Ireland

Ireland

Irish wind industry fears investor flight after operators hit with cap on revenues

Ireland's wind energy sector has reacted with disappointment as its government set a revenue cap of €120/MWh on wind farm generators, a level well below the €180/MWh recommended by the EU.

Irish environment minister Eamon Ryan set out the terms of the revenue cap on renewables (pic credit: Thierry Monasse/Getty Images)
Irish environment minister Eamon Ryan set out the terms of the revenue cap on renewables (pic credit: Thierry Monasse/Getty Images)

Revenues in excess of €120/MWh "will be collected and redistributed to support energy consumers," said Ireland's environment minister Eamon Ryan.

The news comes just days after wind farm operators in the UK, no longer a member of the EU, were hit with a mighty 45% windfall tax on profits above £75/MWh which was greater than the tax imposed on fossil fuel operators.

Last week, WindEurope also launched a scathing attack on some EU member states for going beyond the EU's rules for caps on revenues.

Ryan stressed Ireland's plan is within the rules and said the €120/MWh cap for Irish wind and solar projects above 1MW takes into account the revenues generators would have expected to earn prior to the increase in gas prices - which was less than €100 per MWh - as well the limited increase in costs incurred by these generators.

Where electricity suppliers can demonstrate that revenues in excess of the cap are being passed on through lower prices to final consumers, those revenues will not be subject to the cap.

It will also not apply to wind or solar projects that make difference payments to the Public Service Obligation (PSO) for surplus revenues above the relevant auction strike price under the Renewable Electricity Support Scheme, because these revenues are already capped.

Industry fears

Reacting to the news, Noel Cunniffe, chief executive of Wind Energy Ireland, said: "We have never opposed the idea of a revenue cap but we had hoped the cap would be set closer to the €180 figure proposed by the EU as it is important that Ireland is not seen as an outlier."

Ireland is targeting 7GW of wind power capacity by 2030 and recently announced plans for its first offshore wind auction, which will offer 2.5GW of projects for development.

Cunniffe said: “We need to attract billions of euro of investment in the next 5-10 years to build the onshore and offshore wind farms that will end our dependency on fossil fuel gas which is what is causing this crisis. Anything that makes it more difficult, or more expensive, to attract that investment is going to hurt Irish consumers.”

It is too early to say how much the windfall tax is likely to deter investors, however. During an interview with RTÉ News at One, Cunniffe said: "I think we really need to see how that plays out in our neighbouring jurisdictions, how they set their caps and how we compare to them."

Misunderstanding

Cunniffe dismissed claims that all wind farm generators have benefited from unusually high prices. “The overwhelming majority of wind farms in Ireland are in a scheme called REFIT. Under the terms of that scheme they cannot sell their own electricity. It’s really important for people to understand this. Most wind farms cannot sell their own power."

Under REFIT, wind farm operators must have a contract with a licensed energy supplier. "It is that supplier which gets to sell the power the wind farm produces," Cunniffe explained. “The wind farm is only entitled to the REFIT payment of around €70-75 and if prices are higher than this, depending on their contract with the supplier, the wind farm may get some, or in many cases none, of the additional revenue from higher prices.”

He also stressed that it is the high price of gas which is driving up electricity prices. "The more wind energy on the system the lower the price of power," he said, pointing out that last month the price of electricity on the windiest days was €67.28, half that of the monthly average of €136.27.

Irish wind and solar farms will also pay back more than €490 million to Irish electricity consumers over the next 12 months when the PSO Levy will turn negative, Cunniffe said. This will save every single Irish family €89 on their annual electricity bill and businesses more than €300, he added.

The cap on market revenues will operate from December 2022 to June 2023 inclusive, in line with the EC Regulation on an emergency intervention to address high energy prices.

Ryan also introduced a cap of "at least" €180/MWh for oil and coal generators and other non-gas generation.

The minister said companies active in fossil fuel production and refining will also pay a 'temporary solidarity contribution' for the years 2022 and 2023, which will be at a rate of 75% on a company’s taxable profits which are more than 20% higher than a baseline.

The baseline will be the average taxable profits for the company for the period 2018 to 2021.

Overall, depending on the price level of natural gas, the proceeds raised could range from around €300 million to €1.9 billion, Ryan said.

However, he said the level is expected to be in the lower end of this range and "could be even lower if gas prices reduce".

Proceeds from the cap on market revenues are expected to be collected in 2023, while the temporary solidarity contribution from fossil fuel producers will be collected in 2023 and 2024.

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