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Irish government finalises terms and conditions for offshore wind auctions

The Irish Department of the Environment, Climate and Communications (DECC) has finalised the terms and conditions for the first auction to supply electricity from offshore wind under the Renewable Electricity Support Scheme (ORESS 1).

The approved terms and conditions of ORESS 1 (137-page / 136KB PDF) is a pivotal step for the Irish government to achieve its target of having up to 80 per cent of the country’s electricity coming from renewable sources by 2030, with 7GW from offshore wind.

This came a year after the government conducted a public consultation on its draft terms and conditions to ensure the efficient and economical delivery of renewable electricity projects under ORESS 1. Coinciding with the COP27, the publication of the terms and conditions of the auction reflects Ireland’s commitment to offshore energy and its climate ambitions.

Renewable energy expert Richard Murphy of Pinsent Masons said the approved terms and conditions include some welcome adjustments from the consultation draft.

“The final terms and conditions include some welcome areas of adjustment from the consultation draft with the inclusion of partial indexation, extended term of support period and compensation for unrealised energy output due to oversupply and curtailment which is a significant market issue at present,” said Murphy.

The official document contains 11 sections. It provides important details on a wide range of issues potential project bidders need to be aware of, from the parameters around the ORESS 1 Auction (including the target volume, eligibility requirements, the requirements of Offers and the winner selection rules), to the obligations on successful applicants, and the processes that will be employed by the state-owned grid operator EirGrid to administer the ORESS 1 Auction.

“Inflationary pressure is front and centre of energy projects globally. We have seen the successful use of indexation in support schemes in other jurisdictions including in the UK, Poland and partial indexation measures in France,” said Murphy. “The inclusion of partial indexation is therefore a very welcome adjustment. While not a defining design feature, investors view being hedged against inflation as important. Without an element of this in the final terms and conditions, investors would have little choice but to take a conservative view on inflation to protect against a scenario where inflation does continue to increase substantially. This would have led to investors seeking a high risk adjusted return/cost of capital which has now, in part, been mitigated which will deliver better value bids for Irish consumers.”

“The Department has also listened to the market with the inclusion of some planning risk mitigations in the auction design such as floating milestones, a reduction in the minimum installed capacity from 90% to 80% and the ability to withdraw as a result of a condition or conditions contained in the planning consent obtained which renders proceeding with the project commercially unviable,” explains Murphy.

The terms and conditions require generators to become part of the public service obligation (PSO) scheme “as soon as practicable prior to the Commercial Operation Date”. Murphy said that this ensures that generators don’t delay taking the public support and participate in the wholesale market for some time after a project reaches operational stage because the revenues are much better with current high energy prices.

The value of the bid bond which project bidders must provide has dropped from €7 per MWh of deemed energy quantity for a year to €6 per MWh, a drop from the sum listed in last year’s consultation draft. Similarly a performance security has dropped from €24 per MWh to €20 per MWh

Generators are likely to welcome the extension of the period of support from 15 years to 20 years.

Following the publication of the terms and conditions, the government also indicated that a final ORESS 1 auction calendar will be published soon by EirGrid. The pre-qualification stage will launch in December. The qualification stage and the auction process will take place in the first half of 2023. Final auction results will be published by June 2023.

In September, the Irish government announced the awarding of Maritime Area Consents (MAC) to seven phase one projects after the enactment of the Maritime Area Planning Act last year. Any project that has been awarded a Maritime Area Consent is eligible to partake in the ORESS 1 auction.

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