On 19 November 2020 the EU gave offshore wind the green light in its long awaited Offshore Renewable Energy Strategy. In this briefing our energy group will consider the highlights of that Strategy and the long term signals it gives to the Irish offshore renewable energy sector.
The Irish offshore renewable energy sector
There is potential and appetite for a significant offshore renewable energy sector. At national level, recent Governmental action is encouraging. In June, the newly established Government committed to set a path to achieve 5 GW capacity in offshore wind by 2030 off Ireland’s Eastern and Southern coasts. The Government also confirmed that the keystone of its evolving offshore development framework, the eagerly anticipated General Scheme of the Marine Planning and Development Management Bill (the “MPDM Bill”) is on its priority list for publication (see our briefing here). This will establish a new marine legal planning system, underpinned by a statutory Marine Planning Statement, and guided by the National Marine Planning Framework.
A public consultation to inform Ireland’s Grid Development Policy concluded in July 2020; and a public consultation on the expansion of Ireland’s Marine Protection Area Expansion will open in late 2020/early 2021. The Government has also committed to holding a second auction under the Renewable Electricity Support Scheme to support offshore projects in Q2 2021 (pending sufficient competitive applications). Each development represents a step towards the establishment of robust, long-term national framework to support offshore renewable energy projects. Recent EU action should further support the emergence of a strong offshore renewable energy sector.
The EU Offshore Renewable Energy Strategy
On 19 November 2020, the European Commission published its Offshore Renewable Energy Strategy (the “Strategy”). This Strategy aims to pave the way for floating and fixed offshore wind energy projects; wave/tidal projects; floating photovoltaic installations; and the use of algae to produce biofuels. The Strategy proposes to increase Europe’s offshore wind capacity from its current level of 12 GW to at least 60 GW by 2030, and to 300 GW by 2050. This represent a five-fold increase by 2030 and a 25-fold increase by 2050. The Commission aims to complement this with 40 GW of ocean energy and other emerging technologies such as floating wind and solar by 2050. To do so, it proposes to take 28 overarching actions to scale up the deployment of offshore renewable energy in Europe and in so doing to:
- utilise good marine spatial planning practices to identify and use a much larger number of sites for offshore renewable energy production and their connection to transmission systems;
- devise a new approach to offshore renewable energy and grid infrastructure;
- create a clearer EU regulatory framework for offshore renewable energy;
- mobilise private-sector investment in offshore renewables;
- focus research and innovation on supporting offshore projects; and
- develop a stronger supply and value chain across Europe.
So, what has the European Commission pledged to do; and where is the sector heading?
In total, the Strategy contains 28 actions, which the European Commission intends to take to support the growth of the offshore renewable energy sector. For investors and developers, the central message is that gaps have been identified, and the EU is preparing to take a coordinated and integrated approach to address them. This will require the promotion of regional marine spatial planning along with offshore grid planning; the development of a clearer EU regulatory framework; and private sector investment in offshore renewables.
Marine spatial planning and grid infrastructure
The European Commission has stated that the development and planning of an offshore grid needs to go beyond national borders and cover the whole sea basin. As a first step, it suggests that Member States should together set ambitious targets for offshore renewables in each sea basin. To support this process, the Commission has pledged to draw up a framework during 2021 to support the formulation of joint Member State commitments to deploy offshore renewable energy in relevant sea basins up to 2050.
As a second step, the European Commission suggests that these ambitious targets should be taken into account in regional grid planning and development. This will require more clarity on the distribution of costs and benefits, both amongst the Member States, and between the generation assets and the transmission projects. To provide this clarity, the Commission has pledged to publish guidance on the coordination of cross border sharing of costs and benefits for energy transmission projects, combined with the development of energy generation projects by 2023.
A five-fold increase in offshore energy by 2030 will require further engagement between the European Commission, Member States, Transmission System Operators (“TSOs”), regulators, developers and investors to provide:
- more rational grid planning;
- the development of a meshed grid (to allow electricity to flow in many directions);
- anticipatory investments to develop offshore grids with a larger capacity than initially needed, or grids supplied with technological features above what is needed in the short term; and
- hybrid projects (combining generation and transmission elements, linking two or more countries and providing a platform for coordination between them).
The framework for this cross-border engagement is to be provided through revisions to the Trans European Energy Infrastructure (“TEN-E”) Regulation, a long-term planning instrument designed to provide an integrated energy network, paving the way for EU investments and regulatory benefits.
A clearer EU regulatory framework for offshore renewable energy
To support each of these developments, a clearer regulatory framework will be required. The European Commission plans to take a multi-pronged approach to develop this. It has already published guidance on the development of offshore bidding zones for hybrid projects. It also intends to amend the law on the allowed use of congestion income to allow Member States to permit a more flexible allocation of congestion income for offshore hybrid projects. A common approach to grid connection requirements for High-Voltage Direct Current (“HVDC”) grids is also on the horizon. In this regard, the European Commission has stated it will task the Electricity Stakeholder Committee with preparing amendments to the Grid Connection Network codes for offshore HVDC grids during 2021. The State aid guidelines on energy and environmental protection are to be revised by the end of 2021; and guidance on cost-benefit sharing for cross border projects will be proposed during the same timeframe.
Mobilising private-sector investment in offshore renewables: the role of EU funds
The investment needs for the large-scale deployment of offshore renewable energy technologies by 2050 are estimated to be almost EUR 800 billion, around two thirds to fund the associated grid infrastructure and a third for offshore generation. Private capital is expected to provide the bulk of this investment. The European Commission expects the EU sustainable finance taxonomy to guide investment in these activities (see our briefing here). The European Commission has also stated that it intends to work together with the European Investment Bank and other financial institutions to support strategic investment in offshore renewable energy. The European Commission intends the EU funding instruments listed below to play a strategic role in the roll-out of offshore renewable technologies.
- The Recovery and Resilience Facility, which will make €672.5 billion available in loans and grants to support reforms and investments undertaken by Member States from 2021. The Commission has pledged to encourage Member States to include reforms and investments related to renewables in their national recovery and resilience plans under the ‘Power up’ flagship of the Recovery and Resilience Facility.
- The InvestEU programme, which provides support and guarantees for emerging technologies to accelerate private investment through its different windows.
- The Connecting Europe Facility, a key EU funding instrument for targeted infrastructure investment (including grid infrastructure development, and offshore cross-border renewable energy projects).
- The Renewable Energy Financing Mechanism, which will allow Member States to provide financial contributions to renewable energy projects and receive statistical benefits in return from 2021.
- Horizon Europe, a €100 billion research and innovation programme to be launched in 2021, which the EU intends to use to support new and innovative offshore renewable energy technologies, components and solutions (eg the design and test phase of HDVC systems).
- The Innovation Fund under the EU Emission Trading System (EU ETS), which is one of the world’s largest funding programmes for demonstration of innovative low-carbon technologies.
- The Modernisation Fund, which, while not available to investments in Ireland, offers support for the development of offshore renewable energy in Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia.
The EU has described offshore renewable energy as one of the most promising routes to increase future power generation in a way that affordably meets Europe’s decarbonisation objectives and the rising demand for electricity. In its Strategy, it has pledged to increase Europe's offshore wind capacity from its current level of 12 GW to at least 60 GW by 2030, and 300 GW by 2050. More concretely, it has listed the steps it intends to take to reach these goals. This is promising news for the emerging Irish offshore wind energy sector, which having had an initial slow start, is now getting the green light from national and European decision makers.