The Department for the Economy (DfE) has launched its consultation for Design Considerations for a Renewable Electricity Support Scheme for Northern Ireland, seeking views on the implementation and operation of a support scheme which encourages low-carbon electricity generation from a diverse range of renewables.
The scheme is intended to go towards delivering Northern Ireland’s Executive’s ambitious Energy Strategy targets and attract investors to benefit from green-growth opportunities, whilst providing stability to protect consumers from global price fluctuations.
Similar schemes already operate in both the Republic of Ireland and Great Britain, but Northern Ireland has been without a formalised renewable support scheme since the closure of the Renewables Obligation (RO) in March 2017.
In December 2021, the DfE published its new Energy Strategy for Northern Ireland, setting a target for 70% of Northern Ireland’s electricity consumption to be from a mix of renewable sources by 2030. That target has subsequently been increased to 80%.
The DFE’s Energy Strategy Action Plan followed in January 2022, identifying the aim of incentivising renewable electricity generation in Northern Ireland through the implementation of a support scheme.
The consultation seeks input from stakeholders in renewable electricity development and those otherwise involved in the wider energy sector, to determine how the scheme should be implemented and operate, including potential eligibility criteria. The questions also seek to define the underpinning principles of the scheme.
The consultation closes on 27 April 2023. To respond online to the consultation, please click here.
To assist readers in responding to the consultation, we’ve outlined below some details of the current support schemes in Ireland and GB, as well as the differences between the schemes.
Renewable Electricity Support Scheme in Ireland
The “Renewable Electricity Support Scheme” (RESS) in the south of Ireland operates as a series of competitive auctions, operating in a similar way to discrete procurement processes.
The structure of the scheme is intended to be able to evolve during the lifetime of the scheme depending on market conditions and costs as well as changing renewable policy objectives. For example, in the second auction, the solar preference category was removed, and hybrid projects were included, based on prevailing market conditions and need.
In each round, a total number of gigawatt-hours are put up for auction by the State, inviting bids from potential developers. Bids are awarded on most economically advantageous basis, with the most cost-effective bidder being first picked, followed by the second and so on, until all hours are allocated.
Applications for each stage of the scheme are made via the RESS auction platform, which must include a signed Grid Connection Agreement, planning permission and landowner consent confirmation as well as confirmation that funding to construct the project is in place. Developers include their bid price, setting out the price they want to be paid for the next 15-year period.
The application must be accompanied by a bid bond, intended to incentivise the delivery of project milestones and prevent speculative bids. These bonds are non-refundable in the event of a project not being constructed and operational before the delivery date.
Decisions are then made by EirGrid, with results reported back to the Irish Minister for the Department of Environment, Climate and Communications for final approval. The Commission for Regulation of Utilities are responsible for the payment of successful bidders, funded by the Public Service Obligation (PSO) Levy.
A key policy underpining the Irish scheme is supporting communities and sustainable community energy projects. Every RESS auction has a separate community category to give community-led generation projects an opportunity to get support. All successful RESS applicants must also contribute to a Community Benefit Fund. For the second RESS auction, the contribution was set at €2/MWh.
Contracts for Difference
In Great Britain, “Contracts for Difference” (CfD) operates in a similar way through a series of auctions, known as allocation rounds, which vary for each round depending on renewable need. For example, following consultation the fourth round of the scheme was opened up to an expanded number of renewable technologies including floating offshore and tidal projects. The adaptable auction scheme is aimed at ensuring GB has a resilient energy system, supporting the UK’s transition to net zero.
For CfD auctions, developers may submit a bid including the size of their project and the strike price (what they want to be paid per MW hour) and the Government sets an administrative strike price, operating as a cap on developers’ bids. Bids are then ranked lowest to highest on the basis of the strike price. Bids are accepted until the maximum budget has been reached.
Successful developers enter into a 15 year contract with Government-owned, Low Carbon Contracts Company (LCCC) who pay them an index linked, flat rate for electricity produced over the full 15 year period.
If the market price for electricity generated is below the strike price set out in the contract, a payment is made by LCCC to make up the difference. Conversely, if the market or reference price is above the strike price the generator will pay the difference to LCCC.
The payments made by LCCC, as well as their operational costs, are funded by a levy on UK-based licensed electricity suppliers.
Successful generators have to demonstrate their commitment to the project within 18 months, they need to prove that they have either spent 10% or more of the total project costs on the project, or met the Project Commitments set out by CfD. Following signing of their agreement, generators have to provide LCCC with monthly progress reports towards their estimated start date and publish their estimated start date in the CfD register, on a quarterly basis. The LCCC can terminate the contract if a generator fails to meet a milestone.
So what’s the difference?
Whilst the GB and Irish schemes are similar in terms of aims and features (both operating via a series of auction rounds which vary based on need, for the award of a 15-year contract), there are some important differences from a legal perspective:
- One key difference is in the pricing and how developers are paid. In Ireland, RESS payments are not currently index-linked, meaning that what a developer bids is the price they will be paid for the next 15 years, regardless of inflation. By contrast, CfD payments in GB include an indexed element, ensuring successful generators are guaranteed a market price throughout the 15-year contract period.
- A bid bond must accompany a RESS bid, whereas CfD bidders do not have to put any kind of bond or security in place.
- The process for evaluation of bids varies slightly – CfD bidders are awarded up to a monetary cap, whereas RESS bidders are awarded up to a megawatt limit.
- Successful CfD generators enter into a private-law commercial contract with LCCC, whereas those in the South are subject to public law terms, entering into a contract with the Minister for The Department for the Environment, Climate and Communications.
- RESS has a community element as one of its key underpinning principles and successful generators have to contribute to a Community Benefit Fund. CfD has no equivalent principle.
The responses to the consultation and resulting scheme will be eagerly awaited. Whether the DfE will opt for a scheme more closely aligned with RESS or CfD will also depend on regulatory and industry input (as well as considerations in terms of a ensuring a level playing field in the all-island electricity markets, including the capacity market), and parties interested in influencing such direction should take this opportunity to make their views known: consultation, please click here.
While we wait to see the results, it is at least welcome to see some progress in bringing about a form of renewable support in Northern Ireland.
If you or your business require any assistance in submitting your response to the consultation or require any assistance generally with your energy requirements (including power purchase arrangements, considering renewable installations (like solar panels or wind turbines) or anything else, please feel free to reach out to Andrew Kirke or your usual Tughans contact.