High grid connection costs resulted in a solar strike price in Ireland’s first Renewable Electricity Support Scheme (RESS) auction “significantly higher than anywhere else in Europe” according to the Irish Solar Energy Association (ISEA).
The overall strike price - €74.08/MWh (£66.90/MWh) - came in at over double the sorts of prices seen in the UK’s Contracts for Difference scheme, the most recent of which saw prices run as low as £39.65/MWh.
For solar specifically in the RESS, the strike price was €72.92/MWh (£65.78/MWh). Speaking to Solar Power Portal, chairman of the Irish Solar Energy Association David Maguire said that there was a combination of reasons why the strike price was the highest in Europe, the first of which being that Ireland also has the “highest grid interconnection costs in Europe on average”.
This is a result of engineering and planning protection standards being “far higher than they need to be”. Whilst Maguire agreed that the futureproofing being undertaken by the grid operators is “a great idea”, he added that this is a “very high” standard of futureproofing, in particular on the high voltage network, and this has therefore impacted the strike price of the RESS.
Another factor is the tenor of the PPAs only being 15 years, with Magure stating that financiers prefer a 20 year lifecycle as a minimum in order to deploy their capital.
“We’ve failed in attracting in and being able to amortize our capital over a slightly longer period and those five years make a difference,” Maguire explained. “Folks that look at financing infrastructure in this space will take a view on what the merchant curve will look like in year fifteen and that’s kind of like crystal ball gazing. Some folks will take an aggressive view, but most investors will take a conservative view and they’ll price it accordingly.”
The lack of indexation in the RESS also doesn’t help in this regard, with Maguire describing it as “one of the biggest drivers on the cost of capital”.
“If you want to attract low cost capital to keep your costs down, you will attract in capital that is risk adverse, so pension fund money etc. If you fail to give them an indexation element, they will take a very conservative view on what their cost increases on O&M are going to be like and so on, so you’ve got an increase in the price point of anything from 10% - 15% in your PPA number from that lack of indexation.”
Concerns over the lack of indexation were raised by NTR’s group corporate finance director Anthony Doherty at Solar Media's Solar Finance and Investment Europe conference in February, stating that "it introduces an element of pricing which will get put into the market that is not required in our view". However, on the same panel Jim Arigho, director of energy and climate change infrastructure at the Allied Irish Bank said "the absence of indexation isn’t a concern from a financing point of view”.
Alongside the indexation, the ISEA's Magurie also pointed to factors such as the lack of embedded benefits in Ireland that puts solar at a “massive disadvantage”, the requirement in the RESS to pay €2/MWh (£1.80/MWh) towards a community fund and uncertainty over local authority rates for why the strike price was so high.
Solar took home a far larger percentage of the auction than initially expected, with up to 10% initially carved out for the technology, equivalent to 100-300MW. Solar ended up being contracted for 796MW, equivalent to 34% of the total auction volume.
This was partly due to the competition ratio in the technology neutral auction being reduced from 2 - as originally outlined - to 1.3, Maguire explained, meaning more qualifying projects were to be awarded.
Alongside this, there wasn't much wind bidding as whilst some wind projects would have qualified "they wouldn’t have been able to deliver the grid interconnection by the deadline of 31st December 2022".
"Solar grid connections tend to be a bit more straightforward and so the folks who had solar projects took a view that they had a high chance of delivering grid interconnection on time and some of the wind guys took a view that it was a bit of a risk."
Magurie continued to outlined how Ireland doesn't have a grid grace period. In the UK's CfDs there is a grace period, whereby if the grid and DNOs are late delivering an interconnection the developer would have up to a 12 month grace period without losing that CfD.
This is not the case for the RESS, and whilst Ireland has a long history of successfully deploying wind, it only has one DNO that has "relatively limited resources" with there being a "long history of not delivering grid interconnections on time".
Maguire said that typically a developer has to factor in a six to nine month delay, which would have been "a big driving factor of a lot of wind not bidding".
"Very little qualified solar pulled out, so that’s why you had more solar coming on than wind."