Update on Ireland’s renewable energy feed in tariff

Gavin Doyle
McDowell Purcell Solicitors

Update on Ireland’s renewable energy feed in tariff:

This month, the Department for Communications, Energy and Natural Resources (“DCENR”) published some initial, if slightly scant, detail on proposals for REFIT 2 and REFIT 3, which were sent to the European Commission for state aid approval in September 2011.

Before we look at the proposals, it is useful to refresh on some statistics. Ireland has been set a mandatory target by the E.U. of 16% of our energy consumed, broken down into heat, transport and electricity, to come from renewable sources by 2020 (pursuant to Directive 2009/28/EC). Ireland’s National Renewable Action Plan submitted to the European Commission in 2010 provided that this target will be achieved by 40% of our electricity consumption, 12% of our heat consumption and 10% of our transport consumption coming from renewable sources by 2020. In relation to the electricity target, this equates to roughly 5800MW of installed renewable capacity. As of August 2011, there is approximately 1551.45 MW of installed renewable capacity which leaves an additional 4,250 MW to be deployed in the next eight years. It is clear therefore that our rate of deployment will have to increase substantially if these targets are to be met.

DCENR have in this regard sent the EC Commission two further state aid applications as follows:

REFIT 2 – This application is intended to cover small and large scale onshore wind, biomass landfill gas and hydro (below 5 MW);
REFIT 3 – This scheme is to cover certain biomass categories as follows: 50 MW of Anaerobic Digestion broken down into separate sub-categories, 100 MW of biomass combined heat and power broken down into separate sub-categories and 160 MW of bio-combustion and co-firing.

In order to be eligible for REFIT 2 and 3, proof of planning permission and grid connection must be in place. This will, at least, prevent speculative applications from being allocated capacity before the necessary project pre-requisites have been secured. It is likely that the upcoming scheme will also mandate that projects must neither have been built, nor have been under construction by 1^stJanuary 2010, thereby ensuring that it is new developments which benefit from the new support scheme.

While the terms and conditions are not yet published (and it is currently uncertain when this will occur), it is imperative that REFIT 2 and 3 will grant support to participants for a period of 15 years as in REFIT 1.

For a considerable period of time at this stage, it has been generally accepted that Ireland is not sending out the proper investment signals to encourage investors to enter the Irish wind energy market. Quite simply, it has been a long wait, with REFIT 1 having closed to new entrants on 31 December 2009. In addition, despite soundings from DCENR, it is important to remember that it took almost two years after REFIT 1 had been sent to the EC Commission for approval (August 2006) for DCENR to publish a statutory instrument bringing the scheme into force. It is a necessity, in light of our 2020 deadline, that the new rounds of REFIT are effected as a matter of urgency once EU approval has been obtained.

Moreover, there have been suggestions that REFIT 2 and 3 will revise and/or amend the fixed reference price that granted participants a guaranteed revenue stream for 15 years under REFIT 1. The argument that has been put forward for revising these fixed payments is so that the Public Service Obligation Levy, which is ultimately paid for by electricity consumers, does not become disproportionately expensive relative to the goal of supporting renewable energy projects in order to meet our renewable targets. A further possible concern by DCENR is that REFIT participants may ultimately benefit from windfall profits sponsored by the electricity consumers. However, what this argument fails to address is the effect that wind energy penetration has on the Single Electricity Market. The well-publicised recent study carried out by Redpoint Energy Limited indicates that “the general trend observed in the modelling was of renewable support costs being more than offset by lower wholesale prices, ” with the total saving [to consumers] being in the amount of €250 million if Ireland meets its renewable energy targets in 2020.

Conspicuous by its absence is a REFIT application in respect of offshore wind, wave and tidal energy. While REFIT tariffs in respect of these categories were announced in 2008, it is now almost four years later and no state aid application has been submitted to the European Commission for approval. Nor is there any indication of a future date in this regard although the necessity for a separate state aid application is acknowledged by DCENR. For these technologies, despite the serious resources at our disposal, it is apparent that Ireland has still not got its act together. Meanwhile Northern Ireland has in place a strong support scheme to foster the deployment of offshore wind, wave and tidal power. As an example of the results of implementing a positive offshore support framework, 308 new offshore wind turbines were installed in the U.K. in 2010.

Finally, it is interesting to revisit the reasoning behind the EC state aid decision in relation to REFIT 1 in 2007: They noted that there was strong interest from renewable energy developers to deliver the target of 1450MW, but that the market deficit was a lack of investor confidence. We appear to have come full circle and await with urgency the delivery of EC state aid approval and the next Statutory Instrument implementing REFIT 2 and 3.

Gavin Doyle is a trainee solicitor and LLM graduate in Environmental Law & Policy from the Centre for Energy, Petroleum, Mineral Law & Policy, University of Dundee

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