RESS 1- Terms & Conditions

Last Friday 13^th December, the Department of Communications, Climate Action and the Environment unveiled the Draft Terms and Conditions (T&Cs) for the Forthcoming Renewable Electricity Support Scheme (RESS) 1 auction, expected to take place in June 2020.

In our latest ElectroRoute Insights, we provide a high-level overview of some key highlights contained within the paper;

Structure

The RESS support will be administered via the renewable generator contracting directly with a Supplier, similar to that of the REFIT scheme. This structure provides RESS recipients the option of entering into a Power Purchase Agreement (PPA) with an existing supply company like ElectroRoute Energy Supply Limited, or in adopting a Supplier Lite approach.

Support Duration

RESS 1 intends to support projects up to 31/12/2037 (with a further year extension available where a Force Majeure has successfully been claimed prior to achieving Commercial Operation).

Subsidy support is available from 1 July 2021 if a project is ready (although the period from 1 July to 30 September 2021 will need to be claimed back in the RESS Reconciliation process as payments will only commence to be made from 1 October 2021.

RESS 1 Reference Price

For Variable Generation Projects: hourly Day Ahead Market (DAM) Price, and

For Non-Variable Generation Projects: time weighted average DAM price over the course of the PSO year (i.e. Baseload price)

Calculating RESS PSO Monies

The RESS contract will be a 2-way Contract for Difference (CfD) whereby;

• For hours in which, the Strike Price exceeds the Market Reference Price, the Supplier will be entitled to a support payment, calculated as the difference between the Strike Price and the greater of (a) the Market Reference Price or (b) zero euro per megawatt hour.
  • This is an important point and one we have not seen before, e. if the Market Reference Price is less than €0/MWh, the generator will not receive any support payment for any power produced in that period.

• For hours in which the Market Reference Price exceeds the Strike Price, the Supplier will be obliged to make a Difference Payment to the PSO.

Unlike the existing REFIT scheme, the T&Cs suggests that support will be calculated with reference to Loss-Adjusted Metered Quantity rather than giving generators the option of Metered Quantity.

Payments from Suppliers to the PSO

Where the ex-ante assessment of PSO amounts calculates that there is likely to be an amount due from a Supplier in respect of a forthcoming PSO year (i.e. where market revenues are expected to exceed the Strike Price) , the Supplier is expected to make payments to the TSO, as opposed to receiving them.

• We expect that this new risk (relative to REFIT which is effectively a 1 way CfD) will put pressure on the CRU to ensure that the ex-ante calculations which forecast the Benchmark Price in the market are highly detailed, specific to projects (as opposed to using a time weighted average price) and considering of technology.
• Due to the Pay as Bid methodology, this risk is greater for some projects than others given each will have differing Strike Prices

Moving Suppliers during the RESS Contract Term

The T&Cs indicate that the RESS Letter of Offer may be transferred to another Supplier in the event that the “original Supplier is unable to perform its obligations under the RESS 1 PPA or these RESS Terms & Conditions”

Leaving the RESS 1 Scheme

There will be a one-time opportunity for a Generator to leave the RESS 1 scheme throughout the term of support. The project must give 12 months’ prior written notice and evidence that the Supplier to the PPA agrees to the withdrawal. The withdrawal will take effect from the first day of the new PSO Levy period.

Curtailment Compensation

The Department have introduced a metric to compensate for curtailment where there has been in excess of 10% curtailment for two consecutive Levy Periods. This will be measured by the TSO who will deliver a report for each RESS 1 participant annually. The TSO will detail the total curtailed volume that was not compensated through another scheme (other schemes being undefined).

Whilst the detail requires further clarification, the idea seems to be to compensate generators for the portion above 10% curtailment and paragraph 5.6.2 states;

“The Curtailment Compensation Arrangements will set out the calculation … of the level of additional compensation (if any) that is consistent with a Curtailment level limited to a maximum of 10% for that RESS 1 Project in that year”

It is for clarification if this should be interpreted as paying for levels of compensation greater than 10% and limited to a further 10% of total output.

The principles however are clear, the Minister has indicated a desire to support projects which are seeing excessive levels of curtailment over a sustained period.

Preference Categories

The T&Cs outline a preference for a designated volume of renewable energy from both Community led projects and Solar projects.

For Community led[1] projects, a preference is given for up to 30GWh and for Solar[2] projects, a preference will be given for up to 300GWh.

By including a project in a Community led Preference category, the project cannot compete in the second (Solar) or third preference (All Projects[3]).

Auction Offer Process

RESS 1 is not linked to a market-clearing mechanism and is therefore a simple, sealed bid auction which awards on the basis of Pay as Bid methodology.

The contract award will not be inflation linked.

At ElectroRoute, we are currently designing innovative and bankable route to market solutions for auction participants that provide flexibility and certainty.  We look forward to engaging with the renewable industry on balancing and other products in the months to come as the June 2020 deadline for the auction comes closer.

References

[1]Limited between 1-5MW in size. Defined as a project which is 51% by a Renewable Energy Community, with minimum 150 shareholders and an allotted share capital of maximum €20,000

[2]Limited between1-125MW in size

[3]Limited between 1MW up to 600GWh in output