Energy Transition in Ireland – November Update on Targets, RESS Auctions and Grid Development Policy
As Ireland increases its renewable energy target – now aiming to meet up to 80% of electricity demand from renewable sources by 2030 – we look at latest developments in the Renewable Electricity Support Scheme (“RESS”) and grid development policy, both vital to the success of energy transition.
Several recent policy documents, including the Climate Action Plan 2021, have indicated the Government’s intention to meet up to 80% of electricity demand from renewable resources by 2030. This would represent around a doubling of current levels.
In terms of installed renewable capacity, the Climate Action Plan 2021 commits to 15GW of new capacity (comprised of around 5GW of offshore wind, 8GW of onshore wind and 1.5-2.5 GW of solar PV). This would represent more than a quadrupling of current renewable capacity. (Installed wind energy capacity was 4.3GW at the end of 2020 according to the EirGrid Capacity Statement).
Accommodating this volume of renewable capacity on a small island system will require an unprecedented level of investment in transmission infrastructure and, to avoid unacceptable levels of curtailment, significant investment in interconnection and storage. The forthcoming decision of the Commission for Regulation of Utilities on implementing Article 13 of the Regulation (EU) 2019/943 will also be critical to determining whether this objective can be achieved.
RESS 2 Begins
RESS is a series of auctions in which generators compete for long-term support. The Department for Environment, Climate and Communications published the Terms and Conditions for RESS 2 which intends to support a maximum quantity of 3500 annual GWh.
For insight on how this might translate to installed capacity, 2236.65 GWh Deemed Energy Quantity was successful in RESS 1, which represented 1.275 GW of Offer Quantity.
Main Characteristics of RESS 2
|Timing||The RESS 2 timetable indicates that the Qualification Information Pack will be published on 23 November 2021 and final auction results will be available on 14 June 2022.|
|Support Mechanism||As with RESS 1, RESS 2 is structured as a two-way floating feed in premium such that electricity suppliers with Power Purchase Agreements (“PPAs”) offtaking from successful projects will be entitled to Support Payments from the PSO Levy fund to the extent the Market Reference Price above zero is lower than the Strike Price (the price the project bid into the auction).
Suppliers will make Difference Payments to the PSO Levy fund to the extent Market Reference Price exceeds Strike Price. As with RESS 1, Strike Price over the course of the RESS 2 Support term will not be adjusted for inflation.
|A key aim is to broaden the renewable electricity technology mix in the energy system. The auction will be open to New Projects that rely on the following to produce electricity:
While the three types of Hybrid Storage Projects contain a storage component, RESS 2 Support will not cover the capacity of any energy storage facilities (such as battery systems). All electricity generated by the RESS 2 Project must be delivered across the RESS 2 Project meter, so charging the storage facility will be reflected as decreased exports and discharging of the storage facility will be reflected as increased exports.
Storage facilities can only store energy generated by the Project, and not energy imported from the grid. Otherwise the Project ceases to be eligible for RESS 2 Support. Thus RESS 2 Support is not available for export of energy stored from potentially non-renewable generation.
|Period of Support||RESS 2 support for Suppliers will run from earliest 1 July 2023 (or, if later, the Commercial Operation of the project in question). Where a Project achieves Commercial Operation before 1 July 2023, it can participate in the SEM before its RESS 2 Support starts.
RESS 2 support will run until no longer than 31 December 2039 (which can be extended to 31 December 2040 at the latest, where the Project successfully claims Force Majeure relief before Commercial Operation).
|Project Realisation: Bid Bonds and Performance Security||The RESS auctions require security during the auction process and during the planning and construction phase with the aim of minimising project drop out to ensure maximum realisation of generation capacity.
The methodology for calculating the value of Bid Bonds and Performance Security has changed as compared to RESS 1.
The Bid Bond value in RESS 2 is €6/MWh, where the MWh value is the Deemed Energy Quantity for one year for the RESS 2 Project.
The Performance Security value is €20/MWh of Offer Quantity, where the MWh value is the Deemed Energy Quantity for one year for the RESS 2.
|Key Dates||Some key dates are as follows:
|Community Participation||As with RESS 1, Community-Led Projects are given preferential treatment in the auction process (see further below).
Community-Led Projects must now be 100% owned by a Renewable Energy Community near the RESS 2 Project either through direct ownership of the Project’s assets or shares in the Generator (up from 51% in RESS 1). 100% of all profits, dividends and surpluses from the Project must be returned to the Renewable Energy Community (up from 51% in RESS 1).
|As with RESS 1, all RESS 2 Projects must establish a Community Benefit Fund to which the Generator contributes €2/MWh for the benefit of the community in question.
Generators are required to comply with the new Community Benefit Fund Good Principles Handbook which sets out guidance including in relation to community participation in fund decision-making. Generators must register the Community Benefit Fund with the RESS Community Benefit Funds National Register.
|Opt Out||As with RESS 1, a Project may opt out of RESS 2 and take the Project to the open market. Such projects would no longer be eligible for RESS 2 Support Payments, but would still be permitted to seek Guarantees of Origin (to demonstrate the renewable credentials of the energy being supplied to customers). During the construction phase, such Projects would still be bound by their Implementation Agreement and subject to Performance Security forfeiture.|
Qualification & Auction
|Planning Permission and Grid Connection||As with RESS 1, to qualify to compete in the auction, RESS 2 Projects must have full planning permission for construction of the electricity generation plant and a grid connection offer or agreement.
New provisions state that any modification to the grid connection offer / agreement must maintain at least the capacity envisaged by the (pre-auction) Offer Quantity or (post-auction) Minimum Installed Renewable Capacity.
A RESS 2 Project that is a separately metered extension of a RESS 1 Project will only be eligible for support under RESS 2 once the RESS 1 Project has achieved Commercial Operation.
|Preference Categories||Qualified applicants will compete in the auction in one of two categories: (i) the Community Preference Category, and (ii) the All Projects Preference Category. Winners are selected from the list of eligible offers sorted from lowest to highest Deemed Offer Price, starting with the offers in the Community Preference Category. Projects that compete only in the Community Preference Category do not require a Bid Bond or Performance Security.
Unlike RESS 1, it is no longer considered necessary to give solar projects a separate category to mitigate against the risk of competition disadvantage of potential higher cost technology. In RESS 1, their average prices came in slightly lower than the All Preference Category.
|Bidding Independence||As with RESS 1, Applicants must submit a Declaration of Bidding Independence. RESS 2 requires that Projects confirm that the information has remained true throughout the Standstill Period (which is the time between applying for Qualification and the Auction Submission Deadline Date) unless a change in the information was approved by the TSO during the Standstill Period.|
|Offer Process||There is a new form of Financial Questionnaire. If information in the Financial Questionnaire is not true or accurate the Qualified Applicant can be prohibited from participating in RESS competitions for five years, any Letter of Offer revoked, and the full amount of any Bid Bond or Performance Security drawn down.|
|Non-reliance on RESS 1||A director declaration will be required to confirm that neither the planning consent nor the grid offer / agreement relied on is one that a RESS 1 project has or will rely on.|
RESS 1 Update
Support for suppliers with PPAs with 41 onshore wind and solar RESS 1 Projects has now been given statutory footing pursuant to the latest amendment to the Electricity Regulation Act 1999 (Public Service Obligations) Order 2002 (as effected by the Electricity Regulation Act 1999 (Public Service Obligation) (Amendment) Order 2021).
Offshore RESS 1 Update
Our recent briefing on the ORESS 1 consultation and proposed approach to grid connection assessments is available here. The Maritime Area Planning Bill is at the Fourth Stage of the legislative process in Dáil Éireann. The Bill’s passage will be a significant milestone in progress towards commencing ORESS 1.
Shaping our Electricity Future
EirGrid has published its Roadmap for achieving the target of meeting at least 70% of demand from renewable energy by 2030 while maintaining the stability of the grid. The Roadmap identifies a significant number of required network reinforcement projects and describes the scale of work outlined as very challenging to deliver. Also part of the plan is optimising the existing grid through technologies such as active power flow. It remains unclear what additional reinforcements will be required for Ireland to reach its new target of 80% renewables. However, with only nine years to 2030, time is not on our side to develop an updated Roadmap and deliver the necessary infrastructure.
EirGrid describes the system adequacy position in the short to medium term as challenging. It states that 2-3 GW of new dispatchable plant (gas, interconnection, batteries and demand side) will be needed over the next decade for a secure transition. Operation of the power system with SNSP levels of up to 75% is being trialled. SNSP levels of 95% will be needed to support renewable energy targets, and system services will play a key role.
EirGrid is also placing significant emphasis on demand side flexibility and indicates that a demand side management strategy covering participation in energy, capacity, and system services markets is required to incentivise demand flexibility.
EirGrid has a long list of workstreams to progress and groups them under four categories. Under Network Infrastructure, one of the workstreams is described as regulatory policies to support locating generation and large energy users where electricity grid capacity is available / anticipated to be available in the future. Under Engagement, workstreams include establishment of a Shaping Our Electricity Future Advisory Council and coordination of regular industry forums. It is clear that constructive engagement with not just the energy sector, but also large energy users in the pharmaceutical, manufacturing, and digital sectors, will be very important for the wider economy.
Under System Operations, workstreams include delivering enhanced and new integrated control centre technologies and tools required to operate the system with increasing levels of variable non-synchronous renewable energy. Under Electricity Markets, workstreams include aligning the SEM with high levels of renewables (which would include scheduling and dispatch changes), and full integration of the SEM with both GB and the EU markets. Several workstreams in these areas have operational relevance to full implementation of Articles 12 and 13 of the Internal Market in Electricity Regulation, urgent clarification on which is very important for the long-term sustainability of the renewable energy sector in Ireland.
The Roadmap is to be updated at least every two years. EirGrid has also recently published its Transmission Development Plan 2020-2029 and the All-Island Ten Year Transmission Forecast Statement 2020.
Collaboration with stakeholders will be key in progressing grid development planning which acknowledges the levels of public investment required, allocates risk fairly between the State and new generation projects, and maintains fair access to infrastructure across all sectors of the economy to support sustainable economic growth.