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Ireland

Ireland

Financial clarity nears in Ireland -- Complex fixed price mechanism

Ireland's government has set out a raft of "refinements" to the rules surrounding the country's renewable energy support mechanism that it hopes will provide the extra stimulus wind needs to flourish in the Irish electricity market. No wind project has yet been supported under the mechanism, even though it was introduced in 2005.

The support system's REFIT, or renewable energy feed-in tariff, is index-linked and currently guarantees EUR 65/MWh for wind power, with taxpayers making up the difference between that and the electricity sales price achievable on the market. The rate is not enough, says the Irish Wind Energy Association (IWEA), which is calling for a price of at least EUR 100/MWh for wind. The industry needs to compete for turbines and raw materials on international markets, says IWEA's Michael Walsh. The rate has not kept pace with international developments, he says. "We don't see a value for carbon reflected in the price of renewable energy in Ireland."

He adds that the published price for sales of wind is about EUR 20/MWh less than the average market price for electricity in the new all-island single electricity market (SEM). Meantime, electricity retailers who contract with wind generators receive 15% of the support price as a balancing payment. This brings down the price paid to wind generators under their 15-year power purchase contracts (PPAs) to around EUR 65/MWh.

No payments have as yet been made under the REFIT. It was only in autumn 2007 that the European Commission finally granted approval for the state aid for wind power. Despite industry expectations that the new support would immediately be implemented, the necessary paperwork has since languished on ministerial desks. In the circumstances, many developers have found it difficult to find debt for their projects; the banks consider the uncertainty to be too risky, says Walsh.

At the Irish Wind Energy Conference in Dublin last month, energy minister Eamon Ryan said that he was about to "sign off" the public service obligation (PSO) order which allows any additional cost of renewables support to be passed on to electricity customers. This will finally allow the new mechanism to take effect, "which I hope will enable a number of projects to switch to swift financial close," he said. Walsh confirmed that confirmation of the PSO removes a huge source of uncertainty from the market.

Reference price

Ryan has extended indexation of renewables support to run from 2005, thereby increasing the price for renewables by around 2%. He is also allowing generators to sell direct into the wholesale market and so bypass the retailers. This will allow generators to retain the 15% balancing payment, but could make financing more difficult because they would not benefit from the 15-year PPAs.

The minister also announced that within one month at the latest he would revise the reference for calculating the level of compensation for retailers who contract with renewable generators. With the introduction of the Single Electricity Market for the island of Ireland in November, the former reference, the best new entrant price, is no longer applicable. Ryan said discussions were ongoing with the energy regulator to find a new reference price.

IWEA would like to see the average system marginal price for wind generation sold into the market as its replacement. The clarity would improve "bankability" of projects and would not increase costs to customers, the association maintains.

But the policy framework is too complex, says Walsh. "It is important not just to get the price right but the means of delivery right so that investors can move forward on a simpler basis," he adds. "We are looking to bring in financing of EUR 500-EUR 600 billion per year; a large percentage of that is going to be debt financing. It is important that ministers do recognise the sheer volume and sheer size of financial transactions that are involved and that cognisance of that is given in the design of support mechanisms."

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