Several elements of the framework needed to construct and finance Ireland’s offshore renewable energy infrastructure are being progressed in tandem. We look at the latest developments concerning route to market and grid connection.
First Auction to Support Offshore Wind: Renewable Electricity Support Scheme (ORESS 1)
The Department of Environment, Climate and Communications invites views by 6 December 2021 on draft Terms and Conditions for ORESS 1. ORESS 1 envisages a support period from earliest 1 January 2026 to no later than 30 June 2042 (14 up to 16.5 years depending on the Commercial Operation Date of the project).
As with RESS, electricity suppliers with Power Purchase Agreements (“PPAs”) offtaking from successful projects would be entitled to Support Payments to the extent the Market Reference Price above zero is lower than the Strike Price (the price the project bid into the auction); and they would have to make Difference Payments to the extent Market Reference Price exceeds Strike Price.
Proposed features of ORESS 1 are described below.
- Consents – To participate in the auction, projects would need State consent to occupy the relevant marine space (either a Foreshore Licence or a Maritime Area Consent (“MAC”), contemplated in the MAP Bill, which we considered here) and would not need development permission (planning permission). ORESS 1 Implementation Agreements would not excuse project non-performance because of failure to obtain planning permission. Instead, obtaining planning permission would be a post-auction milestone, and missing an Interim Milestone is subject to drawdown of 4%/month of the Performance Security (and potentially full Performance Security if not achieved by the Final Milestone). The Consultation recognises that, once information has been provided to the planning authority, “to a certain extent, this timeline is beyond the control of the project owner” and suggests that enactment of the MAP Bill will bring further clarity to timelines.
- Bidding Independence – The threshold for ownership declarations would be strengthened: all persons who directly or indirectly control more than 10% of the shares of a project must be declared in the Declaration of Bidding Independence.
- Grid – Applicant projects would have to demonstrate that they have undergone a Grid Connection Assessment, intended to ensure applicants have information needed to bid in the ORESS 1 auction (maximum export value, and method and cost of connecting to the transmission system). The Commission for Regulation of Utilities (“CRU”) is consulting on the proposed approach, discussed below.
Indexation – The Consultation Paper proposes that the portion of investment costs arising prior to commissioning may be indexed against an industry specific price level indicator such as the European Steel Index. The draft ORESS Ts&Cs include language suggesting that indexation of Strike Price against CPI subject to an annual cap of 2% is being considered.
Auction Mechanisms – Like RESS 1, ORESS 1 would have pay-as-bid pricing. However, the 5% rule and X&Y rule would not feature in ORESS 1.
Bid Bonds & Performance Securities – It is proposed to use the same rates as those proposed in RESS 2: €7/MWh of Deemed Energy Quantity for one year for the Bid Bond and €24/MWh of Deemed Energy Quantity for one year for Performance Security.
Interim & Final Milestones – Timelines are based on the assumption that MACs will be granted in late 2022. A period of 18 months and 21 months respectively is proposed between the award of a MAC (a pre-requisite for applying for planning permission) and the planning permission Interim and Final Milestones (which are pencilled in as 31 March 2024 and 30 June 2024). A construction period of three years is proposed (Commencement Date to Commercial Operation Date Interim Milestone). A Longstop Date for commercial operation in 2028 is proposed.
Community Benefit Funds – Two options are considered.
- Project Funds and Early Contributions – Projects would be required to provide Community Benefit Fund contributions prior to operation date. Early contributions could be offset against contributions post-commercial operation (Deemed Energy Quantity for one year x €2MWh).
- Nationally-Managed Fund – Alternatively it is suggested that a single fund would be appropriate for the specific challenges presented by offshore projects. A medium-sized offshore project (500MW of installed capacity) would be expected to contribute about €4 million / annum in community contributions (or a level approximately equal to the combined obligations of all projects in RESS 1).
Operation & Maintenance – It is proposed that operation and maintenance services for ORESS 1 projects should be headquartered in either Ireland or Northern Ireland.
Questionnaires – Projects bidding in the auction will be required to complete a Financial Questionnaire. Successful projects would be required to complete a Project Delivery Plan Questionnaire.
Grid Connection Assessments for Phase 1 Projects
The Commission for Regulation of Utilities invites views by 22 November 2021 on its Proposed Decision on Offshore Grid Connection Assessments for Phase 1 Projects (CRU/21/112), along with a report on EirGrid’s analysis of the network and engagement with Phase 1 Projects so far.
Phase 1 Projects – This is the term now used for ‘Relevant Projects’ (along with the Arklow Banks Wind Farm extension), namely Oriel Wind Farm, North Irish Sea Array Wind Farm, Dublin Array (Bray and Kish Banks), Codling Banks 1 & 2 Wind Farm, and Skerd Rocks Wind Farm.
Interaction with ORESS 1 – The intention is that a Grid Connection Assessment would provide information needed for Phase 1 Projects to bid into ORESS 1. CRU anticipates that Phase 1 Projects would include in ORESS 1 bids the cost of construction of transmission assets, but not subsequent operational costs as assets will be transferred to the TSO.
Application Process – It is proposed that EirGrid would open a four week application window in Q1 2022 for Phase 1 Projects to apply for Grid Connection Assessments, specifying their proposed MEC and preference for onshore connection point location. To apply for and hold a Grid Connection Assessment, projects must be eligible to apply for a MAC and compete in ORESS 1 (or have a ‘confirmed CPPA’ before ORESS 1).
Competition for a Connection Point – CRU outlines options to deal with competition among projects for the same connection point locations. Option 3 is named as the preferred option at this stage.
- Option 1: There would be one project per connection point location and each connection point location would be able to take all requested MEC from that project.
- Option 2: The connection point location(s) identified by EirGrid as having the best deliverability in the Dublin region would have more than one project, which might involve a shared connection method and costs.
- Option 3: Connection point allocation would be determined through the Grid Connection Assessment Period. This is described as a detailed assessment of method and cost of connection which would facilitate a collaborative agreed outcome between the relevant applicants and EirGrid, failing which EirGrid would assign the connection point locations based on connection principles for onshore wind projects (which take into account, for example, overall least cost connection method and optimised development of the network).
Validity – It is envisaged that Grid Connection Assessments would issue in Q2 2022 and would be valid from date of issue until the earlier of a period of (a) two years, or (b) three months before eligible Phase 2 projects are due to submit grid applications for processing.
Connection Offer & Agreement – To qualify for a full grid connection offer (a Connection Agreement and Quotation Letter), a Phase 1 applicant holding a Grid Connection Assessment would have to be successful in ORESS 1 or provide a financial director declaration of a CPPA in advance of ORESS 1. CRU anticipates that a grid connection offer can be given in advance of planning permission for generation and grid connection, but that execution of the connection agreement would happen post-grant of planning permission (to be consulted on further). It is anticipated that connection offers would issue in 2023+.
CRU has provided a prospective timeline as follows:
Full Speed Ahead
Continued momentum is needed to put in place the building blocks for development of an offshore wind sector with 5GW of capacity by 2030. Much is expressed to hinge on the passing of the MAP Bill which, as at 16 September 2021, was referred to the Select Committee on Housing, Local Government and Heritage which may propose amendments, following which the Bill will be returned for the Fourth Stage before Dáil Éireann. The Bill’s passage will be a significant milestone, as will the allocation of the public resources needed to deliver timely consenting and planning permission, including through establishment of the new Maritime Area Regulatory Authority