Ireland announces fixed purchase prices -- Subsidies available for just 400 MW but economics are sensible

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Ireland's government has at last launched the new market support system that it hopes will allow the country to meet its 2010 renewables target. Called the Renewable Energy Feed In Tariff (REFIT), the new system will enable renewable generators to contract with electricity suppliers for sale of their output for 15 years at a fixed premium price. But contracts under the REFIT will only be available to the around 400 MW of new renewables that are needed to reach the target -- 1450 MW of renewables providing 13.2% of total electricity supply by 2010.

Selection of capacity for subsidised power purchase contracts will be allocated on a first come, first served basis to projects that already have siting consent and a grid connection offer. After the available support is allocated, a reserve list of projects will be drawn up. In practice there is unlikely to be a huge over-subscription for REFIT capacity as only a limited amount of wind capacity fits the grid connection criteria.

The REFIT replaces the previous Alternative Energy Requirement (AER) support system which was based on competitive tendering for contracts. The new system is welcomed by the majority of Ireland's wind community, which has lobbied for years for renewables support to be based on a fixed tariff.

Most of the new capacity will be wind. Large wind projects will receive EUR 57 per megawatt hour (MWh), small wind EUR 59, hydro EUR 72, landfill gas EUR 70 and other biomass EUR 72. Prices will be indexed to the annual increase in the consumer price index. Electricity retailers will be compensated for the additional cost of their purchases of renewable energy from a levy on electricity consumers.

Renewable operators will be able to contract with any retailer -- not just with Ireland's dominant supply company, the Electricity Supply Board (ESB), as under the AER. Indeed, ESB indicates it does not intend to contract for any new renewable capacity. The company claims that with its share of Ireland's electricity retail market set to reduce to 60% under EU market liberalisation rules, it has as much non-dispatchable plant as it can cope with. This leaves the main potential off-takers as Viridian, Airtricity and Bord Gais. Negotiations between many developers and the retail companies are understood to be already well advanced.

Reasonable profits

According to Paddy Teahon of the Irish Wind Energy Association (IWEA), the 100% indexation makes a significant difference to the economics of projects. "Originally they were offering only 25% indexation, but we made a strong argument that turbines prices and costs of grid connection are going up." At the prices on offer, "You will not make ridiculous profits, but you will make reasonable profits," he adds.

"This program responds to market demand for a move away from competitive tendering but also protects consumers by imposing fixed prices," says Noel Dempsey, minister for communications, marine and natural resources. "It is now a matter for project developers to seize the opportunity and deliver projects quickly." Applications for capacity under the REFIT can be lodged with the Department of Communications, Marine and Natural Resources (DCMNR) from June 1.

Dempsey says the new capacity under the REFIT will supply the needs of 260,000 homes, create 300 new long term jobs in the renewables industry and 1100 construction jobs, reduce Ireland's dependency on imported fuels by over 2.5 million barrels of oil annually, and improve the country's trade balance by EUR 75 million each year by redirecting money spent on energy imports back into the local economy.

What next?

The question now for the Irish wind industry is what will follow on from the REFIT. Nearly 3000 MW of wind projects are queuing for offers of connection to the grid. Of this proposed capacity, up to 1300 MW is set to be offered connections under Gate 2 -- the next round of processing of grid connection applications by Ireland's grid operators. "Now the DCMNR and the minister have to say what system will be put in place for supporting those projects," says Teahon.

The government's adoption of a feed-in tariff with 100% indexation and widening of the REFIT to include all electricity suppliers are significant steps in the right direction, says Teahon. "If they follow it up in the near term with a feed-in regime to deal with the Gate Two projects, that will be a big step forward."

The REFIT should not pose an undue burden on the consumer, he claims. The price offered to wind under the REFIT is close to the market price of electricity, so there is unlikely to be a significant public service obligation levy for renewables.

Dempsey is already thinking ahead: "It is my intention not to limit our ambition to the achievement of short term targets but to develop this sector in an ambitious yet realistic manner. We will be considering targets for post-2010 in the context of the green paper on energy, which I will be publishing mid year."

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