Proposals for new Renewable Electricity Support Scheme revealed

On Monday, 4 September 2017, the Department of Communications, Climate Action & Environment issued a final public consultation seeking feedback on the development and design of a new Renewable Electricity Support Scheme (“RESS”) for Ireland. This consultation provides a very clear indication on the likely structure of the new RESS.

The proposed new RESS has been designed to meet Ireland's contribution to EU-wide renewable energy targets out to 2030. The scheme is based on a competitive auction process where support will be set by the highest value bidder. 

The Government has to secure sustainable supplies of competitively priced electricity for all consumers, and the sustainable development of Ireland’s renewable energy resources is critical for the attainment of this objective. 

This consultation is seeking submissions to specific questions relating to the design principles and structure of the new RESS, including models and pathways to deliver increased community and citizen participation in renewable electricity projects. Feedback is sought on the emerging design options of the new scheme.

Key Features of the new RESS Scheme

Details of the proposed scheme to support renewable energy generation in Ireland have been long awaited.

At a very high level, some of the key features of the scheme being processed are as follows:

• Auctions: These will be undertaken by way of principal category auctions encompassing all viable technology options leading to the most cost efficient projects being successful. Auctions for renewable energy projects have become increasingly popular in developing and developed countries, and are often implemented in combination with other measures. The number of countries that have adopted renewable energy auctions increased from six in 2005, to sixty seven by 2016 according to the consultation document.

• Uniform pricing structure: All bidders with offers below the clearing price would receive the clearing auction price. Selection of successful bidders would be based on price only.

• Technology neutral auctions: Technologies would compete in appropriate auctions with success being based entirely on the bid price. Specific auctions for nascent technologies such as solar PV or offshore wind may be required going forward, and if such an approach is taken, each additional auction category should be based on competitive bidding, with technologies eligible for each auction category (based on viability gap analysis) competing against each other on an equal footing to receive support. This should assist in the development of alternative sources of renewable energy such as Solar PV, wave/tidal power and bio energy.

• Floating Feed in Premium (FIP): This relates to a variable MWh premium which is calculated as the difference between the strike price and the reference market price.  The strike price would be set through the competitive auction process. This will provide protection from wholesale market price risk, but does not provide as much protection as a Fixed Feed in Tariff (FIT), which provides a guaranteed fixed payment for each unit of electricity produced during the support period. The existing Renewable Energy Feed-in Tariff (REFIT) schemes are FIT mechanisms. FIT mechanisms are considered not to be compatible with EU rules and do not perform well against market integration/ Integrated Single Electricity Market (I-SEM) compatibility criteria as there is no incentive to respond to the wholesale price of electricity.

• Community ownership: It has been identified that the most efficient primary policy for supporting community ownership is the obligation for developers to offer the community an opportunity to invest in the project. Some portion of all new projects supported by the RESS scheme therefore would be available for community investment. This would be incentivised and incentives such as tax incentives, green bonds and facilitation of crowd funding would be examined.

• Micro-generation: It may not be appropriate to include support for micro-generation in the new RESS given the higher costs identified with micro generation. Alternative means for developing and supporting micro generation will be identified.

Potential Impact on Businesses and Consumers

The cost of supporting renewable energy generation is funded through the Public Service Obligation (PSO) levy which is charged to all electricity customers in Ireland. It is expected that this cost will increase initially particularly as the support needed will increase gradually as the number of renewable energy projects increases. 

This additional cost will be offset somewhat by the expected reduction or elimination of subsidies for peat power generation expected in 2018. The costs of additional support should also be offset over time by reductions in the cost of electricity generation, coming down as renewable energy sources increase their reach, and as projects reach the end of their support lifetime. The increasing competitiveness of renewables is demonstrated by the fact that in a recent UK award of 'contracts for difference' under the UK support scheme, the clearing prices for three offshore wind projects were considerably less than the guaranteed price provided to the Hinkley Point C nuclear power plant.

Potential Impact on Renewable Energy Developers

When the scheme is introduced Renewable Energy developers will be in competition with each other (and with other technologies as well) to bid the most competitive price at an auction. In addition, the subsidy they receive will be linked to the reference market price, and is not guaranteed, unlike the current REFIT schemes. These risks can be offset by the development of new and cheaper technologies. Major developers will have to facilitate community involvement in any of their projects approved for RESS support. According to industry reports, in Denmark, for example, which has a similar scheme, developers have to offer a 20 per cent community share ownership for wind projects with turbines larger than 25m (Source: Irish Times, 5 Sept 2017).

The Public Consultation Process

This public consultation will remain open until 16.00pm on Friday, 3rd November 2017. All submissions are to be emailed or sent in writing to RESS Consultation. For full details on how to make a submission, visit Renewable Electricity Support Scheme Design Consultation.

For further information and queries on the new RESS, or general legal advice in relation to renewable energy projects, contact Edon Byrnes from the ByrneWallace Energy, Utilities and Natural Resources team.