What lessons can we learn from the Renewable Electricity Support Scheme (RESS 3)?
A slowdown at the wrong time for renewable energy
RESS 3 is the third onshore auction run by the Irish Government. The aim of RESS 3 is to support additional onshore wind, solar and hybrid generation as part of the Government’s ambition to reduce emissions by 51% and deliver 80% of Ireland’s electricity from renewable energy sources by 2030.
RESS 3 results were particularly disappointing in terms of volume and price with the latest auction expected to deliver 934 GWh in renewable electricity (versus expected volume of 2,000-3,500GWh) at a weighted average strike price of €100.47/MWh (versus €97.87/MWh in RESS 2).
Noel Cunniffe, CEO Wind Energy Ireland, recently remarked: “At a time when we should be accelerating the delivery of renewable energy, we are slowing down”.
Volume
Only 33 projects qualified to bid into RESS 3. This was significantly lower than RESS 1 (108 projects) and RESS 2 (130 projects), with the reduced volume mainly due to planning delays.
Positively, the recently published Planning and Development (Amendment) Bill 2023 should go some way to reduce planning delays. This Bill includes significant restructuring and resourcing of An Bord Pleanála, which will be renamed An Coimisiún Pleanála; and introduces mandatory timelines on the decision-making process, including appeals.
Under RESS 3 T&Cs, developers had to show evidence of a grid connection offer to participate in the auction. This condition was introduced to minimise speculative bids and reduce project delivery risk. Due to delays in connecting projects to the grid, however, some otherwise eligible projects were excluded from the auction.
The success of future RESS auctions relies on a consistent pipeline of eligible projects to ensure a competitive process that will ultimately benefit the Irish electricity consumer. Failure to address planning and grid connection delays will negatively impact the number of projects that are eligible to bid into these auctions.
To increase the pipeline of projects eligible to bid into RESS 4, the Department of the Environment, Climate and Communications (DECC) should consider allowing successful RESS 1 and 2 projects that are not being built out under these schemes to bid into RESS 4.
A number of these projects are not currently economically viable – the strike prices in RESS 1 (€74.08) and RESS 2 (€97.87) are not index-linked. Neither do these projects qualify for Unrealised Available Energy Compensation (UAEC).
Price
The weighted average strike price achieved in RESS 3 of €100.47/MWh (compared with €97.87/MWh for RESS 2) was higher than expected. It would have been higher still but for the introduction of partial indexation and UAEC in RESS 3. This significantly de-risks RESS participant exposure to inflation and uncertainty surrounding curtailment and oversupply.
The price increase on the previous auctions highlights the ongoing cost challenges faced by developers and suppliers. The Department of the Environment, Climate and Communications (DECC) needs to consider these when setting the price cap for future auctions to ensure the economic viability of successful projects.
A recent contracts for difference (CfD) auction in the UK failed to attract any bids from offshore wind developers on the basis that the maximum price cap was set too low.
If we fail to act on the lessons learned from RESS 3, the gap between our ambitious renewable energy targets and what we achieve by 2030 and beyond will continue to widen.
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Given our experience working with public and private sector clients in the renewable energy sector, we are ideally positioned to help you with financial advisory services relating to RESS and alternative routes to market.
We can advise you on project finance, financial modelling, valuations, negotiations and research. Contact us today.
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