knowledge | 16 October 2020 |
A Good News Renewable Energy Support Scheme Story for Investors
On 21 September, the Minister for Environment, Climate and Communications made the European Union (Renewable Energy) Regulations 2020 (the “Renewable Energy Regulations 2020”).1 In this briefing our energy group will consider the key provisions of the Renewable Energy Regulations 2020, and what they mean for the sector.
The EU Background to the Irish Renewable Energy Regulations 2020
On 24 December 2018, the EU’s Recast Renewable Energy Directive2 became law. The Recast Renewable Energy Directive is part of the EU’s Clean Energy for All European’s legislative package. It recasts and repeals previous legislation;3 establishes a common system to promote energy from renewable sources across different sectors; and sets a binding EU target for 32% of all energy consumption to be renewable by 2030. The Recast Renewable Energy Directive seeks to provide long-term certainty to all renewable energy investors; and speed up the procedures associated with obtaining project authorisations. This is evident from article 4 of the directive, which provides a framework for Member States to develop renewable electricity support schemes, and article 6 of the directive, which requires Member States to guarantee a certain degree of stability to renewable energy projects in receipt of financial support.
On 21 September 2020, these articles were transposed into Irish law by the Renewable Energy Regulations 2020. The Renewable Energy Regulations 2020 set the parameters for the establishment of future renewable electricity support schemes, and build on the existing regime, which was created by the European Union (Renewable Energy) Regulations 2014 (as amended) (the “2014 Regulations”).4 Before the Renewable Energy Regulations 2020 became law, there was little Irish legislation to govern the general architecture of support schemes. What was there was provided by Regulation 7(4) and Regulation 16 of the 2014 Regulations. Regulation 7(4) placed a prohibition on a generator in receipt of a PSO5-supported, Power Purchase Agreement (“PPA”) receiving both a guarantee of origin and a support scheme payment for the same unit of electricity. Regulation 16 was more general. It required technical specifications for support scheme applicants to be clearly defined; and for these specifications to be expressed by reference to European standards. It also prohibited specifications prescribing certification from a particular location, and required biofuels and bioliquids to comply with set sustainability criteria to benefit from support schemes.
So, What’s New for Renewable Energy Support Schemes?
The Renewable Energy Regulations 2020 provide a much needed framework for the creation of renewable energy support schemes. Regulations 4 – 8 apply specifically to renewable electricity support schemes. Regulation 9 covers all renewable energy support schemes. Regulation 2 provides the definitions. It repeats the definition for “biomass” from the 2014 Regulations6 and clarifies that “biogas” means “gaseous fuels produced from biomass”. Regulation 2 also provides definitions for:
- a “demonstration project” or “a project demonstrating a technology or system as a first of its kind in the European Union and representing a significant innovation that goes well beyond the state of the art”
- “energy from renewable sources” as “energy from renewable non-fossil sources, namely wind, solar (solar thermal and solar photovoltaic), geothermal energy, ambient energy, tide, wave and other ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas and biogas”;
- “implementation agreement” as “an agreement between a successful applicant in a competition and the Minister that sets out matters including:
- (a) completion dates for the delivery of renewable energy projects,
- (b) rules for the delivery of renewable energy projects, and
- (c) milestones for the delivery and commercial operation of renewable energy projects”; and
- “renewable energy support scheme” as an “instrument, scheme or mechanism established by the Minister that promotes the use of energy from renewable sources by reducing the cost of that energy, increasing the price at which it can be sold, or increasing, by means of a renewable energy obligation or by other means, the volume of such energy purchased, and includes, but is not restricted to, investment aid, tax exemptions or tax reductions, tax refunds, renewable energy obligation support schemes including those using green certificates, and direct price support schemes including feed-in tariffs and sliding or fixed premium payments”.
The “Renewed” Framework for Renewable Electricity Support Schemes
Regulations 4 – 8 provide the framework for renewable electricity support schemes. Regulation 4 requires renewable electricity support schemes to:
- be based on conditions in the market,
- responsive to market conditions,
- avoid unnecessary distortions of electricity markets,
- have regard to system integration costs, and
- have regard to grid stability.
Regulation 5(1) states that renewable electricity support schemes shall be designed to maximise the integration of electricity into the market; ensure that producers respond to market price signals and maximise the market revenues of renewable energy producers. Regulation 5(2) states that where the support scheme is a direct price support scheme, the support under the scheme shall be granted in the form of a sliding (including floating) market premium or a fixed market premium. Regulation 6 requires support scheme processes to be “open, transparent, competitive, non-discriminatory and cost-effective.” However, this is modified by regulation 6(2), 6(3) and 7.
Regulation 6(2) permits a support scheme to exempt small-scale installations or demonstration projects from the requirement to engage in a competitive tendering process for reasons of cost/limited capabilities. Regulation 6(3) provides that a renewable electricity support scheme may include a mechanism to diversify renewable electricity deployment for cost-effective system integration. Regulation 7 allows renewable electricity support schemes to exclusively support specific technologies, where this can be justified by reference to one or more of the following factors:
- the long-term potential of a particular technology;
- the need to achieve diversification of technologies;
- grid integration costs;
- network constraints and grid stability;
- with regard to biomass, the need to avoid distortions of the market in raw materials for biomass.
Regulation 8 introduces measures which are designed to facilitate a high project realisation rate for projects in receipt of support from renewable electricity support schemes. Regulation 8 (a) requires the Minister for Environment, Climate and Communications to ensure that non-discriminatory and transparent qualification criteria are published as part of the terms and conditions of each competition under the support scheme. Regulation 8(b) requires the Minister to set clear dates and rules for the delivery of renewable electricity projects in accordance with the terms and conditions of the competition and the implementation agreement. Regulation 8(c) requires the Minister to publish information about previous competitive tender processes and project realisation rates.
Stability of Financial Support for all Renewable Energy Support Schemes
Regulation 9 is a key provision in the Renewable Energy Regulations 2020. It covers stability of financial support for all support schemes for the production of renewable energy. Regulation 9(1) creates a general prohibition on the revision of support schemes in a manner which would negatively affect the rights conferred by the support scheme and undermine the economic viability of projects in receipt of support. This is qualified by regulation 9(2) which allows adjustments to the level of support granted by reference to objective criteria established under the original terms of the support scheme. Regulation 9(3) requires the Minister to publish a long-term schedule for a period of not less than 5 years or, where budgetary planning constraints exist, a period of not less than 3 years, in relation to the expected allocation of support under a given support scheme. This schedule is to be updated annually. While regulation 9 applies generally to all support schemes, regulation 9(5) is again specifically concerned with renewable electricity support schemes. It requires the Minister to assess the effectiveness of renewable electricity support schemes and the major distributive effects of such support schemes on different categories of consumers every 5 years. This is to take into account possible changes to such support schemes. This assessment is to feed into long-term planning of energy support schemes, the design of new support schemes; Ireland’s Integrated National Energy and Climate Plan; and progress reports on the Integrated National Energy and Climate Plan.
Conclusion: A good news story
In July 2020 (see our briefing here) the Government pledged that the next competition under the Renewable Electricity Support Scheme will support offshore wind energy and take place in 2021. Following the introduction of the Renewable Energy Regulations 2020, this, along with all future renewable electricity support schemes, must have a transparent, clear and definite framework. In addition, investors have the added comfort of legislation which prohibits changes to all renewable energy support schemes (which are designed to contribute to the 32% renewable energy target) which are not in accordance with their original terms, or regulation 9 of the Renewable Energy Regulations 2020.
Should you have any queries on the Renewable Energy Regulations 2020, please contact Valerie Lawlor, Éamon Ó Cuív, Eva Barrett or any member of the energy group.
- 1 SI 365 of 2020.
- 2 Directive (EU) 2018/2001 on the promotion of the use of energy from renewable sources.
- 3 Directive 2009/28/EC, as amended by the Directives listed in Part A of Annex X, is repealed with effect from 1 July 2021, without prejudice to the obligations of the Member States relating to the time-limits for the transposition into national law of the Directives set out in Part B of Annex X and without prejudice to the obligations of Member States in 2020 as laid down in Article 3(1) and set out in Part A of Annex I to Directive 2009/28/EC.
- 4 SI 483 of 2014, the European Union (Renewable Energy) Regulations 2014.
- 5 The Public Service Obligation (“PSO”) levy is a charge which all final electricity customers in Ireland pay. It is used to provide support to peat generation, certain conventional generation constructed for security of supply purposes, and renewable energy development.
- 6 “Biomass” meaning “the biodegradable fraction of products, waste and residues from biological origin from agriculture including vegetal and animal substances, forestry and related industries, including fisheries and aquaculture, as well as the biodegradable fraction of waste including industrial and municipal waste of biological origin.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.