ICIS Power Perspective: First Irish RESS auction will favour new solar power capacity over wind

26 July 2018 17:55 Source:ICIS

This story has originally been published for ICIS Power Perspective subscribers on 26 July 2018 at 16:42 CET.

New solar power projects are likely to win the majority of subsidies in the first auction of Ireland’s new renewable electricity support scheme (RESS) in 2019, thanks to a policy that will mean all capacity will need to be commissioned by the following year. The auction will be the first of up to five planned for the years to 2025, as part of a programme intended to increase and diversify Ireland’s installed renewable capacity.

Background

  • Renewables subsidies in Ireland take the form of the competitively-allocated renewable energy feed-in tariff (REFIT), which will continue to support onshore and offshore wind, biomass and combined-heat-and-power (CHP) projects until 2032
  • RESS was originally announced in 2015 and faced repeated design and consultation delays
  • The government’s energy department (DCCAE) released the final design for the scheme on Monday. The design differs from previous iterations, with the most recent consultation on the plan having proposed a series of technology-neutral auctions which would have seen all technologies directly competing on a level playing field
  • The final design confirms that all auctions will involve prospective projects competing for a floating feed-in premium subsidy, which will guarantee a minimum total income set at the auction strike price
    • At times when the wholesale market price rises above the auction strike price, generators will boost their total income and gain additional revenue from the market
  • Ireland’s solar pipeline has grown significantly in recent years, fuelled by market confidence that the government would generously subsidise the technology

Final design

  • The final design of the scheme sets out a roadmap for between four and five subsidy auctions to take place between 2019 and either 2023 or 2025
    • The auctions are intended to both increase and diversify Ireland’s installed renewable generation capacity
      • DCCAE is considering a range of eight policy mechanisms to ensure subsidies are distributed between different technologies, primarily onshore and offshore wind and solar
      • The potential mechanisms include targeted delivery dates, single technology caps and enhanced levelised cost of energy (LCOE)
    • No single technology cap will be imposed for the first auction, meaning one technology could in theory claim most or all of the available capacity
    • The first auction will however involve a delivery target date of 2020
      • This means projects that are not brought online by the end of 2020 will be forced to forfeit their bids and will have to participate unaided in the wholesale power market. Projects may also be excluded from later auctions
    • The second auction, scheduled to take place in 2020, will include an as-yet unspecified single technology cap and will have a delivery target of 2022

Analysis

  • First auction
    • As we previously predicted, the 2020 target delivery date specified by the first subsidy auction means it is likely that solar projects will claim the majority, or all, of the offered capacity given the technology’s short lead time compared to wind projects
    • A lack of single technology cap means there the proportion of successful solar projects is not limited
    • Any wind project entering the auction would be taking a significant risk given the tight deadline and harsh punishment for late delivery
  • Subsequent auctions
    • With the second auction, due to take place in 2020, set to include a single technology cap, subsidies are likely to be more diversely distributed among technologies
    • Onshore wind remains the cheapest renewable technology in Ireland, meaning it is likely to be successful in auctions that allow for longer lead times
    • It is unclear at present whether the combined caps for onshore wind and solar will be set below the total auction volumes on offer. If so, this could also create opportunities for offshore wind projects to be awarded in the auctions despite having a higher LCOE than onshore wind or solar.
  • 2020 RES target
    • Ireland had a 27.2% share of renewables in the electricity sector (RES-E) at the end of 2016. If demand remains flat, this means the country would require a further 3.8TWh of output to reach the 40% RES-E target
    • However the new auctions are only expected to deliver an additional 1TWh of output by 2020
    • To reach the overall binding target of 16% (which includes electricity, heating and cooling, and transport) Ireland would require a further 8.9TWh across the three sectors by 2020
    • Given the lack of new capacity expected to come online Ireland will need to arrange statistical transfers with other member states if they are to reach their binding target
  • 2030 RES target
    • If all auctions go ahead as planned this would add 13.5TWh of renewable output by 2030
    • If demand were to remain flat to 2030, this would lead to a renewable share of 73% within the electricity sector

Christopher Somers is Market Reporter at ICIS. He can be reached at Christopher.Somers@icis.com

Matthew Jones is Senior Analyst - EU Carbon & Power Markets at ICIS. He can be reached at Matthew.Jones@icis.com

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By Staff Reporter