Within hours of provisional results for the first auction in the Renewable Electricity Support Scheme (RESS) on Wednesday evening, phones were hopping between developers, investors and advisors across the solar and wind energy industry. 

On behalf of the government, the electricity transmission grid operator Eirgrid has selected 82 winning bids, guaranteeing them their fixed bid price on a €166 million slice of the electricity market over 15 years. The final list is subject to government approval. 

The big winners include established utilities such as ESB, Bord na Móna, SSE and Norwegian semi-state Statkraft, which took over Element Power two years ago in preparation for this day – as well as much smaller independent developers, with a token 1.5 per cent of the supported energy volume ring-fenced for seven community-led projects at a higher guaranteed price.

For the first time ever, the RESS scheme will support solar farms, with 63 sites selected. Although they outnumber new wind farms, which had 19 successful bids, solar panels will deliver only one-third of the electricity generated by this week’s auction winners because of their lower energy yield. Developers set to benefit from the ignition of a wholesale solar industry in the country include indigenous companies BNRG, through its recent partnership with French firm Neoen, Cork-based Amarenco and Highfield Solar, a joint venture between Irish and British renewables firms.

Contacted by The Currency the following morning, players waiting for years of uncertainty to end at all levels of the industry breathed a collective sigh of relief. “It’s a real statement of intent that the Government has delivered options on time and intends to deliver on its targets,” said Paul O’Donnell, investment manager of the specialist Dublin-listed yieldco Greencoat Renewables.

“Certainty has lifted a whole supply chain”

Recent months saw the completion of the last projects supported under the previous Renewable Electricity Feed-In Tariff (Refit) scheme, which closed to new applicants in at the end of 2015, leaving the sector to face a cliff-edge – until this week. “We were worried about a gap,” said David Connolly, chief executive of the Irish Wind Energy Association. “Certainty has just lifted a whole supply chain. When you look at a gap of more than 12 months, supply chains look to other sectors.”

The consensus is that building will start next year, with most assets approved this week entering production in 2022. Following formal notification next month, developers will have 30 days to post a “performance bond” by which they commit to completing their project by 2023 or face financial penalties.

One developer eager to take part in the new solar surge is Dublin-based Power Capital, which has won its four bids for farms totalling 18MW of capacity. “We’re delighted to be building – and with the amount of solar that is coming out,” said director Peter Duff. He added that Power Capital’s bids were in the middle of the table, ensuring the firm could return a margin after developing the assets. 

Solar outbid wind in this week’s auction results, with promises to deliver electricity under €73/MWh. The technology’s strong performance has caught the most seasoned industry participants off guard. “It’s clear solar has edged out onshore wind. It is a surprise,” said Eoin Cassidy, the partner overseeing energy clients at Dublin law firm Mason Hayes & Curran.

“I expect a lot of transaction activity in the short term.”

Eoin Cassidy

Cassidy sees several reasons for this. On the one hand, there has never been a Government support scheme for commercial solar electricity generation, and some developers awaiting this week’s auction for the past seven years are facing stiff deadlines from planning permissions expiring to land options with landowners coming up for renewal. Many smaller projects, under 5MW, which had easier access to a grid connection in recent years are featuring prominently among this auction’s winners. Between them and large wind farms backed by utilities, Cassidy was surprised to see few mid-size players succeed in this round, despite the advantage economies of scale give them over smaller projects.

Some chose to bid with “aggressive pricing to secure contracts in anticipation of finding a purchaser for their projects in the short term,” the lawyer added. “I expect a lot of transaction activity in the short term.”

This is the secondary effect of the first RESS auction finally taking place. Not only will wind and solar farms start getting built again – many are also about to change hands, or already have before even getting the green light for government support.

Both Cassidy and KPMG partner Russell Smyth have taken part in increased merger and acquisition activities in the sector in recent months, and expect more to come now that the auction has lifted uncertainty on multiple market parameters.

Smyth said KPMG alone had advised on the acquisition of 280MW of projects from Lightsource BP to Statkraft a month ago, following a previous 100MW deal from GE and Galetech to Statkraft, and facilitated ESB’s investment into Harmony Solar’s 300MW portfolio two months ago.

“A  lot of the transactions in the last six months were people who were ready for RESS1 but didn’t think they were the best placed to bid into the auction or build-out,” Smyth said. “Every time we’ve brought RESS-ready assets, there were tens of bidders. It was very competitive.”

“A lot of people who’ve won are likely to be kicking themselves they didn’t bid higher.”

Russell Smyth

While he expects large players such as utilities to build out and own the projects approved this week, the business model of independent developers is usually to sell solar and wind farms at the shovel-ready stage or just after completion.

“A feature is how successful solar has been. This was not expected, especially the smaller, sub-5MW solar sites,” Smyth said. These are the ones now most likely to look for buyers. The price of assets will depend on the winning bid price they put forward in the auction – above of below the average of €74.08/MWh. “Some bid solar in the 60s, others in the 70s and 80s. The range is quite remarkable and reflects the uncertainty that comes with a first-ever auction. A lot of people who’ve won are likely to be kicking themselves they didn’t bid higher,” Smyth reflected.

Greencoat Renewables is one of the buyers looking at successful projects with keen interest. While it has so far acquired only up-and-running wind farms in Ireland, O’Donnell said the firm would now be more flexible, with a “forward sale model which would provide the developer or utility with a fixed price guarantee of purchase when the project is complete.” While Greencoat would not extend finance to build out sites, its commitment to buy them eventually would give developers greater flexibility to secure finance, he added.

For its part, Power Capital plans to graduate from independent developer to power producer, retaining its own solar farms and acquiring more from smaller players. And Duff said it has about 12 more ready for the next round.

Like him, many already have their eye on September, when new projects with planning permission will get a chance to apply for a grid connection, and the second RESS auction scheduled for next year. The government has announced five successive rounds of bidding under the scheme.

Eyes on the next round

Many observers expect competition to grow – and prices to go down – as the process develops. This will play out between wind and solar – and between bidders within each sub-sector. 

The IWEA’s Connolly said that 19 of the 20 wind farms running in this week’s auction were successful. After just under 800MW of capacity was successful this week, he expects 600 to 700MW to be ready to bid again for next year. By all accounts, they will be able to go cheaper.

Connolly said that the first RESS auction “probably captured all the projects that were leftover from Refit”. Some projects that missed out on the older scheme had planning permission for smaller turbines with lower yields, but technology has progressed since then. Further regulatory changes, such as planning guidelines for wind farms awaiting publication for seven years and improvements to the grid connection process, could cut prices again, he added.

Cassidy of Mason Hayes & Curran agrees and adds that the terms and conditions for this first auction were favourable to solar, which may not be the case in the future. “I thought that if solar could not compete in this auction, it would be doomed in Ireland,” the lawyer said. “This is the best opportunity for solar to be competitive. It might change in the coming years.”

At KPMG, Smyth adds: “The best wind sites should easily be able to beat the best solar sites on pricing.” He too, expects future wind bidders to have better technology in their planning permission. “In the next round, wind will be able to bid more aggressively.”

As a result, Duff would like to see separate pots for wind and solar in future auctions. Of course, this would protect his solar projects from under-bidding by wind developers. But he argues that this would also help the taxpayer, while maintaining a mix of technologies in Ireland’s supply. “If wind knows solar is going get in at €74-75/MWh, your price will drift up to that level,” he warns. 

For the time being, the first RESS auction has breathed optimism across the sector. Developers can build out their sites. Investors and advisors can bite into a new stream of assets ready for acquisition. And the government has secured a supply of renewable energy accounting for 10 per cent of the distance to cover 2030 targets at much better conditions than the wind energy already in the system. While legacy Refit tariffs can top €80/MWh, the average price of the winning bid this week was €74/MWh. 

There is now hope that future auctions will bring the price of renewable electricity closer to the national mix, currently dominated by natural gas, which has fluctuated between €45 and €60/MWh in recent years. This in itself has been driven down by competition from wind farms, which produce virtually free electricity after set-up costs are covered and have pushed wholesale electricity markets downwards, argues Connolly. 

“The results are very competitive and represent a significant saving on previous support schemes,” said Minister for Climate Action Eamon Ryan. “The volumes procured set us on the right trajectory to achieve the ambitious 70 per cent renewable electricity target by 2030 set out in the Programme for Government and the Climate Action Plan.”

Further reading

From wind farms to recycling: Who is buying into (and financing) Ireland’s green wave?