Cornwall Insight and Wind Energy Ireland analysis has found that renewable developers in Ireland are being forced to place auction bids for projects which significantly exceed many other European countries, in order to protect themselves against several financial risks. In turn increasing consumer bills and potentially impacting the scale of renewable infrastructure being built.
Ireland has set itself ambitious renewable targets, with the government looking to achieve 8GW of onshore wind and at least 5GW of offshore wind by 2030. In order to achieve these targets, a Renewable Electricity Support Scheme (RESS) auction mechanism has been established. Results of the RESS 2 auction were released on Friday (20/05). However, despite being set up to drive down bids through high competition the opposite is happening, with research highlighting the poor design of the RESS auction.
Currently risks outside of the developer’s control such as inflation or system constrains, are being placed directly on the developer, whereas in the European auction processes many of these risks are mitigated against. This has led to inflated Irish auction prices, with average bids at 90€/MWh plus compared with France, Germany and the UK all recording prices between 50 and 60 €/MWh.
The greatest single impacts would arise from the mitigation of merchant tail risk for onshore wind and constraints for offshore wind projects. However, efficiencies arising from mitigation measures across the entire basket of risks considered in this study are meaningful and the combination effect of addressing all of them are profound in terms of reducing consumer costs. The research has shown that by insulating developers of renewables against financial risks we could see consumer costs reduced by 63% per MW for offshore wind and 48% per MW for onshore wind.
Table 1: Summary of savings for consumers as per Cost benefit analysis modelling1
| Risk | Reduction in Cost to Consumer- Onshore wind | Reduction in Cost to Consumer- Offshore wind |
| Constraint | 6% | 12% |
| Curtailment and Energy Balancing | 5% | 9% |
| Inflation risk (Indexation) | 5% | 9% |
| Merchant Tail Risk | 13% | 6% |
| TLAF | 3% | 5% |
| TUoS | 4% | 3% |
| Combination effect | 12% | 20% |
| Total savings for consumers | ~48% | ~63% |
Ratnottama Sengupta, Senior Consultant at Cornwall Insight said:
“With extreme volatility in the energy market pushing us to seek more stable energy sources, high renewables targets for 2030 and a goal of net zero by 2050, wind power is set to become a significant part of the energy mix in Ireland. However, our research is showing that renewable developers are being put in an untenable situation, forced to raise their bids due to the uncertainty built-into the auction process, and lack of financial risk mitigation. The auction process designed to bring bids down is having the opposite effect, and there is a risk our renewables targets may be missed or be built at a significantly higher cost.
“If the auction design does not insulate developers from enough risk, especially those risks that they have no ability to manage and limited ability to predict, the bid price submitted by those developers will inevitably be higher. This will result in higher contracted auction prices and costs to the consumer.
“You only have to look to our European neighbours to see the benefit of risk mitigation for both suppliers and consumers, the more risks that developers are insulated against the higher the reductions in auction prices and consumer bills. We already have models from across the continent to demonstrate the process for insulating developers from most of the risks identified. We need to learn the lessons from those who have already taken these steps and seen lower consumer costs and higher infrastructure project take-up because of it. Only then will we get the best deals for developers and consumers alike.”
Reference:
- Risk mitigation measures were fed into the cost benefit analysis (CBA) modelling study. The CBA considered not only the direct levy savings to the consumer as a result of implementing the risk mitigation measure, but also the cost of the risk mitigation measure to the consumer.
–Ends
Notes to Editors
For more information, please contact: Verity Sinclair at v.sinclair@cornwall-insight.com
To link to our website, please use: https://www.cornwall-insight.com/
About the Cornwall Insight Group
Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British, and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.
