The Irish renewable energy sector continues to grow, against the backdrop of an Irish government target that 40 per cent of the energy consumed in Ireland will be obtained from renewable sources by 2020.

It has been estimated that in order to meet this 40 per cent target, 6,700MW of renewable generating capacity will need to be connected by 2020.

Planning continues to be the first hurdle for prospective wind farm developers. A planning application will need to be carefully prepared and lodged with the relevant planning authority (ie. local authority, An Bord Pleanála and/or the Minister for Agriculture Food and Fisheries).

A common mistake is to omit, from the planning application, detail surrounding a project’s necessity (both commercially and pursuant to Government policy). Even where an environmental impact statement is not required, a planning application should detail matters including reasons for the selection of the particular site. It is also important that detailed site assessments, project feasibility and planning issues are dealt with at the outset. For example, it may be necessary to obtain an option over lands or even a complete acquisition before applying for planning.

Where a proposed wind farm is to have maximum export capacity of more than 100MW and will be of strategic national importance, the project may qualify under the Strategic Infrastructure Act (SIA) procedure. The SIA provides for a new enhanced planning process via An Bord Pleanála. However, most wind farm developments will continue to fall under the traditional planning process involving an initial application to the local authority, and including a right of appeal to An Bord Pleanála.

Whilst delays during the construction phase of the project are always a possibility, contracts are drafted to cater for this through warranties, indemnities and other mechanisms. However, a developer will usually have to bear its own expenses for delays caused by the planning process. Leaving aside planning hearings, the cost of judicial review proceedings can be prohibitive for any wind farm project.

Recent case law and media reports show how crucial public consultation is when embarking on an energy-related development. To reduce the risks associated with planning, it is critical that the developer begins discussions with local community groups and the relevant authorities as early as possible, for example the Commission for Energy Regulation (CER), ESB Networks/EirGrid and An Taisce. Wind farms commonly receive objections relating to noise, height, cabling (underground/ overground), landscape, shadow flicker, archaeology (land/marine), special conservation areas, wildlife habitats and traffic. Prior consultation will assist in minimising the objections.

CONNECTION  

Before selling electricity, the wind farm needs to be physically connected to Ireland’s electricity grid. A connection agreement will need to be entered into with ESB Networks or EirGrid, depending on where the connection is to be made. This agreement allows the cabling (onshore/offshore) to connect to the grid. There will also be financial obligations imposed which are a combination of one-off connection charges and ongoing “use of system” charges. Lenders will typically require connection to have been agreed before advancing finance.

An Authorisation to Construct needs to be obtained from the CER before the construction of a wind farm can commence, and a Generation Licence is required before the wind farm can commence the generation of electricity.

Typically, the structure for a wind farm is centred around a special purpose vehicle (typically a limited liability company) set up by the developer, which then secures land interests, obtains consents and finance, and contracts with a turbine supplier and operations and maintenance provider. The exact corporate structure of the project will be driven by the shareholders’ and lenders’ requirements.

FINANCE  

Due to the current economic climate, obtaining funding is posing a difficulty for many developers. Given the level of risk aversion that is currently prevalent in the debt market, it is likely that more credit support will be required by lenders than might have been the case in recent years, for example parent company guarantees and bonds.

Lenders will be particularly interested in the sources of revenue that a particular project will be able to exploit. Remuneration from the Single Electricity Market (SEM) is available to developers directly, but banks will not generally take the merchant risk associated with exposure to fluctuating SEM spot prices. The solution is for the wind farm development company to enter a power purchase agreement (PPA) with a licensed electricity supplier such as ESB, BGE or Airtricity.

The Irish government’s Renewable Energy Feed-In Tariff (REFIT) incentive scheme has been in place since 2006, and is designed to work alongside PPAs. REFIT is designed to make renewable-based PPAs more attractive to suppliers at the negotiation stage, by providing an additional stream of revenue to a supplier that enters such a PPA. The supplier receives, for 15 years, a guaranteed administration payment, plus what is effectively a hedge against the risks that the agreed PPA price exceeds market-based wholesale prices.

The scheme is available on a ‘first come first served’ basis up to a 1,450MW capacity limit. This availability closes on 31 December 2009, and a commercial operating date of no later than 31 December 2010 is an additional condition. It is important to note that the 15-year term period may not be extended beyond 31 December 2024. A successful applicant receives a ‘letter of offer’ subject to planning permission and connection offer.

OFFSHORE  

There are currently only two offshore wind farm developments in Ireland, namely Arklow and Codling Wind Farm (Greystones). Reasons for such a small number are the lack of real incentives for development, the complex planning process, the delays caused by judicial review/appeal in the Irish courts, and the physical electricity grid network.

However, there have been some improvements. Minister Ryan announced that offshore wind energy projects shall fall under the auspices of the REFIT scheme to the value of €140 per MWh. EU approval of this State aid will be required and perhaps even formal legislation. Nevertheless, Ireland’s potential as an offshore wind energy leader has been given definite strength.

Also, recent debates of the Oireachtas’ Joint Committee on Climate Change and Energy Security shows that, at least at committee level, the Government is considering the introduction of a more simplified and focused process for offshore wind farm developments. It is expected that the Foreshore Acts will be updated after the transfer of foreshore obligations from the Minister for Agriculture Food and Fisheries to the Minister for Environment Heritage and Local Government. Notably, the Committee has issued a draft bill entitled “Offshore Renewable Energy Development Bill 2009”.

The Bill intends to give new roles to the Marine Institute including the allocation of designated areas by auction and the granting of leases. Interestingly, it also intends to extend the SIA to offshore renewable energy projects and to make the Marine Institute the relevant planning authority.

The Irish Wind Energy Association (IWEA) has advocated many improvements in policy and frameworks for both offshore and onshore developments, including automatic extensions to planning permissions. Currently, permissions are usually given for a five-year period. However, 10-year permissions may be sought on application.

Offshore developments are not inherently devoid of objections as environmental issues concerning birds, fish and marine mammals, coastal landscapes and existing traditional uses of the ocean, are still raised by local communities and interested organisations. Environmental liability has recently been extended as of 1 April 2009 through the Environmental Liability Regulations.

Where the development is offshore, other complexities arise in relation to construction relating to foreshore leases/licences and connections with onshore cabling/ substations. Some ambiguity exists on consent requirements where the development extends beyond the foreshore (12 nautical miles from high level seas). It is hoped that this will be dealt with under the Bill.

Given the great interest in renewables, especially wind energy off the west coast, it is important that any work on this area is done quickly and effectively. Also, the rights of existing foreshore lease/licence holders need to be preserved and any policy or framework needs to be updated to reflect advances in technologies.

Thanks to the strong emphasis by the Government on renewable energy (including micro-generation) and also recognition by the EU of Irish electricity potential growth in this area (€110 million funding towards the €600 million East-West Interconnector between Ireland and Wales), it is clear that one very real and rapidly growing area in Irish industry is wind generation.  

This article was first published in Construction Magazine (May 2009).