The High Level Design for the Renewable Electricity Support Scheme (RESS) released by the Government on 24 July last brings Ireland into line with other countries by moving away from a fixed subsidy for renewable energy generators (under the existing REFIT scheme) to a competitive auction approach.
Given that off-shore wind and solar will be supported for the first time, it is a big departure from REFIT which was dominated by on-shore wind.
RESS will help Ireland deliver its 2030 renewable electricity EU targets. It aims to diversify Ireland’s mix of renewable technologies receiving support, reduce the level of subsidy, promote community participation in renewable energy projects and ensure value for money for consumers.
RESS will comprise frequent and staggered renewable electricity auctions across the lifespan of the scheme. This will allow Ireland to take advantage of decreasing technology costs and avoid being locked-in at a high price for the entire scheme. The quantity of renewable electricity to be auctioned in each round will be set according to the growth in electricity demand, the amount of available projects and Ireland’s National Energy and Climate Plan targets.
The first auction (RESS-1) will take place in 2019, have a delivery date in 2020 and auction 1,000 GW/hrs. Only projects which will be connected to the grid and energised by the end of 2020 will be eligible to participate in RESS-1. The second auction (RESS-2) is expected to held in 2020.
Prior to the auction, all renewable technologies will be subject to a three year viability gap look back analysis based on Levelised Cost of Energy which is the international standard for comparing renewable technologies. This analysis is designed to assess cost competitiveness and technologies which are no longer eligible for a subsidy will be excluded which may allow emerging technologies to participate at auction if they become economically viable.
Several “interventionist levers” are proposed to meet the multiple policy objectives of RESS and to deliver technology diversity within a competitive framework. These may include:
- targeted delivery dates (and penalties for default eg forfeit of bid bond, exclusion from subsequent auctions);
- placing a cap on single technologies at each auction (this may be introduced from RESS-2 onwards on an auction by auction basis);
- prioritising technologies based on their ability to be dispatched on demand;
- flexibility in quantity of capacity auctioned;
- varying the length of support provided per technology;
- setting budgetary caps per auction;
- setting administrative strike prices per technology before the auction;
- allocation of 5-15% for community led projects at each auction
Financial structure of RESS
The financial structure of RESS will be a 2-way contract for difference financed by the Public Service Obligation (PSO) levy. Payments to generators will be based on generation output, a strike price and a reference market price. Each auction will be uniform-price, meaning all bidders making offers below the clearing price will receive the clearing auction price. A key feature of RESS is that the market reference price will be the day ahead I-SEM price where generators will bear the balancing costs.
Pre-qualification rules of RESS
Projects will be required to meet several criteria to participate in RESS auctions. Proposals include:
- ensuring that the technology requires financial support;
- proof of meeting community criteria eg equity opportunities, community benefit payments;
- proof that appropriate planning permission has been obtained;
- proof of a secure grid connection offer in advance of the auction;
- submission of a bid bond in advance of participating in an auction, to reduce speculative bids
Questions from Stakeholders
Despite RESS outlining what is needed to participate in an auction, industry stakeholders will be seeking clarification from the Government on a range of matters prior to the detailed design being released, such as:
- how much will the bind bond be and will community led projects have a lower requirement?
- how will the RESS strike price be indexed?
- how will “planning” be defined for offshore projects?
- what will happen to a bidder if a milestone is missed and will there be a grace period on getting a grid connection agreement?
- can larger projects (particularly offshore) be energised in phases and will this affect the length of support for the entire project?
Next steps for RESS & the Industry
Given the imminent changes with RESS and I-SEM, together with reducing technology costs helping to drive the growth of renewables, it promises to be an interesting time ahead. The further recent announcements of several significant battery storage projects (which will be the first to operate on a commercial basis in Ireland) are also a positive development. In the longer term storage, demand-side management and increased inter-connection will all be essential to accommodate greater levels of renewable electricity on the grid. One thing is for certain, the Irish energy market is undergoing a period of unprecedented change. As with all major industry changes, there will be both winners and losers.