The Irish Department of the Environment, Climate and Communications’ recent decision to cut the price cap for its upcoming Renewable Electricity Support Scheme (RESS4) auction poses a threat to renewable capacity targets and carbon budgets, according to analysis by Aurora Energy Research.
The RESS4 auction is the fourth round of the Republic of Ireland’s renewable energy subsidy scheme and is set to take place between 22 August and 29 August 2024. Projects funded in this round have an obligation to come online by 31 December 2029, effectively making this the last auction that will contribute to 2030 renewable energy targets.
The Irish government recently introduced technology-specific caps for auction pricing, lowering the onshore wind cap from €110/MWh to €93.50/MWh, leading to fewer projects being able to land financing under a RESS4 contract. Analysis from Aurora Energy Research has indicated that this means the auction is unlikely to hit its procurement target of 2,500-4,500GWh due to a lack of eligible projects.
Steph Unsworth, senior associate, Aurora Energy Research, comments: “RESS4 is set to yet again severely undershoot the procurement target and clear near the price cap, as the reduction of the auction price cap for onshore wind results in few projects proving profitable under a RESS contract. As a result, this could prove an expensive, yet low volume auction. This low volume will lead to Ireland significantly missing both its renewable capacity targets and the carbon budgets.
“Projects in Ireland remain higher cost than in other European markets due to tight supply chains on the island system and financing difficulties given the arduous planning and grid connection processes. So, this low auction cap price is not high enough for projects to come online.”
UK and Irish auction schemes need reform
Much like the Irish renewable auction scheme, the UK Contracts for Difference (CfD) scheme has hit a crisis point where urgent reform is needed to have any chance of hitting renewable capacity targets for 2030.
A report from energy and climate think tank Ember recently warned that the UK’s offshore wind industry is at serious risk of missing 2030 capacity targets if urgent action is not taken. This report cautioned that unless urgent policy reform is made before the next round of CfD auctions begin on 1 August, the commission volume will fall short of what is needed to meet the UK’s target of having 50GW of offshore wind capacity by 2030.
This follows a disappointing auction round in 2023, where the strike price was too low to attract any offshore wind commissions, a major blow to offshore wind installation targets.
As such, Ember recommends that the UK government increase the budget for this year’s AR6 auction round by 25%, commenting that this approach avoids the need for CfD structural change in the immediate term, and will help move projects at the front of the queue forward to development at a time of great uncertainty in the industry.” Ember also urges that in the long term, the government should “evolve the CfD process to move a large number of sites through development.”
