On Tuesday, 24 July 2018, the Government formally approved the High Level Design of the new Renewable Electricity Support Scheme (RESS) for Ireland, with the State seeking to support a contribution from renewable electricity of up to 55% of total electricity generation by 2030. This move by the Government may be seen as positive news for the Irish renewable energy sector insofar as it represents a significant step towards ultimately providing crucial regulatory certainty into the future for the sector.
The RESS - A New departure for Ireland
As previously outlined in our bulletin on the Key Features of the RESS, the scheme, which is shaped by current EU State Aid Guidelines, differs greatly from previous Irish support schemes on the basis that support for renewable projects will take the form of a series of scheduled, competitive auctions throughout the lifetime of the scheme. By not auctioning all of the required capacity at once, the intention is to take advantage of falling technology costs and thereby avoid ‘locking-in’ support for renewables at a higher level than may otherwise be achievable. It is proposed that the overarching framework of the scheme will be one of technology neutral auctions, but allowing the Government the ability to adopt targeted interventionist measures during the course of the auctions, as and when it deems necessary, in order to achieve multiple policy objectives.
Eligibility / Ground Rules
To participate in the auctions, it is expected that projects will have to meet specific eligibility rules (e.g. community participation, planning permission, full grid connection offer) and will be required to submit bid bonds in advance of participating in auctions. There are also likely to be project milestones set for those projects that are successful in the auctions, which will have to be adhered to. All renewable technologies will be assessed prior to each auction to ensure that technologies that no longer require a subsidy are ineligible and so as to allow for new, nascent technologies to participate.
Nature of the Support
The proposed funding mechanism is a 2-way contract for difference, similar to the CfD programme in Great Britain, which will be funded via the Public Service Obligation (PSO) levy. This will feature a floating feed in premium and it is proposed that each auction will be uniform-price, with the level of support set by the highest value bidder needed to meet the required amount of capacity auctioned. All bidders with offers below the clearing price would receive the clearing auction price. It is proposed that the market reference price will be the day ahead Integrated Single Electricity Market (I-SEM) price, such that generators shall bear the much talked about ‘balancing risk’ that is a core feature of I-SEM.
Greater Community Support
Increased community participation in, and ownership of, renewable energy projects is at the heart of the RESS and it is anticipated that measures will be put in place to ensure that there is ring fenced capacity set aside for community-owned renewable energy projects, with financial support available in the early stages, mandatory community benefit funds and mandatory investment opportunities for communities in all RESS projects.
RESS-1, RESS-2 & Subsequent Auctions
It is proposed as an option in the High Level Design paper that the first auction (RESS-1) may take place in 2019, with an auction capacity of circa 1,000GW/hrs and a delivery date of end 2020 i.e. by which time projects successful in the auction must have connected to the grid and be energised. The proposed required delivery date of end 2020 would represent an interventionist measure, on the basis that the main purpose of RESS-1 is likely to be to deliver added renewable electricity generation as part of a final push to endeavour to meet our binding 2020 target of a 40% contribution of renewable energy to electricity generation.
It is proposed as an option in the paper that the second auction (RESS-2) may take place in 2020, with an auction capacity of circa 3,000 – 4,000GW/hrs and that it would be focussed on enabling Ireland to meet its early trajectory targets in terms of meeting the EU-wide binding renewable energy target of 32% of the overall energy mix by 2030. Whilst the auction would again be technology neutral, it is proposed to potentially use a single technology cap as an interventionist measure to ensure additional technology diversity in this auction. The remaining capacity to be allocated would have to be within a certain range of the uniform clearing price for the capped technology. If there were to be insufficient capacity within this price range, then the remaining capacity could be re-allocated back to the principal technology or the price range could be increased to deliver the required level of technological diversity. It is intended that RESS-2 will provide opportunities for offshore wind, solar PV and bioenergy technologies.
Further auctions will be required to maintain trajectory through to 2030. The frequency of these auctions and the volume of capacity to be procured in each auction are likely to be determined on an 'as we go basis' but it is envisaged that the scheme will support up to circa 11,000 GWh of additional new capacity.
Commentary & Analysis
This announcement signifies positive news for the renewables industry as the Government appears to be ambitiously seeking to adopt a trajectory whereby renewables may form as much as 55% of the electricity generation mix by 2030. It is envisaged that this ambition and the road map to 2030 will be captured further in the first National Energy and Climate Plan (NECPs being part of the new framework within which individual EU member states have to plan their climate and energy objectives). Also noteworthy is the level of flexibility that the Government is seeking to retain during the lifetime of the new scheme, as evidenced through the aforementioned interventionist measures that it may apply when and where it deems necessary from a policy perspective. It will be most interesting to observe how matters play out in terms of the RESS achieving greater community participation, the nature of the policies and measures that are introduced to achieve this goal, and how successful this ultimately proves to be. Finally, there will no doubt be continued demands for technology specific auctions to be rolled out as part of the RESS, not least from the offshore wind industry.
Minister Naughten shall now seek EU State Aid Approval for the new scheme, which typically takes six to nine months. A RESS Auction Design and Implementation Working Group has been established, led by the Department of Communications, Climate Action and Environment and also comprising EirGrid and the CRU, which will be tasked with delivering the detailed design of the RESS auctions including the running and administration of the auction process. It is envisaged that this will require intensive stakeholder engagement in the second half of 2018 and into 2019. The first NECP (as referenced earlier) will also need to be finalized and is due to be submitted to the EU by the end of the year, with detailed modelling already underway. This will feed into the detailed design of the RESS auction process.