A time of change for green energy in Ireland

According to Gavin Blake, head of Energy and Natural Resources at leading law firm ByrneWallace, the famous line of "May you live in interesting times" certainly springs to mind when surveying the current significant change in landscape that is facing the Irish renewable energy sector.

In Blake's view, however, "There would appear to be good reason for the sector to adopt an optimistic take on this old, ironic expression when considering the opportunities and challenges likely to flow from this period of substantial change and transition for the sector."

Blake, who recently joined ByrneWallace to head up the firm's energy practice, was commenting on the back of regulatory changes for the sector, a theme which will be one of the focal points for the firm's upcoming seminar on Thursday, September 27th. Leading industry experts, including chairman of Mainstream Renewable Power, and keynote speaker at the event, Dr Eddie O'Connor, will discuss notable opportunities and challenges facing the renewables sector, which, says Blake, "include, from an Irish perspective, the advent of a new wholesale electricity market and the introduction of a new grid access policy and new support mechanism".

New wholesale electricity market (I-SEM)

On October 1st, 2018, the all-island wholesale electricity market is set to transition from the current Single Electricity Market (SEM) to the Integrated Single Electricity Market (I-SEM).

"In simple terms," states Blake, "the current design is not consistent with the European target model, as per the EU's 2009 third energy package, and so the new market will look more like the power markets in other European countries. Through Ireland and other EU states adopting common EU guidelines, procedures and codes, the goal is to have a single EU-wide wholesale electricity market, so that electricity may be traded freely across the EU."

A key feature of the I-SEM, when compared to the SEM, will be the ability of market participants to trade physical energy in 'ahead of real time' markets. There will also be a balancing market, which will be operated by the transmission system operator in order to keep the electricity transmission system balanced. For the likes of wind farms and other variable generation, the I-SEM brings with it the challenge of forecasting levels of anticipated generation and then subsequently being responsible for any imbalance between delivery commitments made in the 'ahead of real time' markets and actual real time generation. The I-SEM also has implications for the existing Renewable Energy Feed-in Tariff  (REFIT) support schemes for renewable generation and will impact on power purchase agreements/offtake agreements, which funders of renewable energy projects rely upon in determining the revenue streams of projects.

New grid connection policy (ECP-1)

Fundamental changes are also underway with regards access for generators to the electricity grid.

A new Enduring Connection Policy (ECP-1) was introduced in March 2018 by the Commission for Regulation of Utilities (CRU), almost 10 years since the last group connection process that allowed larger generators to connect to the Irish electricity grid.

"The new process is technology neutral," says Blake. "In other words no priority for renewables - and it carries a requirement for most projects that they hold valid planning permission. The expressed intention being, at least at the outset, that 'shovel ready' projects get connection offers ahead of less mature projects."

Other prominent features of ECP-1 include the removal of the ability for developers to subsequently relocate grid capacity to another site and the introduction of a requirement that developers put in place bonds in respect of shared asset costs. ECP-1 also incorporates a series of other measures and principles as are set out in the CRU’s decision paper, which is accessible on the CRU’s website.

New support scheme (RESS)

On July 24th, 2018, the high level design of the new Renewable Electricity Support Scheme (RESS) was approved by the Irish Government. This scheme will provide the route to market for future renewable energy projects in the Republic of Ireland and, shaped by EU State Aid Guidelines, differs greatly from previous Irish support schemes for renewables.

"A key difference," says Neil Keenan, head of Corporate and member of the Energy and Natural Resources Team at ByrneWallace, "is that there will be a series of scheduled, competitive auctions throughout the lifetime of the scheme, where projects will compete to secure price support, which will take the form of a contract for difference. The aspiration on the part of the Government is that the design of the new support scheme will result in a lower ultimate cost for the electricity customer."

Keenan adds, "The Government is showing real ambition in providing for a scenario whereby renewables could potentially form as much as 55 per cent of the electricity mix by 2030."

By way of a general observation, Blake notes,"One of the key drivers for the recent rapid growth in the sector, certainly in terms of attracting participants from abroad, has been the regulatory certainty that Ireland has offered, when compared to other jurisdictions. Undoubtedly, I-SEM, ECP-1 and RESS each bring various pros and cons and will not be welcomed by all, but these changes should provide crucial regulatory certainty as Ireland increasingly looks to 2030 and beyond in terms of meeting EU climate change and renewable energy targets."

Aside from the domestic regulatory regime, like most sectors, the Irish renewable energy sector will always also be influenced by the global political environment. The withdrawal by the U.S. from the 2015 Paris Agreement on climate change mitigation has obviously garnered a lot of publicity. There is also the on-going issue of Europe's dependence on Russian gas. Arguably though, and closer to home, Keenan cites the thorny issue of Brexit as potentially having the biggest near term influence on the sector – and the Irish electricity sector more broadly.

Ireland's wholesale electricity market encompasses both the Republic of Ireland and Northern Ireland. There is therefore a clear risk in the view of Keenan that Brexit could "create a schism in this wholesale market. Such a schism might potentially result in alternative electricity market arrangements being required for Northern Ireland. There could also be the prospect of tariffs on imports such as natural gas into Ireland."

Furthermore, Keenan warns that "Brexit could result in possible threats in the future to continued energy supplies from the UK - upon which Ireland is highly reliant - on the basis that the UK would not be subject to EU agreements on resource sharing. From a renewables perspective, and taking a 'glass half full' viewpoint, it could be argued that a harder Brexit would also represent an opportunity for the industry, as there would be a further incentive for Ireland to become more self-sufficient in terms of meeting its electricity needs."

Notwithstanding this backdrop of regulatory changes and near term uncertainty from a geopolitical perspective, Blake and Keenan are confident that "with a steady hand on the tiller" Ireland can remain a world leader in terms of the penetration of renewable energy into the electricity supply mix, whilst ensuring that the country has an energy supply that is both sustainable and secure.