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DECC Consultation on the draft Terms and Conditions of the First Offshore Renewable Electricity Support Scheme

  • Ireland
  • ESG
  • Energy and infrastructure - Clean energy
  • ESG

29-10-2021

On 11 October 2021, the Department of Environment, Climate and Communications (“DECC”) published the draft terms and conditions for the first offshore renewable electricity support scheme (“ORESS 1”). The DECC has invited responses to be submitted by no later than 6 December 2021 and final publication of the terms and conditions are slated for Q2 2022. The ORESS 1 terms and conditions generally follow the principles of the first renewable electricity support scheme (“RESS 1”) published by the DECC last year, subject to a few notable differences. We have examined the key features of the ORESS 1 terms and conditions below.

Auction Eligibility Criteria

State Consent - Projects will need to obtain a State consent to occupy the relevant marine site before they can take part in the ORESS 1 auction. The State consent can take the form of either a Maritime Area Consent (MAC), awarded under the Maritime Area Planning Bill, as enacted (the “MAP Bill”) or a Foreshore Lease, awarded under the Foreshore Act 1933 (as amended). As the MAP Bill is not yet enacted, full planning permission will not be required for applicants to take part in the ORESS 1 auction. The timing of ORESS 1 is therefore critically dependent on the enactment of the MAP Bill, the commencement of relevant secondary legislation and the establishment of the MAC application process.

Bidding Independence - All persons directly or indirectly controlling more than 10% of the shares of a project will need to be declared in the Declaration of Bidding Independence.

Grid Connect Assessment - Applicants will also be required to provide evidence that they have undertaken a ‘Grid Connection Assessment’ (examined in detail in our article here).

Indexation

The DECC consultation paper provides that certain investment costs may be indexed up until project commissioning. It is likely however that these costs will be indexed against an industry specific price level indicator (such as the European Steel Index) instead of more general inflation indicators of CPI or HICP.

Auction Mechanisms

ORESS 1 will maintain the pay-a-bid model used in RESS 1, however it will not retain some RESS 1 winner selection algorithms such as the ‘5% Rule’ and the ‘X and Y Rule’, in an aim to simplify ORESS 1.

Bid Bonds and Performance Securities

Bid Bonds and Performance Securities are proposed to be applied on a €/MWh basis, as opposed to the €/MW basis that applied in RESS 1. The same rates as those for RESS 2 are also proposed, ie a proposed level of €7/MWh of Deemed Energy Quantity for one year for Bid Bonds and €24/MWh of Deemed Energy Quantity for one year for the Performance Security. 

Interim and Final Milestones

As per RESS 1 and RESS 2, interim and final milestones are proposed for ORESS 1 and these will be included in the Implementation Agreement. The development consent (ie, planning permission) will be added as a post-auction milestone, and additional time will be given to projects to obtain this consent. The DECC consultation paper sets out a number of proposed milestone completion dates, based on the assumption that MACs will be granted in late 2022, which includes an ORESS 1 longstop date for commercial operation in 2028.

Offshore Community Benefit Funds

Two alternative options are proposed for Offshore Community Benefit Funds: (1) individually managed funds will be set up, in a similar way to RESS 1, except that projects will be required to make Community Benefit Fund contributions prior to the operational date or (2) a single national-managed offshore community benefit fund would be set up to address challenges specific to offshore projects. Under this option, a medium-sized offshore project, with a 500MW of installed capacity, would be expected to contribute about €4m/annum in community contributions, or a level approximately equal to the combined obligations of all c.80 projects successful in RESS 1.

Local Operation & Maintenance

It is proposed that operation and maintenance services for each project successful at ORESS 1 are required to be headquartered in either Ireland or Northern Ireland. This may prevent an ORESS 1 project having its O&M operations in Great Britain for example.

Financial Questionnaire

ORESS 1 applicants are required to complete a financial questionnaire (as annexed to the draft ORESS 1 T&Cs). The financial questionnaire covers areas such as expected project returns, capital and operating costs and the likelihood of alternative routes to market, including Corporate PPAs or export to other jurisdictions.

Project Delivery Plan Questionnaire

A project delivery plan questionnaire will be required to be submitted post-auction, by successful projects only.

For more information please contact:

Mark Varian, Partner, Energy - MarkVarian@eversheds-sutherland.ie

Jennifer Burke, Senior Associate, Energy – JenniferBurke@eversheds-sutherland.ie

Phelim McGeady, Associate, Energy – PhelimMcGeady@eversheds-sutherland.ie