will see a shift in emphasis away from onshore wind farms, towards additional renewable energy technologies such as solar, offshore wind and ocean energy.  

The above are just our selected highlights of a long and comprehensive document, which we would encourage interested parties to download from here.

Integrated Single Electricity Market (“I-SEM”)

At the end of 2014, we reported on the decision of the Single Electricity Market Committee on the high level design for I-SEM.  I-SEM is the all-island wholesale electricity market that is intended to replace existing wholesale electricity market arrangements from the end of 2017. 

Twelve months on, our impression is that while the I-SEM project appears generally to be meeting the deadlines contemplated by its published project plan, major deliverables remain outstanding under almost every one of the project’s workstreams.

In particular:

  • the development of detailed trading rules is not scheduled until the end of 2016;
  • the first of three scheduled Capacity Remuneration Mechanism ("CRM") decision papers, due to be published in November 2015, has not been published yet.  Developments in this area are particularly sensitive because the proposed CRM model differs substantially from that which is currently in place; and
  • on market power mitigation, which is a key feature of the existing market, the I-SEM workstream is not scheduled to produce a principles-level decision until March 2016, with the implementation to follow in mid-2017.

Accordingly, it remains difficult for market participants to begin the revision of their own arrangements to ensure that their commercial effect is preserved under I-SEM. 

This is not to detract from the significant progress that has been made in relation to the building blocks of the new market.  However, “a lot done; more to do” – a phrase that will be familiar to many Irish readers – remains an apt summary of the I-SEM project.

REFIT: End of an Era

As a major pillar of its renewable energy policy, the Irish government established three feed-in tariff support schemes, known as REFIT 1, 2 and 3, which between them were intended to support approximately 4,700MW of renewable electricity generation capacity. 

A significant milestone in the life cycle of these schemes occurred on 31 December 2015, which marked the final deadline for applications for support under the REFIT 2 and 3 schemes.  The REFIT 1 scheme was closed to new applicants on 31 December 2009.

It will be some time before it becomes evident precisely how much generation capacity is being supported by the three REFIT schemes.  This is because a supported project does not typically appear in the relevant legislation until completion of its construction is imminent, which may not occur until a number of years after its REFIT support is initially granted.  It is, however, worth noting that the most recent version of the Public Service Obligation legislation, enacted in December 2015, referred to REFIT 1 support for approximately 1,400MW, REFIT 2 support for approximately 650MW and REFIT 3 support for approximately 45MW.

The closure of the REFIT 2 and 3 schemes is not expected to signal the end of Irish government support for energy projects.  The Department has indicated, in the Energy White Paper, that it is developing a new support scheme for renewable electricity, which will be available “from 2016”.  

However, the Department also notes that any new support scheme will need to comply with the European Commission’s guidelines for State aid for environmental protection and energy, which have applied since 1 July 2014. Together with a need to ensure that any new scheme operates efficiently in I-SEM, this suggests that the Department’s new support scheme is unlikely, in its design or operation, to resemble the REFIT schemes. 

Comments

In spite of the uncertainties and challenges referred to above, we expect that Ireland’s drive towards its 2020 renewable electricity target will result in a continuation of the buoyant level of energy sector activity that has characterised 2015.