More competitive bidding in Ireland

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The Irish government's latest renewable energy tender is calling for 240 MW of wind power, the largest single order yet, but news of another round of bidding for contracts instead of a fixed premium tariff disappointed industry players when the news was broken at this year's Irish wind energy conference. They had been expecting an easy round of power purchase subsidies rather than the rigours of competitive bidding

The tone was subdued at the Irish wind industry's premier annual conference where Joe Jacob, public enterprise minister, dashed expectations of a bonanza of fixed price power purchase contracts in the next round of the Irish government's support scheme for renewables. Jacob's announcement of the fifth round of the Alternative Energy Requirement (AER 5) dominated the Irish Wind Energy Association (IWEA) event at Ennis in County Clare, held May 25-26. Power purchase contracts under AER 5 will be awarded under a competitive tender (Windpower Monthly, June 2001) and not the widely anticipated fixed price contracts recommended in a report by the government appointed Renewable Energy Strategy Group (RESG).

To sweeten the pill, Jacob revealed that he was offering contracts for a total 255 MW of renewable energy -- more than double the previous competition for renewables under AER 3. Large wind projects would take 200 MW, 40 MW of contracts would go to small wind projects of up to 3 MW in size, 10 MW to biomass, and 5 MW to small scale hydro. It would create IR£200 million investment and contribute to greenhouse gas savings equivalent to 10% of Ireland's Kyoto obligations, he said.

The size of the order reflects the failure of AER 3 to deliver completed projects. The government concedes that it needs to increase capacity fast if Ireland is to meet its targets of 500 MW of electricity from renewables by 2005. The requirement that all projects applying for contracts have prior planning consent means there should be no delay proceeding with the order as soon as it receives the all clear from the European Commission under state aid rules. The timetable is tight -- Jacob expects to open the competition to tenders during the August 23-30 period.

Choosing the fast track

He said the terms of AER 5 followed faithfully most of the advice of the RESG. But he dropped the group's key recommendation for fixed prices to appease Brussels bureaucrats. "My own preference was for a fixed price," he claimed. "However, I have to concede the resolute view in Brussels is that a competitive process would more readily satisfy the recently published environmental state aid rules." European Commission officials in charge of protecting fair competition had signalled that a competitive round "would raise less complex issues" and result in a faster formal decision from the EC, he added. Open tendering will be below price caps of IR£0.0379/kWh for large scale wind, IR£0.0417/kWh for small scale wind, IR£0.0466/kWh for biomass and IR£0.0510/kwh for small hydro, he said.

Jacob removed the limit on individual project size of 15 MW that had been imposed in AER 3. Applicants for large scale wind projects are barred from entering the small wind category, which Jacob wants to see reserved for community-based projects. But he said he would not discourage "co-location" of large and small scale projects. "Community acceptance of the technology can increase rural sustainability and should increase community partnership in and acceptance of commercial developments into the medium term," he said. "It is therefore in the interest of mature commercial operators to assist community based projects for mutual benefit."

In an unwelcome departure from the pattern of previous AER contracts, only 10% of the bid price is to be linked to the Consumer Price Index to allow for inflation. This is because not all of the elements of the price attract inflation over the entire 15 years of the power purchase agreement, explained Jacob.

Develop or die

He added that he was determined that there would be no repeat of AER 3's non-delivery of projects. He would not hesitate to terminate contracts should developers fail to meet all the competition conditions. "I want the capacity available under this offer contracted to people who will build."

Reaction from the audience to AER 5 was muted. Jacob escaped immediately after his announcement, leaving Eugene Dillon at the Department of Public Enterprise to field surprisingly few questions about the plans. Thomas Cooke from Meithael na Gaoithe, which represents farmers and community groups, asked how AER 5 could be called state aid. "It is more likely to be a state aid for brown energy," he said, explaining that most electricity from fossil fuels cannot compete with the prices on offer for wind energy. He also pointed out that price indexing a mere 10% of the bid price would have a major impact on landowners who rent sites to wind developers. Rents based on today's prices will be "worth only buttons" in 15 years' time, he claimed.

Anthony McNamara from Banner Energy was disappointed by AER 5. "It does nothing for the ordinary punter. What is being done for people in the middle of the planning process, like myself?" he asked. Dillon explained that the requirement for projects to have planning consent already in place is a reaction to AER 3. "We need to make up time," he said. "It takes two years to get consent."

Most discussion about AER 5 took place outside the conference hall as developers digested its implications. "I need to go away and do the sums to find out exactly what this will mean for my project," said one potential bidder, summing up the general feeling of many small developers.

Jacob's decision to hold a competition instead of granting contracts at pre-published fixed prices was not viewed as a serious blow by all developers; some claimed that a bidding process for 240 MW of wind would be a competition only in name since at the time of the conference only 217 MW of wind projects already had planning consent -- a necessary pre-qualification to taking part. Yet Aidan Forde of Saorgus pointed out that by August this figure would increase dramatically as additional planning permissions were secured for wind; his company alone expected to be granted consents for some 70 MW.

AER 5 is the last opportunity for many of the projects with existing planning consents getting a good price for their output, added Forde. Many of their consents expire by the end of the year, he explained. If they are not able to gain power purchase agreements under the AER, they will have no alternative means of selling their power other than at the lower prices offered by Ireland's only substantial green supplier, Eirtricity.

Financing worries

The most serious worry was the indexing of only 10% of the bid price. Despite Jacob's assurances that the lending agencies would be able to do business at the prices on offer, a widely held concern among independent companies was that they would find it difficult to obtain financing. "What will three-point-seven-nine pence be worth in 15 years time?" asked one prominent developer. Green credit trading would eventually boost the value of renewable energy, he said, but bankers will not be willing to take it into account in the shorter term.

Inge Buckley, chair of IWEA, nonetheless believes the industry will be able to operate under the terms of AER 5. "We are well capable of delivering as long as we get half a chance," she said, but she accepted that the prices could be tight. "Green credits will ultimately come in, but for now our big push is on tax incentives."

IWEA is urging the government in its September budget to bring in tax breaks for renewables along the lines of the country's film finance scheme. Forde explained that despite existing tax incentives for companies, falling corporation tax makes it less attractive for them to invest in renewable energy. IWEA is arguing for tax incentives to be extended to personal tax payers. "This will allow Irish developers to access the necessary equity to develop an indigenous industry," he said.

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