oress 1 industry briefing

ORESS 1 Industry BriefingInternational and Offshore Energy Division

2 November 2021

2 An Roinn Comhshaoil, Aeráide agus Cumarsáide | Department of the Environment, Climate and Communications

Timeline

• Consultations Ongoing

• ORESS 1 Draft Terms and Conditions

o Closes December 6th

• CRU Offshore Grid Connection Assessment (GCA)

o Closes November 22nd

• Q1 2022

• ORESS 1 Consultation Response

• CRU Grid Connection Assessment Decision

• Q2 2022

• ORESS 1 Final Ts&Cs – s.t. enactment of MAP Bill

• H2 2022

• MAC Awards, GCAs Issued, ORESS 1 Opens, s.t. previous milestones met


Auction Eligibility

1) Grid Connection Assessment (GCA)

• Consultation process ongoing [CRU], to be issued by EirGrid

• Maximum Export Capacity (MEC)

2) Maritime Area Consent (MAC) or Foreshore Lease

• MAC Consultation process forthcoming

3) Declaration of Bidding Independence

• Ownership at >10% level to be declared


Approach

• DECC is open to considering different approaches to indexation of ORESS-1 strike prices (including: zero indexation; indexation

of operating costs only and/or certain capex items; and full indexation).

• DECC is generally less interested in arguments in favour of indexation on the basis of lowering initial strike prices and more

interested in evidence that some form of indexation reduces the cost of capital and/or underlying cost assumptions.

Consultation feedback requested

• DECC is seeking industry feedback and evidence regarding the approach to indexation that is most likely to result in the lowest

cost to consumers on a whole of life discounted cashflow basis.

• DECC is particularly interested in ORE specific factors that may indicate that some form of indexation may lower overall costs to

consumers (e.g. the longer construction timeframe associated with ORE than onshore).

KPMG report

• Available to consultees is a recent KPMG report commissioned by DECC, which found that:

- developers would generally prefer full (followed by partial) indexation – but would be able to bid without indexation

- funders considered that zero indexation would deter many institutional investors.

Indexation


Approach

• The proposed Bid Bond and Performance Security requirements have been developed having regard to practices in peer

European jurisdictions, lessons learnt from the RESS-1 Onshore auction and relevant EPC contracting practices.

• Securities will be applied on a €/MWh volume basis (rather than a capacity basis) consistent with the auction procuring ORE

volume and Ireland’s renewable energy targets being volume based.

Rates

• The draft Bid Bond and Performance Security rates are €7/MWh and €24/MWh respectively of one year’s Deemed Energy

Quantity.

• These levels will be reviewed having regard to consultation feedback, the RESS-2 Onshore T&Cs and RESS-1 delivery outcomes.

Risk allocation

• Bid Bonds are in place for the limited time between Offer submission and execution of the Implementation Agreement (or within 10

working days of notification of an unsuccessful Offer). Applicants that comply with the T&Cs will have their Bid Bond returned.

• The Performance Security will be drawn down for failure to meet milestones and other default events under the IA.

Bid Bonds & Performance Securities


• Offers to be selected in ascending price order

• RESS 1 (onshore) winner selection mechanism included:

• The 5% rule: Accepted additional offers with price within 5% of

marginal offer at target

• The X and Y rule: Included consideration of whether a “viability gap”

exists in the ordered list of offers qualified

• ORESS 1 (offshore) does not propose to use these rules

Auction Mechanics: ORESS vs RESS


Example 1

• Min 1,000 GWh; Max 3,000 GWh

• 5,000 GWh of offers qualify

• CRU competition ratio of 2.0

• No viability gap

➢ Auction Starting Quantity (ASQ) = 5,000/2.0 = 2,500

GWh

➢ Additional 150 GWh accepted because offer price

within 5% of that at ASQ

➢ 2,650 GWh in total accepted

Example 2

• Min 1,000 GWh; Max 3,000 GWh

• 4,800 GWh of offers qualify


• Viability gap at 3,300

➢ Auction Starting Quantity (ASQ) = 3,300/1.5 = 2,200

GWh

➢ Additional 200 GWh accepted because offer price

within 5% of that at ASQ

➢ 2,400 GWh in total accepted

How RESS 1 Worked: 5% and X&Y€/MWh

GWh

1,000 2,000 3,000 4,000 5,000

ASQ

2,650

€/MWh

GWh

1,000 2,000 3,000 4,000 5,000

ASQ

2,400


Example

• 2,500 GWh of offers qualify (5 projects of 500 GWh

each)


➢ Auction Starting Quantity (ASQ) = 2,500/2.083

= 1,200 GWh

➢ No X and Y rule, so ASQ unaffected by any

“viability gap”

➢ The lowest cost projects that first meet or

exceed ASQ are accepted, so 1,500 GWh in

total accepted

➢ No 5% rule, so the 4th cheapest offer is not

accepted, no matter how close its offer price is

to that of the 3rd cheapest

How ORESS 1 is Proposed

€/MWh

GWh

500 1,000 1,500 2,000 2,500

ASQ

1,200

Values are illustrative only


Selected offers will be eligible for support based on the strike price specified

in their offer – there will be no clearing price applied to offers

Pay as Bid

€/MWh

GWh

500 1,000 1,500 2,000 2,500

ASQ

1,200

Values are illustrative only

Strike Price of Offer 3Strike Price of Offer 2

Strike Price of Offer 1


Milestones

Possible Phase One Project Timeline (Indicative Only)

(Timing and sequence subject to change)

Proposed Interim

Milestone Date

Proposed Final

Milestone Date

2022/3 Grid Connection Assessment Issue

MAC Grant

ORESS 1 Offer

Planning Permission

2024 Grid Offer, CRU Licences

Commencement Date

Construction Begins

31 Mar – Planning Permission

31 Dec – Commencement Date

30 Jun – Planning Permission

2025 Construction 30 Jun – Commencement Date

2026 Construction

1 Jan – ORESS 1 Support available (with COD)

2027 Commercial Operation Date (COD) (Q2 = 15year support) 30 Jun - COD

2028 Operation, Year 2 30 Jun – COD (Longstop Date)

2042 30 Jun – ORESS 1 Support Ends

(14-16.5 years support)


Additional Proposals

• Community Benefit Funds

• Early contributions from Commencement Date

o i.e. a number of years prior to Commercial Operation

o Provision to offset against post-COD obligations

• Nationally-Managed

• Local Operation & Maintenance

• Ireland or Northern Ireland


• As per RESS 2, in line with EU State Aid Decision (SA. 54683, 2020) and the

associated plan for ex-post evaluation of the scheme, ORESS 1 applicants are

required to provide the information specified in the Financial Questionnaire as

drafted at Annex B of the draft ORESS 1 Terms and Conditions.

• The questionnaire covers areas including expected project returns, capital and

operating costs and the likelihood of alternative routes to market including

Corporate Power Purchase Agreements or export to other jurisdictions.

• All information provided under this heading will be held in strict confidence and

the Section 36 (Commercially sensitive information) exemption from release

under the FOI Act will be applied.

Financial Questionnaire


• The Project Delivery Plan Questionnaire is outlined in Annex C of the draft ORESS 1 Terms and Conditions. In order to better inform Government policy and the design of future ORESS auctions, ORESS 1 applicants will be required to provide the information specified in the Questionnaire.

• The questionnaire is broken down into 6 parts; Project Summary, Business Environment, Infrastructure, People, Place and Ideas.

• The information is to be submitted post-auction by successful projects only and will therefore have no bearing on the winner selection process at auction. There is no intention to score or evaluate this information at any stage.

• All information provided under this heading will be held in strict confidence and the Section 36 (Commercially sensitive information) exemption from release under the FOI Act will be applied.

Project Delivery Plan Questionnaire

oress 1 industry briefing

Documents