Exporting Renewable Energy: The Economic Opportunity

28 August 2013

Smacc

Exporting renewable energy from Ireland currently refers, in practice, to exports to Britain. This economic opportunity depends on alignment between three factors: (i) the economics of doing so; (ii) the inter-governmental policy; and (iii) the underlying legal framework.

Based on, inter alia, the UK’s Department of Energy and Climate Change’s recent publication of its proposed strike price for its CfD (contracts for differences) renewable energy support mechanism, it’s estimated that exported Irish power could be slightly dearer than UK onshore power. However, importing Irish renewable power still should make economic sense from the UK’s perspective, given the mature state of onshore renewable power development in Britain.

The Irish and British governments signed a memorandum of understanding on “cooperation in the energy sector” in January 2013 (in effect, in relation to exporting power from Ireland to the U.K.). The two governments are working on preparing a full inter-governmental agreement by end 2013. The memorandum of understanding is helpful and the forthcoming full agreement has the potential to provide additional investor certainty and to provide a conceptual framework for any additional domestic legislation.

The Irish Government has also announced that it will carry out a “strategic environmental assessment” of the power exporting concept. While this may impact on developer timelines to some extent, ultimately it’s a positive development as it will provide a government imprimatur to any export project which is deemed to comply with any strictures or guidelines in such assessment.

Arguably, the greater potential for legal issues could arise in the exporting jurisdiction. Transmission and distribution system operators may foresee operational issues if private companies build private infrastructure on a large scale. Further, Ireland has an additional potential issue, in that all power produced anywhere on the island must be traded in an all-Ireland trading pool.

However, while existing Irish legislation does not deal specifically with the exporting of power, it is nonetheless not unhelpful. If a power export line to the U.K. is classified as a “direct line” (whether under the Electricity Regulation Act 1999 (“1999 Act”) or under Directive 2009/72/EC), then section 37 of the 1999 Act will be relevant. It states that a direct line is one which is “not connected to the transmission or distribution system when initially constructed”.

If an export power line to the UK is classified as an interconnector (under Directive 2009/72/EC), section 2A(2) of the 1999 Act provides that “an interconnector owned by a person other than the Board shall not be part of the transmission system”. Further, section 16A of the 1999 Act enables the regulator to seek prior ministerial consent for an authorisation (for such a connector / power export line) “without a prior competitive tender” (thereby dealing with what otherwise might have been a significant additional complication). The often-raised mandatory nature of the Irish trading pool is unlikely to be a major issue either, as that mandatory nature derives from secondary legislation. The relevant piece of parent legislation is in section 9BA of the 1999 Act; and the relevant wording in that section is permissive, not mandatory.

Incidentally, it’s also worth noting that the Lisbon Treaty requires the EU to “promote the interconnection of energy networks”; and, specifically, article 7 of the 2009 RES directive envisages that “two or more member states may cooperate on all types of joint projects relating to the production of electricity … from renewable energy sources”; and that the European target model for electricity market integration will be introduced in Ireland by 2016.

Clearly, more operational detail is required, especially in relation to the forthcoming inter-governmental treaty and in relation to how the issue is treated in domestic Irish legislation. However, all the essential ingredients of an economic opportunity to export renewable energy – economics, policy, and domestic and EU legislation – are moving towards alignment.

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