Denis Naughten, Minister for Communications, Climate Action and Environment (the Minister) has invited stakeholders to submit their views on the proposed design options for a new Renewable Electricity Support Scheme (RESS).
The RESS is intended to replace the existing REFIT support scheme, which closed on 31 December 2015. The public consultation paper was published on 4 September and is available here.
Background to the RESS
Ireland is bound by the EU Renewable Energy Directive 2009 to meet an overall target for renewable energy consumption of 16% by 2020. In addition, the EU is proposing an EU wide renewable energy target of 27% for 2030 and Ireland will be expected to contribute to this target. The primary aim of the RESS is to encourage sufficient renewable electricity generation to enable Ireland to meet their targets and to move away from our dependence on foreign fossil fuels.
One of the cornerstones of the proposed scheme is to encourage more community participation in renewable energy projects. The Government is also mindful of the need to broaden and diversify its renewable energy portfolio.
The RESS is supported by two studies:
- An Economic Analysis to underpin a new RESS in Ireland which was commissioned by the Department of Communications, Climate Action and Environment (the Department)
- An Assessment of Models to support Community Ownership of Renewable Energy in Ireland which was commissioned by the Sustainable Energy Authority of Ireland (SEAI).
Both studies were published on 4 September and are available here.
Proposed options for the RESS
Some of the key high level emerging options for the RESS which the Minister is seeking feedback on are as follows:
- Auctions – support is to be allocated through a competitive bidding process through auctions. Projects will need to meet certain pre-qualification criteria in order to take part in the auctions. A uniform price mechanism is the preferred option in order to keeps costs to the consumer to a minimum.
- Floating Feed In Premium (FIP) – the research carried out on behalf of the Department, indicates that a FIP is the most cost effective financial support mechanism. This is likely to be similar to the Contract for Difference (CFD) scheme for renewable energy in the UK whereby a generator party to a CFD is paid the difference between the ‘strike price’ – a price for electricity reflecting the cost of investing in a particular low carbon technology – and a designated ‘reference price’.
- Price / budget caps – it is suggested that price or budget caps be added as cost control measures in auctions, which should be based on the estimated viability gaps for renewable electricity technology permitted to take part in each auction.
- Principal category technology – in order to keep consumer costs to a minimum, the suggested approach is to hold Principal Category “technology neutral” auctions where technologies with similar viability gaps take part. It is intended that the outcome of the initial auction will inform the design of future auctions.
- Community category – it is proposed that approximately 10-20% of the total capacity of each auction is ring-fenced for community led projects.
- Capping the level of support – it is suggested that the amount of support received by each project that clears the auction should be capped by the level of support determined in the auction and the cleared volume of the project. The aim of this is to ensure that consumers will not pay more than necessary for the renewable energy support.
- Multiple principal category auctions over the lifetime of the scheme – it is proposed to hold periodic auctions, for example, every two years, over the lifetime of the scheme to take into account any reduction in costs.
- Pre-qualification rules – the projects will be subject to pre-qualification rules (e.g. planning approval and grid connection) to ensure that the projects are more likely to succeed. Penalties will be imposed for any non-compliance or delays and secured by way of bid bonds.
- Public Service Obligation (PSO) – it is proposed that the RESS be financed through the PSO which is a levy paid by all electricity customers.
- CHP plants - high efficiency CHP plants will be able to avail of financial support under the RESS and under the proposed new Renewable Heat Incentive (RHI).
As community participation is central to the scheme, the following key options have emerged to achieve this:
Community investment – all projects over a minimum size must offer the community an opportunity to invest, in the form of an equity share in the project, investment into a right to a share of the net revenues in the project, or loan notes. This would be a pre-qualification rule rather than a planning law requirement. This could be supported by financial incentives for individuals to invest.
- Floating FIP – a floating feed-in premium should be made available to smaller community-led projects.
- Development grants and soft loans – grants of up to €20,000 and soft loans would be available to support community led projects.
- Grid access – community led projects should be able to secure grid access in a timely manner.
- Intermediary – an intermediary should be appointed to act as an independent facilitator between communities and developers and a Framework of Trusted Advisors should be established to allow communities to seek expert advice on renewable energy projects.
- Community benefit payment – community benefit payment should be introduced based on a voluntary industry best practice basis.
Next steps for developers
This is the final consultation before the adoption of the RESS and stakeholders should ensure that they examine the proposals and submit their views or concerns to the Department by 4pm on Friday 3 November 2017. Once the RESS is finalised it will then be referred to the EU Commission for State Aid clearance.
While the long awaited publication of the RESS public consultation is to be welcomed, there are (as one might expect at this stage) a number of significant unanswered questions, for example:
- Will the contracts awarded be ‘one way’ or ‘two way’ CFD’s? The principal difference being, in a ‘two way’ CFD when the market price for the electricity sold is above the strike price the generator must pay back the difference to the CFD counterparty.
- Will the level of support be index linked? Institutional investors, particularly pension funds, prefer upwards only index linked price support as a hedge against inflation. This is one of the reasons REFIT was so popular with international investors.
- How will the reference price be set? Will it be linked to the Day Ahead Market (DAM) price in I-SEM or to some bench mark price set by the Department?
- What length will the contracts be awarded for – 15 years like REFIT?
- What pre-qualification criteria will be set (planning, grid, finance)?
- What penalties will be imposed for non-delivery?
- Will repowering be supported?
- How much time will generators be given to commission their projects after the auction results are announced?
- If the initial pprincipal category auctions are to be “technology neutral”, will there be separate technology specific auctions for technologies with higher levelised cost of electricity (LCOE)? This will be crucial if the Department wants to promote off-shore wind energy for example.
- What post 2020 RES-E target will the Department aim for – 40% (business as usual approach) or a more ambitious level (45% - 55%)?
These and other issues will no doubt be the subject of intense lobbying and debate in the coming eight weeks.