Terms set for Tonn Nua offshore wind project auction

Richard Murphy of Pinsent Masons was commenting after the Irish government published finalised terms and conditions for the Tonn Nua project auction under its Offshore Renewable Electricity Support Scheme (ORESS).

The Tonn Nua project is a 900 MW offshore wind farm that is envisaged under Ireland’s south coast ‘designated maritime area plan’ (DMAP). The DMAP specifies a geographical area within which new fixed offshore renewable energy projects could be developed in a sustainable way.

The right to deliver the Tonn Nua project will be determined via a competitive auction under the ORESS. The winner of the auction will be expected to enter into a power purchase agreement with a supplier, which will in turn become eligible for support under the ORESS in respect of the electricity they supply to Ireland’s electricity grid from the project. The supply arrangement will be built upon a Contract for Difference (CfD) model, which is designed to provide financial certainty to developers over the price they can obtain from selling electricity back to the grid.

The Department of the Environment, Climate and Communications has set out terms and conditions to govern the upcoming auction, which is due to open for qualification in the first quarter of 2025 with the bidding phase taking place in the second quarter of 2025. Other terms and conditions govern how developers can withdraw from the project – including in the event they discover unsuitable site conditions, or where there is a planning consent failure or onerous planning conditions are imposed, which Murphy said are important protections given the process sequencing of offshore wind in Ireland is different to other markets.

In relation to the maritime area consent (MAC) needed to grant the applicant a right to occupy the seabed for the purposes of the project, all applicants seeking to participate in the auction must complete an application for a MAC and hold it ready for submission; if they are successful in the auction, they will have five working days from the date of the final result to submit their MAC application. A raft of other eligibility criteria, including relating to applicants’ experience in developing offshore wind or similar projects, must also be met. The successful applicant will then separately work towards submission of a planning application for a grant of planning permission for the construction of the project as one of the next key project milestones.

For the successful bidder, there will also be a requirement to apply to the transmission system operator for a ‘full connection offer’, with a view to it obtaining connection of the Tonn Nua project to Ireland’s electricity grid onshore. The government said that application would need to be made in accordance with policy set by the Commission for Regulation of Utilities (CRU).

Further relevant grid connection parameters were outlined in an annex to the finalised terms and conditions. They envisage the successful applicant entering into a collaboration agreement with EirGrid, as the transmission system operator that will be constructing the connection transmission assets for the project, “as soon as reasonably practicable after the final auction results date”, to enable good governance of the prospective grid connection arrangements post auction outcome.

Murphy said: “The parameters set out in relation to the grid connection of the ORESS Tonn Nua project are notably light. These elements will need to be fully firmed up prior to auction. The collaboration agreement referenced, for example, will be a key document in practice to manage project interfaces and activities between the successful applicant and EirGrid in its new role as constructing the connection transmission assets.”

“It would have been useful if the terms and conditions had clarified the interplay of these grid parameters with the grid cost adjustment mechanism provided for in the terms and conditions, which relates to the costs an applicant will be able to recover for the purposes of the operation of the ORESS regime,” he said.

Murphy said that plans to bring much greater alignment between the project milestones pertaining to planning rights and the target date for grid connection are to be welcomed, with the government confirming that the target date for grid connection should be determined within eight weeks of planning consent being granted. Long delays between the two dates “would have created significant challenges for the successful applicant taking final investment decision”, he said, adding that clarity over when grid connection will happen would help projects better plan arrangements with suppliers, like those supplying turbines and other components, where fixing dates for delivery and operation around the grid connection date will be necessary for successful implementation of the project works programme.

However, Murphy warned that there are still risks that need to be addressed in relation to the project that could arise from the operation of the terms and conditions now finalised.

Murphy said: “The grid delay compensation mechanism requires, as a condition, for the successful applicant to have installed, and onsite, a minimum capacity of 90% of the 900 MW target capacity. This will be a focus area of the terms and conditions for a couple of reasons. Firstly, the successful applicant has not yet received a grid information pack to confirm that 900 MW is available and secondly, the successful applicant will not wish to have equipment installed but sitting idle for any prolonged period as that could give rise to contractual issues under supply chain contracts and impact warranties. In practice, this risk can hopefully be effectively managed in the collaboration agreement to be entered into between the parties.”

According to Murphy, developers considering bidding in the upcoming auction would also want to consider so-called ‘change of control’ provisions that the Department has now finalised. Under those terms, the generator would be required to notify the government of situations where there is change in effective control of the company, such as resulting from a transfer of shares or amendment to the company’s articles of association. The Department had previously intimated that generators would be required to obtain ministerial consent to such a change of control. Murphy said the revised requirement will be welcomed by developers as relieving potential constraints on investment or merger and acquisition activity.