How Ireland’s new RESS 3 energy support scheme works

The scheme is based on a Contract for Differences (CfD) structure and operates through a series of competitive auctions. Each auction is intended to evolve to fit with Ireland’s generation needs and facilitate competing or complimentary technologies.

After two successful auctions, known as RESS 1 and RESS 2, the Irish government is now preparing for the RESS 3 auction to be held in the third quarter of 2023. Although broadly similar to RESS 1 and RESS 2, RESS 3 will contain some key differences.

Declarations

Given the international nature of the investor or asset owner profile now active in Ireland, greater clarity has been included in the RESS 3 terms and conditions to specify that declarations can be completed in the home jurisdictions of applicant directors and practising solicitors, subject to providing the necessary supporting information.

Evaluation correction factors

Evaluation correction factors remain an important policy lever to bring technology diversity to auctions in Ireland. These are not yet established for RESS 3 in relation to wind and solar – including hybrid projects – but will be defined in the auction information pack, currently scheduled to be published on 4 September 2023. It would be helpful for the market if the relevant information could be published sooner.

Availability compensation

The terms and conditions include a revised compensation mechanism, known as ‘Unrealised Available Energy Compensation’ (UAEC). UAEC compensates participants at the strike price for availability not converted to generation for reasons of either curtailment or oversupply, including during periods of negative pricing.

UAEC is not available for constraint, which in the view of the government remains an important locational signal for participants. How the UAEC mechanism will be implemented in practice remains to be seen and we understand that further direction will be published by the CRU in due course.

The mechanism remains subject to European State Aid clearance and the government has reserved the right to amend the terms and conditions from time to time as necessary to comply with any relevant requirements that might be imposed.

Price cap

RESS 2 featured a “Maximum Offer Price Considered” of €120/MWh. The price cap for RESS 3 will be confirmed in the auction information pack which is currently scheduled to be published on 4 September 2023. Participants should be aware that this is after the final date for permitted withdrawal without loss of the bid bond. It would be beneficial for the market if this information could be made available before such date.

In the context of the design enhancements made to RESS 3, such as the inclusion of indexation and the UAEC mechanism, and the recent average bid price from the first Offshore Renewable Electricity Support Scheme (ORESS 1), it will be interesting to see where the price ceiling is set for RESS 3.

Corporate PPAs

It will be important in the coming years for corporate power purchase agreements (CPPAs) and Public Support Schemes in Ireland to effectively co-exist as signposted in the European Electricity Market Reform Proposals published in March 2023.

CPPAs need better incentivised in Ireland and the inclusion of the UAEC mechanism in RESS 3 may distort competition between these two routes to market, particularly in locations with significant dispatch down issues.

Dispatch instructions

It is a new requirement of RESS 3 that projects must comply at all times with dispatch instructions from the transmission system operator in order to be eligible to receive RESS 3 support, including compensation under the UAEC mechanism.

Bid bonds

Bid bonds remain at €6 per MWh and €20 per MWh for performance security. The final date for a project to withdraw from the RESS 3 process without losing its bid bond is currently set for 23 August 2023.

Indexation

RESS 3 will see the introduction of indexation for onshore projects on an annual basis in line with the Harmonised Index of Consumer Prices. The indexation shall only apply to 30% of the then current strike price and may move either upwards or downwards.

This is a welcome development which should reduce participant risk although does not deliver upon the longstanding request of industry for full indexation.

Community projects

The community preference category will not be a feature of RESS 3 and all projects will be required to compete in a single category. All projects participating in the auction will therefore be required to provide a bid bond and there will be no exceptions made for ‘community zero-bond projects’ as per RESS 2.

Planning consent

The eligibility criteria have been amended to remove the flexibility that a project may participate where its planning consent is still within the 8-week period during which a judicial review challenge may be commenced.

No doubt this has been removed in an attempt to reduce attrition and increase certainty for EirGrid. Participants should ensure that their final grant of planning permission is beyond this challenge period.

Location signals

The Irish government consulted on the inclusion of explicit locational signals to discourage the development of projects in areas where there are high levels of constraints.

The terms and conditions do not include any explicit mechanism to this effect. However, there are some implicit locational signals. For example, there will be no compensation for availability that is constrained under the UAEC mechanism.

Duration of support

The terms and conditions state that the maximum RESS 3 support period shall run from 31 October 2024 until 30 April 2042. This provides for a term of 17.5 years, whereas policy indicates that the term should be aligned with RESS 2’s support period of 16.5 years.

It would be useful to have further clarity on this point from the government and on why the support period cannot be extended to 20 years in line with ORESS 1 and the support schemes in other European markets.

Merchant nose revenues

The entitlement for projects to participate in the single electricity market (SEM) where commercial operation is achieved prior to the commencement of support under RESS has been removed.

This change has been included in order to restrict participants from seeking to take advantage of “merchant nose” revenues in the SEM and increase the benefit for consumers. RESS 3 participants may need to adjust their financial model to take account of this change from previous auctions.

Grid connection

In order to be eligible to participate in RESS 3, projects must hold a valid connection offer that is capable of acceptance within the requisite 90-day period, or have accepted the connection offer and entered into a grid connection agreement that is valid for the duration of the RESS 3 support period.

Enduring Connection Policy (ECP) projects that are eligible to be processed to receive a valid connection offer, but have not yet received their offer, will not be permitted to apply.

Co-written by Matthew McMurray of Pinsent Masons.