IRISH SOLAR ENERGY ASSOCIATION Response to the Renewable Electricity Support Scheme, Technology Review, DCENR Table of Contents Executive Summary . .................................................................................. 3 1. Introduction ....................................................................................... 5 1.1 Utility-­‐scale Solar Projects ................................................................................................................ 5 1.2 Domestic Rooftop (< 10 kW) Solar Installations ............................................................................... 6 1.3 Commercial Rooftop Solar Projects ................................................................................................. 6 2. Benefits of Solar ................................................................................... 8 2.1 Climate Change and Energy Security ................................................................................................ 8 2.2 Job Creation ..................................................................................................................................... 8 2.3 Agriculture and Biodiversity ........................................................................................................... 10 2.4 Complement to Wind ..................................................................................................................... 11 2.5 Economic and Social Benefits ......................................................................................................... 12 3. Costs of Solar ...................................................................................... 1 3 3.1 Cost Summary for Utility-­‐scale Solar Projects ................................................................................ 13 3.11 Utility-­‐scale EPC Costs ............................................................................................................... 13 3.12 Funding Costs ............................................................................................................................ 14 3.13 Case Study: 5 MW Solar Farm in Kildare ................................................................................... 14 3.14 Operating Costs ........................................................................................................................ 15 3.15 Valuation Model ....................................................................................................................... 15 3.16 Forecast of Competitively Outcome from Auction .................................................................... 16 3.2 Cost summary for Domestic and Commercial Rooftop solar PV projects ...................................... 17 3.21 Domestic Rooftop PV Cost Summary ........................................................................................ 18 3.22 Commercial Rooftop Scale EPC Costs ........................................................................................ 19 4. Deployment ....................................................................................... 2 1 4.1 Costs of Deployment – Utility Scale ............................................................................................... 21 4.2 Costs of Deployment – Rooftop ..................................................................................................... 23 5. Support Scheme – Subsidy .................................................................. 2 5 5.1 Utility-­‐scale Solar Projects .............................................................................................................. 25 5.11 Auction Mechanism .................................................................................................................. 25 5.12 Structure of Support ................................................................................................................. 26 5.13 “Market Premium” and Market Reference Prices, Including Balancing Costs .......................... 26 5.14 Duration of Support .................................................................................................................. 26 5.15 Support Counterparties ............................................................................................................. 26 5.16 REFIT R-­‐Factor Reconciliation, Setting of PSO Levy ................................................................... 27 5.17 Separate Competition and Budget ............................................................................................ 27 Case Study: Contracts for Difference (CfD) in the UK ............................................ 2 8 5.2 Commercial Rooftop and Domestic Rooftop (< 6 kw) .................................................................... 28 5.21 Feed-­‐In-­‐Tariff Mechanism ......................................................................................................... 28 5.22 Structure of Support – Rooftop ................................................................................................. 30 5.23 Duration of Support .................................................................................................................. 30 Case Study: FiT in Germany .................................................................... 3 1 6. Conclusion . .......................................................................................... 3 1 1 Appendix: Answers to Consultation Questions ........................................... 3 2 Process Layout and Approach .............................................................................................................. 32 Policy Context ...................................................................................................................................... 33 Technology related ............................................................................................................................... 34 Eligibility ............................................................................................................................................... 37 Support mechanism ............................................................................................................................. 37 Allocation ............................................................................................................................................. 37 Scheme Limits / Cost controls .............................................................................................................. 38 Tariffs ................................................................................................................................................... 39 Tariff from Auction – Utility Scale ..................................................................................................... 40 Generation tariff -­‐ Roof top .............................................................................................................. 41 Appendix I: Solar PV Jobs in Ireland .......................................................... 4 2 Employment Generated ....................................................................................................................... 42 Potential Employment Projections for Ireland: .................................................................................... 43 Appendix II: ISEA Members . ...................................................................... 4 4 2 Executive Summary In July 2014, the Irish Solar Energy Association (‘ISEA’), through its submission for the Green Paper on Energy Policy in Ireland, made the case for solar energy in Ireland. A combination of falling costs, improved technology levels and increased availability of finance means that, with the right level of government support, solar PV could be rapidly deployed in Ireland with the potential to provide between 10% and 20% of Ireland’s renewable energy requirements by 2020. Combined with the ongoing rollout of onshore wind, this would ensure that the Ireland would easily exceed the projected target of 4,000 Megawatts (‘MW’) of renewable energy capacity by 2020. The purpose of this submission by ISEA to the Department of Communications, Energy and Natural Resources’ (‘DCENR’) Renewable Energy Support Scheme, Technology Review Consultation is to refresh the recommendations made in the Green Paper submission based on a greater understanding of the opportunities in the Irish market built up by ISEA members over the last 12 months, and to provide supporting data to support the principal policy recommendations. The key points in this submission are as follows: 1)
The projected deployment rate for solar is faster than originally estimated. ISEA now believes that between 800 MW and 1,150 MW of installed capacity is realistic by 2020 and 1,900 MW by the end of 2022. 2)
The average cost over 25 years to provide a support mechanism for the deployment of 1,900 MW of solar by 2023 is estimated to be €24m per annum, or €0.023/kwh, representing 1% of a typical consumer’s electricity bill. 3)
Installation costs for solar farms will fall by 21% between 2015 and 2018, assuming the lifting of the Minimum Import Price on Chinese solar modules that was introduced by the European Commission in 2013. 4)
Utility scale (>1 MW) ground-­‐mounted solar farms deployed in 2017 will require revenue/kwh of €0.14 -­‐ €0.16, reflecting a level of support equivalent to €0.07-­‐€0.09/kwh. Lower levels of support will be required for projects deployed in subsequent years as costs decline, with solar energy expected to be grid-­‐competitive by 2023. 5)
To ensure that the level of support provided to solar accurately reflects conditions in the market, and to avoid the boom and bust scenarios experienced in other European countries such as Spain, Italy and the UK, a competitive auction for utility-­‐scale solar is recommended from day one. 6)
A Contracts for Difference based support mechanism is recommended with a dedicated budget reserved for Solar until 2020. This will allow the solar industry to build the necessary scale to be able to compete in a technology-­‐neutral auction from that date. 7)
Roof-­‐mounted schemes should be eligible for a generation tariff based support mechanism (ReFiT or equivalent). The required generation tariff ranges from €0.095/kwh for large commercial rooftops to €0.15/kwh for domestic rooftop schemes for an installation in 2017, declining over time for installations in subsequent years. Section 1 of this submission will focus on the different applications of solar and demonstrate that a mix of utility scale and rooftop is required in order to maximise the benefits of developing a solar industry. Section 2 will explore the benefits of solar beyond those related to achieving Ireland’s renewable energy targets. Section 3 will go into detail on the current and projected costs of deploying solar schemes to justify the recommended support levels, while Section 4 analyses the total projected cost of the support mechanism over 20 years. Finally section 5 goes into detail on the recommended support mechanism for utility scale and rooftop solar schemes. 3 Figure 1. Cumulative installed capacity 2017-­‐2022 Cumulaive Installed Capacity Mega Wags 2000 550 1500 450 350 1000 250 500 0 50 100 2017 150 350 600 2018 2019 850 2020 1100 2021 1350 2022 Year Ground mount -­‐ Cumulaive Roojop -­‐ Cumulaive 4 1. Introduction Solar energy is a rapidly developing technology that has minimal impact on the environment with maximum benefits. With the correct support it has the potential to become one of the most economically viable renewable energy source in the world. To date, solar energy has been overlooked in Ireland with the focus on other renewable energy sources, particularly wind. However, as many other Northern European countries have recognised, solar is an important component of the renewable energy mix and provides a significant opportunity for Ireland to accelerate the rollout of renewable energy at an affordable cost, while creating new employment opportunities. The Irish Solar Energy Association (ISEA) represents over 50 companies that constitute a dynamic and growing solar sector in this country. We recognise the potential for solar in Ireland, not only as a means for meeting Ireland’s renewable energy and electricity targets, but as a long-­‐term sustainable and clean option with numerous benefits for Ireland economically, socially and environmentally. We believe that, with the right policy framework, solar energy could account for between 10% and 20% of renewable energy generation capacity by 2020, representing 800MW – 1,150 MW of installed generation capacity. This will make a significant contribution to Ireland’s 2020 carbon reduction targets, create a minimum of 4,000 direct jobs and solidify Ireland’s position as a Centre of Excellence for Renewable Energy, which has recently been reinforced by the selection of Dublin as the location for the 2014 Renewable Energy Finance Forum. The Department of Energy, Communication and Natural Resource’s (DCENR) technology review consultation on the Renewable Electricity Support Scheme (“the Consultation”) therefore represents an important opportunity to maximise renewable energy delivery through further diversification of renewable energy sources in Ireland. The Irish Solar Energy Association (ISEA) argues in this paper that solar photovoltaic (PV) projects can and should be a part of that renewable energy mix. ISEA, through this submission, outlines 3 elements for the deployment of solar in Ireland: •
•
•
Utility-­‐scale ground mounted solar. Commercial rooftop. Domestic rooftop (< 6kW) solar installations. A mixture of different incentives is needed for each of the elements due to their scale, cost-­‐base and ability as individual projects to interact with the wholesale market. Through this submission ISEA will present: the benefits of solar in Ireland, an evaluation of the costs of solar (providing a detailed review of capital expenditure), potential deployment scenarios, and a support scheme mechanism for solar in the form of an auction. Estimates will also be made on what a suitable potential is for the deployment of commercial rooftop, domestic and ground mounted solar in Ireland by 2023 to achieve appropriate economies of scale. 1.1 Utility-­‐scale Solar Projects Utility-­‐scale solar projects are defined as those projects that are >1MW in capacity and are typically installed on greenfield or brownfield sites. Generated electricity is exported directly to the grid with revenue being received through a bilateral Purchase Power Agreement (PPA) that comprises a market component, based on the wholesale price of electricity and a subsidy component. The principal advantages of utility scale projects are that deployment costs are cheaper, due to economies of scale and there are ready sources of finance in the form of infrastructure funds and project debt. Experience in other European countries has shown that deployment of utility scale solar can be extremely rapid, with the UK deploying over 7,000 MW between 2010 5 and 2015. As such, utility-­‐scale solar is a useful tool for governments that need to rapidly address a shortfall in achieving renewable energy targets. While the deployment costs of solar continue to fall, the rate of decline has slowed since 2013 due to the introduction by the European Commission of the Minimum Import Price on imported solar modules and the impact of the weaker euro. Nevertheless, ISEA projects that installation costs will fall by 21% between 2015 and 2018, making solar projects viable at a tariff of between €0.14 and €0.16/kwh. This will decline over time to €0.14/kwh in 2018 and €0.13 in 2019. Grid parity is projected by 2023. Assuming a deployment of 1,350MW of utility-­‐scale solar between 2017 and 2022, the average annual cost to 1
the PSO customer over a 25 year subsidy timeframe is €24 million. Deployment at this level will contribute significantly towards Ireland’s 2020 and 2030 targets, and will cost €0.023/kwh over the lifetime of the subsidy scheme. Support calculations for these figures are provided in the main body of our response. Consistent with State Aid Guidelines, this document will recommend an auction process for utility-­‐scale solar projects and address why a specific budget should be ring fenced for solar until 2020. This will be based on a two-­‐way contract for difference mechanism. 1.2 Domestic Rooftop (< 10 kW) Solar Installations Domestic Rooftop refers to solar PV on homes. The benefit of domestic rooftop solar is that it facilitates the Irish consumer to offset costly retail electricity with energy generated from the roof of their home. The move towards domestic solar will reduce the risk of electricity price volatility and enhance energy security for consumers. As the cost of solar PV at a domestic scale continues to fall, ultimately towards grid parity, the benefits to consumers will be proportionately greater. It is proposed that a domestic generation tariff for rooftop should be introduced, in addition to the consumer receiving revenue from the estimated 50% of electricity that is exported to the grid. This will ensure greater deployment of solar PV at a domestic scale, which will provide homeowners with the opportunity to reduce their electricity bills and recoup the costs of installation. Energy storage solutions are also an important factor, with large scale adoption expected by 2020 as costs fall. This will increase the amount of self-­‐generated power consumed domestically, further improving the attractiveness of solar PV systems. 1.3 Commercial Rooftop Solar Projects Commercial rooftop solar PV refers to rooftop PV installations on retail, industrial, agricultural buildings, state and semi-­‐state organizations. Solar PV systems for commercial and industrial use have similar benefits to those of domestic systems – lower electricity bills, protection against future electricity price rises, and a smaller carbon footprint -­‐ but with the added advantage of generating larger amounts of electricity and generally being able to better match on-­‐site generation with on-­‐site demand. This decentralised application of solar PV technology is particularly promising for the Irish businesses as it generates renewable electricity during the day, at the time when the building owner is consuming it (when ‘brown’ electricity is often at its peak prices) and, unlike centralised generation, it avoids grid transmission and distribution costs by supplying directly into the distribution board of the business under the roof. It is often during daylight hours when these businesses have a demand for that electricity and rooftop solar PV 1
While each individual project is recommended to receive government support for 20 years, projects deployed between 2017 and 2022 will be eligible for support, making the total duration of the support programme 25 years. 6 encourages business owners and developers to size systems to their base load to minimise export to the grid and maximise savings from offsetting day time ‘brown’ electricity. The Department of Energy and Climate Change (DECC) in the UK recognised the potential of this solar PV application, arguing that deployment in the commercial and industrial sector needed to be much stronger if it was to match what has been seen in others parts of Europe (DECC, 2014). DECC have also worked at removing barriers to adoption such as, increasing permitted development rights for rooftop installations up to 1MWp. 7 2. Benefits of Solar The benefits of solar extend beyond the provision of clean energy and electricity. In the context of Ireland’s renewable energy mix, solar PV is a complementary source of energy to wind, and other renewable technologies. Thus it contributes to the creation of a diverse, resilient and secure electricity supply. This in turn creates additional benefits for Ireland such as: enabling Ireland to achieve its EU targets for climate and energy in 2020, and the EU 2030 Climate and Energy Framework, creating jobs, generating income for farmers, and supporting economic and social growth. Further with constant innovations, stemming from decreasing costs of technology and increasing interest, the applications of solar are constantly expanding, ranging from solar panels in electric vehicles, to solar walls on buildings. Solar PV will only continue add value to economic, environmental and social policy objectives of the Irish Government. 2.1 Climate Change and Energy Security Addressing the impacts of climate change is intertwined with energy security. It is well documented that fossil fuels contribute to greenhouse gas (GHG) emissions, leading to increased air pollution, rising temperatures and rising sea levels, key climate change impacts facing Ireland. Mitigating these impacts and reducing fossil fuel consumption while stimulating economic growth and creating energy security is an immediate and long-­‐term policy challenge. Energy security has been highlighted by the SEAI, ESRI and IEA as a critical energy policy issue. Ensuring that Ireland has a secure energy supply now and in the future is critical to the growth of the Irish economy. Currently Ireland is heavily dependent on fossil fuels, to meet energy demand. Critically Ireland supports 100% 2
of its oil demand through imports, while its natural gas demand import dependency is at 95.3% . Local production of natural gas is anticipated to be increased with the development of the Corrib project, which is, however, expected to peak within 6 years. As such, Ireland is heavily dependent on energy imports to meet its energy demands and, with the volatility of oil prices energy costs will rise thereby creating multiple threats to energy security and economic security. Solar PV can be quickly deployed and has the potential to comprise between 10% and 20% of Ireland’s renewable energy generation by 2020. It can therefore, contribute to the security of supply by providing predictable and reliable indigenous electricity generation thereby, increasing the resilience of Ireland’s energy supply. 2.2 Job Creation3 Beyond EU policies and targets, solar PV contributes additional benefits to Ireland’s economy and society. The International Renewable Energy Agency (IRENA) estimates that 11.3 direct jobs are created for every MW of solar capacity installed, 11 in construction and 0.3 in operations and management. Therefore, the rollout of 1,350MW of solar capacity will create approximately 4,500 direct jobs in Ireland supporting utility-­‐scale solar alone. As we expect the rollout of solar to continue after grid parity is achieved in 2023, the construction jobs can be considered sustainable in the long term. Figure 3, presents the number of jobs that potentially could be created annually, based on ISEA’s projections for the solar market. The number of indirect jobs and induced 2
IEA (2014). Energy Supply Security 2014 3
The creation of employment and education opportunities is a significant benefit that is discussed in detail in Appendix 2 of this submission. 8 4
employment generated from the solar market is approximately 14,000 jobs . Based on the projected costs of the proposed solar support outlined in section 4, table 11, the projected annual cost per job is €4,000 in 2017. This increases to €12,000 per job between 2017 and 2023 as more solar capacity is deployed, then begins to decrease as the overall cost of the support mechanism decreases, reaching zero in 2038 It should be noted that this analysis focuses purely on jobs created to directly service the domestic Irish market. It is likely that further jobs will be created as international solar companies, seeing the opportunities in the Irish market, choose to establish their European operations here. In particular, given the current wave of EU protectionism, it is believed that a number of Chinese solar module manufacturers are considering setting up a base in Ireland. Further jobs will be created indirectly, particularly in sectors that support solar such as financial services. Lastly, there will be induced employment stemming from the increased purchasing power of people involved in the sector and cost savings that trickle down to Irish citizens. Figure 2. Annual cost per job created Annual Cost Per Job € 14,000.00 € 12,000.00 € 10,000.00 Axis Title € 8,000.00 € 6,000.00 € 4,000.00 € 2,000.00 € -­‐ 2017 2022 2027 2032 2037 -­‐€ 2,000.00 -­‐€ 4,000.00 4
Indirect jobs is calculated assuming a multiplier of 3.4 9 5
4525 3850 4420 3850 3850 4210 3850 4105 3850 255 360 465 570 675 1000 150 2000 1695 3000 1650 4000 45 Number of jobs 5000 4000 3850 Jobs in Solar PV 4315 Figure 3. Number of jobs created per year 2017 2018 2019 2020 2021 2022 2023 0 Year Construcion Operaions & Management Total Direct/yr 2.3 Agriculture and Biodiversity As utility scale Solar PV farms require large land area, the most common source of land to be used is barren/degraded agricultural land in rural locations. The costs of using land for activity other than agricultural activities is often cited in the arguments against the installation of solar PV farms. However, research has demonstrated that there are benefits. During the lifetime or a solar PV farm, the land can be used simultaneously for a range of profitable activities such as sheep grazing, bee-­‐keeping, and the production of high value crops such as pumpkins, asparagus and cut-­‐flowers. Solar farms also Solar PV projects provide an increased, diversified and stable source of income for landowners, encouraging the next generation to keep farming the land: •
•
•
Rental payments over 25 years (RPI indexed) Cheaper electricity Effective hedge against variability in annual farm income and energy price Solar PV has the potential to benefit and enhance biodiversity, in the context of agricultural land regeneration (and in peat-­‐land regeneration). Simple measures, and an appropriate ecological or biodiversity plan, can ensure that the biodiversity of a site is enhanced over the lifetime of the project. Planned and constructed correctly, solar has a very light touch on the land with little or no concrete being used. Mounting systems are friction piled using a simple process that is 100% reversible. With correct system design around 95% of the land used remains under grass sward and is available for agricultural production or biodiversity management. This sward can be managed in a manner that permits differing heights, and benefits from microclimate conditions that enhances biodiversity. Solar farms provide an opportunity for ground nesting birds, as within sites wildflowers meadow and grasslands can provide valuable nesting sites for species like the curlew and corncrake, two species who’s nesting habitats have been degraded due to land changes. These ground nesting birds are protected from predation within a solar farm as the site is likely to be fenced. 5
Direct jobs employment factor 11 for construction for 1 year, 0.3 for operations and management life time of project, indirect jobs multiplier of 3.4 (Rutovitz and Harris (2012). “Calculating Global Energy Sector Jobs: 2012 Methodology”. Institute for Sustainable Futures. 10 Lastly, studies of the benefits land regeneration have shown knock-­‐on effects in the tourism and recreation sector due to the increased biodiversity. As such there is potential for rural economies to experience growth and new opportunities with the installation of solar PV farms. 2.4 Complement to Wind A challenge with renewable energy technologies is the dependence on the source from which energy is derived. Generation of wind energy is dependent on the presence of wind, and solar is dependent on radiation from the sun. As stand-­‐alone technologies, their reliability is not a guarantee. However, as a “basket of goods” renewable energy technologies complement each other and increase overall predictability. In the case of Ireland, with rapidly changing weather patterns, solar is highly complementary to wind. As the output of a solar plant is seasonal, it can be predicted very accurately on a monthly basis. Additionally, by its nature, its output is predictable on an intraday basis, with peak output occurring during the middle of the day, when demand is relatively high. As the figures below show, wind output picks up at the end of the day, as solar output declines and electricity demand peaks. Given the complementarities, a balanced mix of solar and wind technologies, will facilitate a reduction in the amount of baseload generation required from fossil fuel sources. Figure 4. Intraday Solar and Wind Generation Intraday Solar Generation Intraday Wind Generation Figure 5. Intraday Demand for Electricity 11 2.5 Economic and Social Benefits The economic benefits of solar extend beyond job creation. There is a growing demand, especially by and for multinational companies (MNC), to engage in green practices. The use of clean energy is a key factor in this. MNCs, such as Google and Apple, have demonstrated that clean energy is a key corporate goal and therefore have shifted towards using renewables for their data centres. Critically, MNCs are also demanding that the cities in which they locate consistently provide high quality living environments. There are social benefits associated with solar PV as well. For example, in the UK the Department of Energy and Climate Change (2014) note that some landlords that have installed solar PV on their housing stock already and have passed on the energy cost savings to the tenants. This has social benefits in helping to alleviate fuel poverty and spreads the benefits of solar PV across the social spectrum. Domestic rooftop solar PV empowers consumers to take control of and influence their energy security, which would be welcomed by 6
the wider public . For Ireland, solar PV can be applied in a similar manner, and enable the government to sustainably meet the energy and heating demands of vulnerable populations. Further, community ownership of solar PV projects not only provides energy but income; as well as a profitable means of incorporating and promoting the solar PV that not only benefits individuals, but communities and government, by reducing costs and equitably sharing the benefits. Moreover, the shift to solar PV for electricity generation is strengthened by the strong public acceptance of solar, which has been shown to have 80% of public support in the UK due to its minimal negative impact. 6
DECC (2014) UK Solar PV Strategy Part 2: Delivering a Brighter Future https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/302049/uk_solar_PV_strate
gy_part_2.pdf 12 3. Costs of Solar 3.1 Cost Summary for Utility-­‐scale Solar Projects ISEA is providing this information to show overall estimated costs for the inclusion of solar PV as a technology in the next renewable scheme in Ireland. The resulting Levelised Cost of Electricity (‘LCOE’) presented here is based on a set of assumptions, which may or may not represent the commercial realities on the ground when it comes to a competitive auction. We therefore suggest using this LCOE analysis, updating as needed, to provide for a cap in the allowable cleared price for any competitive auction. This is discussed further in the section discussing the proposed renewable scheme design. Table 1 provides a summary of the total costs of developing and constructing a 5MW solar farm in 2015 and 2017 respectively. Engineering Procurement and Construction (EPC) costs are based on the construction costs for a similar project in the UK, while grid connection and development costs reflect the higher cost base in Ireland. A development margin of €100,000 per Megawatt, representing less than 10% of the total cost, has been included. This is a reasonable level for most developers given the higher risks involved with developing solar projects in Ireland and is significantly lower than the margins enjoyed by wind developers in recent years. Table 1. Cost summary for a 5MW solar farm. 2015 2017 Cost/MW Total (5MW) Cost/MW Total (5MW) EPC Costs € 1,084,759 € 5,423,797 € 916,000 € 4,580,000.00 Grid Connection Costs € 80,000 € 400,000 € 80,000 € 400,000.00 Development/Finance Costs € 91,600 € 458,000 € 91,600 € 458,000.00 TOTAL CONSTRUCTION COSTS € 1,256,359 € 6,281,797 € 1,087,600 € 5,438,000 Development Margin € 100,000 € 500,000 € 100,000 € 500,000.00 TOTAL PROJECT COSTS € 1,356,359 € 1,187,600 € 5,948,000 € 6,781,797 3.11 Utility-­‐scale EPC Costs Table 2 presents a detailed breakdown of the EPC costs in 2015 and includes projections through to 2018. Key points are as follows: •
Modules: The cost of modules is being kept artificially high by the Minimum Import Price and the Anti-­‐dumping Duties that the European Commission has placed on solar PV products imported from China, an action that lacks the support from 18 of the 28 EU member states and the solar industry in Europe. As of September 2015, the Minimum Import Price is €0.56 per watt, approximately 20% above the global market price. Consequently, the majority of utility scale solar farms currently being constructed use non-­‐Chinese modules, for which the costs have been driven up by a limited supply and the weakening euro. The Minimum Import Price is expected to extend into 2016, and therefore only a 5% drop in module prices is expected for that year. In 2017 and 2018, prices are anticipated to fall by 20% and 10% respectively as the Minimum Import Price and the Anti-­‐dumping Duties are removed and the cost of modules in Europe returns to global norms, thus eliminating the burden on European energy consumer. •
Balance of Systems Costs: Balance of Systems costs comprising other components, labour and project management costs are expected to fall by approximately 2.5% per annum. Improved design requiring less core materials and the arrivals of new entrants to the market will continue to drive the cost of 13 other solar specific components down, while increased competition and improved efficiency will reduce the cost of services. Certain costs such as Civil Works and security will track the overall construction market and are expected to increase over time. Table 2. Utility scale EPC cost projections. Cost per kilowatt peak (kwp) of installed capacity. 2015 2016 2017 2018 Assumptions Modules € 0.56 € 0.53 € 0.43 € 0.38 -­‐5% 2016; -­‐20% 2017; -­‐10% 2018 Balance of Systems € 0.42 € 0.41 € 0.40 € 0.39 -­‐2.5% per annum EPC Margin € 0.11 € 0.10 € 0.09 € 0.08 5% reduction per annum € 0.85 21% decrease over three years Total EPC (cost/wp) € 1.08 € 1.04 € 0.91 3.12 Funding Costs The valuation of Solar projects is based on a target Internal Rate of Return (IRR) for the end buyer. In the UK, earlier projects were valued based on a target IRR of 8.5% -­‐ 9.5%. This has fallen, with the valuation basis being closer to 7.5% and projected to fall further. A reasonable basis, therefore, for the valuation for Irish solar farms in 2017 is 7%, although some more sophisticated developers may be able to secure a lower blended cost of funds in the range of 6% -­‐ 6.5%. 3.13 Case Study: 5 MW Solar Farm in Kildare Table 3 shows the breakdown of revenues and costs for a 5 Megawatt solar farm in Kildare, with solar 7
radiation levels at 1,050 kilowatt hours per kilowatt peak of installed capacity . Kildare, rather than Wexford or Cork, was chosen as the case study to provide a more representative view of the viability of solar projects over a larger portion of the country. Assuming revenue per kilowatt hour of €0.15, the solar farm will generate a gross revenue of €666,698 in the first year. This gross revenue is based on a ‘Performance Ratio’ of 83%, which is the percentage of electricity exported by the system after accounting for technical losses. The resulting annualised load factor for a solar PV panel is of the order of 11% of installed capacity. 7
Solar irradiance for panels at a 25 degree angle facing due South. 14 Table 3. Net revenues for a 5MW solar Farm YEAR
2017
2018
2019
2020
2021
Installed capacity (kwp)
radiation (source; SolarGis; optimised angle)
Performance Ratio
Unit price €/kwh
Gross Revenue Distribution Upside
5,000
1,050
83.0%
0.1500
€ 653,625
€ 13,073
5,000
1,050
82.7%
0.152
€ 661,107
€ 13,222
5,000
1,050
82.4%
0.155
€ 668,675
€ 13,374
5,000
1,050
82.1%
0.157
€ 676,330
€ 13,527
5,000
1,050
81.8%
0.159
€ 684,072
€ 13,681
Revenue
Total Revenue
€ 666,698
€ 674,330 € 682,049
Rent
O&M
Insurance
Business Rates
Distribution and Grid Fees
Other
-­‐€ 26,145
-­‐€ 60,000
-­‐€ 16,250
-­‐€ 35,000
-­‐€ 10,250
-­‐€ 7,800
Operating Expenses
Total OpEx
-­‐€ 155,445 -­‐€ 157,777 -­‐€ 160,143 -­‐€ 162,545 -­‐€ 164,984
NET PROFIT
-­‐€ 26,537
-­‐€ 60,900
-­‐€ 16,494
-­‐€ 35,525
-­‐€ 10,404
-­‐€ 7,917
-­‐€ 26,935
-­‐€ 61,814
-­‐€ 16,741
-­‐€ 36,058
-­‐€ 10,560
-­‐€ 8,036
€ 689,857 € 697,754
-­‐€ 27,339
-­‐€ 62,741
-­‐€ 16,992
-­‐€ 36,599
-­‐€ 10,718
-­‐€ 8,156
-­‐€ 27,749
-­‐€ 63,682
-­‐€ 17,247
-­‐€ 37,148
-­‐€ 10,879
-­‐€ 8,279
€ 511,253 € 516,553 € 521,906 € 527,311 € 532,770 3.14 Operating Costs Operating costs are €148,690 and account for 21% of the gross revenues. This is a higher percentage than for an equivalent project in the UK due to the following factors: •
Rent: Rent varies across the country and is approximately €950 per acre in the areas with the highest solar resource. This is higher than the original estimates due to competition in the market for suitable solar sites. •
Business rates: Business rates have increased significantly for wind in the last year to €21,000 per MW. This will be reduced once it has been taken into account that solar yields less revenue per MW than wind. Therefore the assumption for Ireland is €7,000 per MW, which is still significantly higher than the UK •
Distribution and grid fees: This represents 1.5% of gross revenue and is a cost specific to Ireland. •
Operations & Maintenance, Insurance, Other: These costs are assumed to be similar to the UK. 3.15 Valuation Model Solar projects are valued using a Discounted Cashflow model which assumes that revenue will be generated over a 25 year period. The key variables that affect the valuation are the revenue/kwh and the discount rate used (internal rate of return, IRR). Table 4 shows how the valuation can vary based on different combinations of the revenue/kwh and the discount rate. Based on the example of the 5MW project described above, a revenue/kwh of €0.15 and a discount rate of 6.5% would give a valuation of €5,571,065. 15 Table 4. Valuation of a 5MW utility scale solar project Rate/kwh
€ 0.175
€ 0.170
€ 0.165
€ 0.160
€ 0.155
€ 0.150
€ 0.145
€ 0.140
€ 0.135
€ 0.130
€ 0.125
€ 0.120
4.5%
8,069,957
7,767,637
7,465,316
7,162,996
6,860,676
6,558,355
6,256,035
5,953,715
5,651,394
5,349,074
5,046,754
4,744,434
5.0%
7,727,154
7,439,001
7,150,847
6,862,694
6,574,541
6,286,388
5,998,235
5,710,082
5,421,929
5,133,776
4,845,623
4,557,470
5.5%
7,407,295
7,132,266
6,857,238
6,582,209
6,307,180
6,032,151
5,757,122
5,482,093
5,207,064
4,932,036
4,657,007
4,381,978
6.0%
7,108,409
6,845,559
6,582,708
6,319,858
6,057,007
5,794,156
5,531,306
5,268,455
5,005,605
4,742,754
4,479,904
4,217,053
Target IRR
6.5%
7.0%
6,828,724 6,566,645
6,577,192 6,325,650
6,325,661 6,084,655
6,074,129 5,843,660
5,822,597 5,602,665
5,571,065 5,361,670
5,319,534 5,120,675
5,068,002 4,879,680
4,816,470 4,638,685
4,564,938 4,397,690
4,313,407 4,156,695
4,061,875 3,915,700
7.5%
6,320,736
6,089,565
5,858,394
5,627,223
5,396,052
5,164,881
4,933,709
4,702,538
4,471,367
4,240,196
4,009,025
3,777,854
8.0%
6,089,700
5,867,702
5,645,704
5,423,706
5,201,708
4,979,710
4,757,712
4,535,714
4,313,715
4,091,717
3,869,719
3,647,721
8.5%
5,872,366
5,658,945
5,445,525
5,232,105
5,018,685
4,805,264
4,591,844
4,378,424
4,165,003
3,951,583
3,738,163
3,524,743
9.0%
5,667,671
5,462,283
5,256,896
5,051,508
4,846,120
4,640,733
4,435,345
4,229,958
4,024,570
3,819,183
3,613,795
3,408,408 Assuming the project was constructed in 2017 at a cost of €5,438,000, as outlined in table 1 above, this would result in a total developer’s profit of €133,000 representing a margin of 2.5%, while a tariff of €0.16/kwh, would generate a margin of €636,000. Extending this analysis, the developer’s margin/MW can be calculated based on the different valuation scenarios outlined above. These are summarised in table 5, assuming a construction date of 2017 and an EPC cost of €916,000/MW. Given the level of risk involved with entering a new solar market such as Ireland, a target margin per MW of €100,000 is appropriate. With discount rates for solar projects at 7%, then the minimum viable price in 2017 is €0.16/kwh, with €0.155 marginal. Below this rate, only the larger developers, with access to lower cost of funds and greater economies of scale – scale which the Irish market might not be able to facilitate – would be able to participate in the market. Table 5. Margin/MW for 5MW plant constructed in 2017. (EPC Cost: €916,000/MW) Rate/kwh
€ 0.175
€ 0.170
€ 0.165
€ 0.160
€ 0.155
€ 0.150
€ 0.145
€ 0.140
€ 0.135
€ 0.130
€ 0.125
€ 0.120
4.5%
526,594
466,130
405,666
345,202
284,738
224,274
163,810
103,346
42,882
-­‐17,582
-­‐78,046
-­‐138,511
5.0%
458,033
400,403
342,772
285,142
227,511
169,880
112,250
54,619
-­‐3,011
-­‐60,642
-­‐118,273
-­‐175,903
5.5%
394,062
339,056
284,050
229,044
174,039
119,033
64,027
9,021
-­‐45,984
-­‐100,990
-­‐155,996
-­‐211,002
6.0%
334,285
281,715
229,144
176,574
124,004
71,434
18,864
-­‐33,706
-­‐86,276
-­‐138,846
-­‐191,417
-­‐243,987
6.5%
278,348
228,041
177,735
127,429
77,122
26,816
-­‐23,491
-­‐73,797
-­‐124,103
-­‐174,410
-­‐224,716
-­‐275,022
7.0%
225,932
177,733
129,534
81,335
33,136
-­‐15,063
-­‐63,262
-­‐111,461
-­‐159,660
-­‐207,859
-­‐256,058
-­‐304,257
7.5%
176,750
130,516
84,282
38,047
-­‐8,187
-­‐54,421
-­‐100,655
-­‐146,890
-­‐193,124
-­‐239,358
-­‐285,592
-­‐331,827
8.0%
130,543
86,143
41,744
-­‐2,656
-­‐47,056
-­‐91,455
-­‐135,855
-­‐180,255
-­‐224,654
-­‐269,054
-­‐313,453
-­‐357,853
8.5%
87,076
44,392
1,708
-­‐40,976
-­‐83,660
-­‐126,344
-­‐169,028
-­‐211,713
-­‐254,397
-­‐297,081
-­‐339,765
-­‐382,449
9.0%
46,137
5,059
-­‐36,018
-­‐77,096
-­‐118,173
-­‐159,251
-­‐200,328
-­‐241,406
-­‐282,483
-­‐323,561
-­‐364,638
-­‐405,716 3.16 Forecast of Competitively Outcome from Auction The above analysis is based on a number of assumptions in relation to module costs and the lifting of the Minimum Import Price, discount rates and the USD/EUR exchange rate. These variables may change, resulting in a different outcome. To address these uncertainties, ISEA recommends an auction process is followed to determine the prevailing tariff for a particular year. Based on the table above, a tariff cap of €0.16 -­‐ €0.17/kwh should be set for 2017 and adjusted for future years based on the outcome of the first auction. This will ensure that the rollout of utility-­‐scale solar is successful, while ensuring that savings realised by the industry are passed onto consumers in the form of lower tariffs. Based on the above, and the assumption that EPC costs continue to fall as per table 2, a tariff of €0.16/kwh would be sufficient for projects commissioned in 2017, decreasing by €0.01/kwh for projects commissioned in 16 each subsequent year. Lower tariffs of €0.14-­‐€0.15 may be possible for projects located in the sunniers parts of Ireland. Following these assumptions, solar will achieve grid parity in Ireland by 2023 (see next section). These figures differ from the original projections put forth in ISEA’s submission to the Green Paper on Energy Policy in Ireland in August 2014. This is primarily due to the increased strength of the US dollar against the Euro, driving up component costs and the increase in the Minimum Import Price for solar modules made in China. 3.2 Cost summary for Domestic and Commercial Rooftop solar PV projects Commercial rooftop solar projects are valued using a discounted cashflow model which assumes that revenue will be generated over a 20 year period. The gross revenue variables that affect the valuation are the generation tariff/kWh and Power Purchase Agreement (PPA) between the developer and the business consuming the electricity generated on their roof. The other key variable is the discount rate used (internal rate of return, IRR). From researching the UK, German and US markets, the longest payback, or lowest return on investment, which would be viable for commercial rooftop solar is where projects are developed on behalf of an infrastructure fund at no upfront capital cost to building owners/occupiers. In return, occupiers receive savings through a discounted PPA. The income from the building occupier via the PPA combined with the generation tariffs proposed herein creates a 20 year gross revenue stream. Deducting the operational expenses from this gross revenue stream and applying the discounted cash flow methodology, combined with the addition of development and capital costs derives an internal rate of return. In the case of commercial rooftop solar projects, valuation is based on a target Internal Rate of Return (IRR) for the developer. While 7% is a reasonable basis for the valuation for utility scale solar in 2017, rooftop projects are be perceived as higher risk due to the reliance on the financial covenant strength of the building occupier as the PPA forms a substantial element of the revenue stream. It is suggested an IRR of 7.5% is more reflective of the associated expected returns for commercial rooftop in Ireland in 2017 (0.5% higher than what has been proposed for utility scale solar). Table 6 illustrates the minimum level of tariff required for varying sizes of system which is designed to give a 7.5% fixed rate of return to investors while providing a reasonable power price to businesses to adopt this renewable electricity source. Table 6 also includes the level of support for proposed for domestic rooftop PV which is provides a typical homeowner in Dublin a 7.5 year payback and where the consumers benefits from decentralised generation. Table 6. Cost summary for rooftop solar 17 Based on the example of the 1MWp project, a generation tariff/kwh of €0.095/kWh and an IRR of 7.5% would give a valuation of €1,306,390/MWp which covers the EPC costs, development costs and developer margin. This example project will also derive €1.5m in electricity savings for the business or occupier under that commercial roof over the lifetime of the system. This figure is supported by the calculations and assumptions in Table 7 and it points towards the benefits of rooftop solar making Irish businesses more competitive by lowering their operational expenses through cheaper greener energy which is generated where it is being consumed. 3.21 Domestic Rooftop PV Cost Summary Financial payback is a key determining factor associated with the decision to invest in PV. Market consensus strongly suggests that anything over a 7.5 year payback would not be considered for the discerning consumer. The financial model for a typical domestic home in Dublin with a 30 degree pitch roof facing 25 degrees from south is illustrated in Table 7. A generation tariff of 15c/kWh is required to make domestic rooftop solar PV viable. Table 8 shows the cost for domestic. Table 7. Benefit to business of a developer funded commercial rooftop project 18 Tables 8. Costs for domestic 3.22 Commercial Rooftop Scale EPC Costs Table 9 presents a detailed breakdown of the EPC costs in 2015 and includes projections through to 2018. Key points are as follows: •
Modules: The cost of modules is being kept artificially high by the Minimum Import Price and the anti-­‐dumping duties that the European Commission has placed on solar PV products imported from China, an action that lacks the support from 18 of the 28 EU member states and the solar industry in Europe. In 2017 and 2018, prices are anticipated to fall by 20% and 10% respectively as the Minimum Import Price and the Anti-­‐dumping Duties are removed •
EPC Margin: In 2015 margins are expected to be 15% and are anticipated to fall by 5% per annum despite being based on a lower revenue due to increase competitiveness and economies of scale as the industry develops •
Balance of Systems Costs: Balance of Systems costs comprising other components, scaffolding, labour and project management costs are expected to fall by approximately 2.5% per annum. 19 Table 9. Commercial rooftop EPC cost projections. Cost per kilowatt peak (kwp) of installed capacity for a 1MWp system. 2015 2016 2017 2018 Assumptions Modules € 0.56 € 0.53 € 0.43 € 0.38 -­‐5% 2016; -­‐20% 2017; -­‐10% 2018 Balance of Systems € 0.64 € 0.62 € 0.61 € 0.59 -­‐2.5% per annum EPC Margin € 0.21 € 0.19 € 0.16 € 0.14 5% reduction per annum EPC Margin (%) 15% 14.3% 13.5% 12.9% 5% reduction per annum Total EPC (cost/wp) € 1.38 € 1.32 € 1.20 € 1.13 18% decrease over three years 20 4. Deployment Figure 6, presents a probable deployment scenario for Ireland beginning in 2017 through to 2022, with grid parity expected in 2023. Assuming the introduction of a sustainable support mechanism, ISEA expect the rollout of solar projects to commence in earnest in mid 2017, with a total of 100 MW of utility scale projects expected to connect that year. As the industry matures, the pace of deployment will increase with 250 MW of installed projects per annum from 2018 – 2022. 350 MW of installed capacity on rooftops is expected by 2020, with 550 MW by 2022. Figure 6. Deployment of installed capacity 2017-­‐2022 MW Solar PV Installed Capacity 2000 1800 1600 1400 1200 1000 800 600 400 200 0 1900 1550 1200 Groundmount Uility (AIC) Roojop Domesic (AIC) Roojop Commercial (AIC) Cumulaive Installed Capacity 850 500 150 2017 2018 2019 2020 2021 2022 Year 4.1 Costs of Deployment – Utility Scale This section provides an analysis of the projected cost to the Irish taxpayer to roll out 1,350MW of installed utility-­‐scale solar capacity between 2017 and 2022. Cost estimates are based on the assumption that rollout will follow a stable schedule, thereby guaranteeing investors a fair rate of return based on the assumed competitive auction outcomes levels modelled above. The estimates have been updated from ISEA’s submission to the Green Paper on Energy Policy in Ireland to reflect revised cost projections and a more aggressive rollout schedule for utility-­‐scale solar PV up to 2020. The projected roll-­‐out is based on a number of factors and represents a scenario delivering a median view of the costs to the Irish consumer. It features a steady pipeline of development, leading to longer-­‐term sustainable jobs in the industry and the modelled economies of scale. Given our understanding of the number of projected volume and quality of projects which will be “shovel ready” by 2017, we believe that this deployment schedule is consistent with the projects which will be ready at the time of auction. 21 Table 10 shows the total cost per annum to the taxpayer for supporting the rollout of utility-­‐scale solar between 2017 and 2022 (after which grid parity for new installations is achieved and the scheme in its current form is assumed to end). The total required subsidy subsequently falls for new installations over time as wholesale energy prices inflation, modelled at 4%, outpaces the cleared auction price indexation modelled at 2%. By 2037 under the above assumptions, the annual net cost of the scheme begins to return money to the PSO customer. Unlike REFIT, ISEA is assuming that under the new scheme “upside” will be returned to the PSO customer. Over a 20 year support period for successful bidders in each auction, with auctions expected to be run for five years, the total cost of the programme averages €23m per annum , or roughly €0.023/kWh on average. Support peaks at €49m per annum in 2022, or €9.50 per residential customer declining to €3m in 2037. From 2038 – 2041, assuming the introduction of a two-­‐way Contracts for Difference mechanism, costs begin to be recovered as wholesale electricity prices exceed the guaranteed strike price (figure 8). Table 10. Projected costs of solar 2017 -­‐2022 Figure 8. Annual cost of solar subsidies Annual Cost of Subsidy € 60,000,000 € 50,000,000 € 40,000,000 € 30,000,000 € 20,000,000 € 10,000,000 € -­‐ 2017 2022 2027 2032 2037 -­‐€ 10,000,000 -­‐€ 20,000,000 22 4.2 Costs of Deployment – Rooftop This section provides an analysis of the projected cost to the Irish taxpayer to roll out 650MW of installed 8
rooftop solar capacity between 2017 and 2023 . Cost estimates are based on the assumption that rollout will follow a stable schedule; thereby guaranteeing investors a fair rate of return based on the assumed competitive auction outcomes levels modelled above. It is forecasted that with new commercial and domestic buildings and general refurbishment that there will still be a market for solar PV in Ireland when it reaches grid parity and costs fall below grid costs. Annual deployment beyond 2023 is relatively stable until 2030 when it is consistent at 50MWp/annum between 2030 – 2042. By 2024 a substantial sustainable solar industry will have been created due to the responsible incentivisation it will have received between 2017-­‐2023. Table 11 shows the total cost per annum to the taxpayer for supporting the rollout of 650MW of rooftop solar between 2017 and 2023, the benefits of which have an impact until 2042. As grid parity has been reached beyond 2023 it is assumed no incentives are required to continue deployment for new installations as a sustainable industry has been established. Table 11. Projected costs of 650MWp of Commercial Rooftop solar projects (assuming 250kWp average) 8
It is likely that the support mechanism for rooftop solar will need to extend beyond 2022, the proposed cut-­‐off date for utility-­‐scale due to the higher cost base. 23 Figure 9 shows the total cost per annum to the taxpayer for supporting the rollout of 650MW of rooftop solar. A unique aspect to Rooftop PV is that the building owner benefits directly from the electricity being produced from the roof. The savings for businesses who adopt cumulatively outweigh the costs to the tax payer by 2024. Over the life-­‐span of the systems the average subsidy per kWh produced from rooftop in this period is 4c/kWh. The average saving to adopters of this model (even using a non-­‐capital investor funded model) is 8.9c/kWh. This saving is going to reduce operational costs to run Irish industrial, retail, agricultural and state buildings and improve our competitiveness internationally. Figure 9. Annual cost of rooftop solar subsidies (average 250kWp size projects) 24 5. Support Scheme – Subsidy ISEA recognises that not all renewable technologies are created the same. The inputs required to produce electricity vary significantly. Within solar PV technology there are different modes for deployment, which lead to different technology and construction considerations. Given this, ISEA acknowledges that a one-­‐size-­‐fits all support mechanism is not ideal. Support mechanisms should give consideration to the costs of technology, costs of development, and costs of operation and management of projects. Discussed here is a proposed, auction mechanism, which can be added to the basket of support mechanisms to be employed by the Irish Government. In this section we will look at how the subsidy should be designed for the three individual areas: 5.1 Utility-­‐scale solar projects 5.2 Commercial rooftop and domestic rooftop (< 6 kW) •
•
5.1 Utility-­‐scale Solar Projects 5.11 Auction Mechanism The above forecasted auction clearing prices reflect the assumptions made in relation to construction and funding costs made in this paper. A number of factors may influence the overall profitability of solar. In particular, the Euro may strengthen from its 10-­‐year lows against the US dollar, while interest rates could rise. To reflect these uncertainties, and to take into account the experience of other European countries where solar tariffs were initially set too high, creating a ‘solar gold rush’, an auction mechanism is proposed for utility scale projects (>1MW). This will ensure that the support provided for solar PV projects reflects current market conditions. The auction mechanism should include the following features: •
•
•
•
•
A strike cap price established at a slightly higher level than the projected levelised cost of energy outlined in table 6 e.g. €0.17 in 2017; €0.16 in 2018; €0.15 in 2019….. Eligibility to participate in the auction requires the bidder to have: o a land option in place, o a valid grid offer, and o planning permission to construct the project; A bid bond of €10,000/MW to limit participation; A dedicated budget for solar for the first five years in order to allow the solar industry to develop an efficient supply chain in Ireland; o The combination of the cap on the unit rate and the auction budget acts as double-­‐lock on customer exposure to potential costs, and ensures greatest value for money. o Note that the degressive cap proposed above is dependent on a developing a local economy of scale in the industry, in line with our EPC cost submission. If the budget does not allow for such local economy of scale to develop, the cap may need to be higher. Auctions held every six months, in line with the faster development timetable for solar projects. 25 Note that the requirement for the valid grid offer is connected to the yet-­‐to-­‐be-­‐detailed enduring post Gate 3 grid access regime. We are assuming that the enduring grid access regime will not take the form of such a large and restrictive gate as Gate 3. If there are restrictive access regimes to the Grid, coordination between the obtaining a grid offer, and participation in the auction (and potentially the auction outcomes) will be required. An auction mechanism would ultimately reduce the financial risks for Government associated with financing renewable energy. Critically, an auction mechanism with the above features will mitigate the risks of Ireland following the boom and bust path of the UK and other EU countries. 5.12 Structure of Support ISEA recommends a two-­‐way contract for difference mechanism with a central counterparty, with balancing costs being met by developers only if the State Aid guideline of a liquid intraday market is met. ISEA also recommends removal of the Balancing Payment under REFIT, in line with the removal of interaction with supply-­‐licensed entities. Cleared auction prices should be indexed. Developers should not be exposed to R-­‐
Factor reconciliation risk, meaning the central counterparty has cash facilities available to it. Since the central counterparty is not solely reliant on a PSO Levy for monthly cash-­‐flow expenditure, this allows the scheme to remove the artificial participation deadline of late April/early May, required currently for setting the PSO Levy. 5.13 “Market Premium” and Market Reference Prices, Including Balancing Costs ISEA cautions against any fixed premium which will require developers to contract with third party traders to firm up variable market revenue, or senior debt will seek lower debt/equity ratios and potentially higher financing costs. Rather, a competitive auction that delivers an all-­‐in clearing price is the most efficient in terms of value to the consumer. In consideration of balancing costs, it is important to consider the ability of any party (developer, trader or utility) to guarantee a balancing cost to the project under a multi-­‐year trading agreement, so as to provide evidence of guaranteed net revenue. 5.14 Duration of Support ISEA notes that all the modelling presented in this submission is on the basis of a 20 year support mechanism. We believe this is prudent for solar technology, which will require subsidies during the earlier years of project finance. However, subsidies will decrease (and become a benefit to the consumer) as energy price inflation outstrips indexation of the cleared auction tariff. A 15 year support will require higher initial tariffs, and will give less time for the scheme to become a net annual benefit to the PSO customer as energy inflation takes hold. 5.15 Support Counterparties Traditionally, supports in Ireland have required interaction with a licensed supplier of end consumers. For example, in Northern Ireland under the Renewable Energy Certificate, a Relevant Arrangement is required from a supplier, demonstrating sale to end customers the equivalent amount of power as that is to be generated by the project. 26 This has created some benefits for the market, namely allowing traders and market participants to manage interactions for independently developed projects. However, there is a cost, as suppliers need further margins to manage these power purchase agreements. It has also acted as a barrier to entry for self-­‐trading. Therefore, we recommend that a cleared tariff is guaranteed by a central counterparty through a two-­‐way CfD against a market price. The market price may include or exclude balancing costs, depending on the assessment of the intraday market, and the willingness and efficiency of market participants (utilities, traders) in guaranteeing those costs over long-­‐term contracts. There should be no regulated barrier to entry (supply licence, need to run a supply business of any size) within the new support scheme. 5.16 REFIT R-­‐Factor Reconciliation, Setting of PSO Levy Currently, REFIT compensation is paid out on the basis of a forecast, followed by reconciliation to the correct amount of subsidy two years later in an R-­‐Factor process. This creates costs for each individual project under REFIT, and each project must bear that individual cost either through their own cash-­‐flow facilities or through reduced PPA pricing. If a formal central counterparty were to be required and supported by the scheme rules, it could be managed centrally with greater efficiency. Allowing for alterations to within-­‐year cash flow, would reduce the pressure to provide REFIT estimates each year in April/May. Further, it would mitigate the natural tendency of project to predict early operation and earlier flow of REFIT subsidy, which results in unnecessary costs to the consumer. 5.17 Separate Competition and Budget State Aid guidelines provide a specific set of criteria, one of which must be met, to justify a separate competition for a particular technology class. These criteria are: •
•
•
•
the longer-­‐term potential of a given new and innovative technology; or the need to achieve diversification; or system (integration) costs network constraints and grid stability In line, with the proposed support mechanism, ISEA recommends that competitive bidding consider that renewable technologies are different. Thus, competitions for allocations should be for projects of the same technology, not wind against solar. Pitting technologies against each other is counterintuitive to diversifying Ireland’s renewable energy and electricity supply and building its resilience. The case study below shows how the introduction of Contracts for Difference (CfD) in the UK failed as a viable support mechanism for solar. 27 Case Study: Contracts for Difference (CfD) in the UK In 2014, the UK introduced an auction mechanism for renewable projects constructed from 2015 onwards. No bid bond was required and all renewable technologies were eligible to compete for the same budget pot. The outcome of the auction saw 93% of the budget being allocated to onshore wind, with five solar projects being ‘successful’. Due to anomalies in the bidding mechanism, two of the solar projects secured a tariff of £50/MWh, which is below the wholesale cost of electricity. The developers immediately conceded that this rate was insufficient and confirmed that they would not be building their projects. The remaining three projects secured a tariff rate of £79.50/MWh. These projects would be located in the sunniest parts of England, where average levels of solar radiation are 1,300 kwh/kwp, more than 20% higher than the average level of solar radiation in Ireland. Even then, the profitability of these projects is marginal and one may not be constructed. As the tariff rate for solar in the UK has now reached £79.50 (at 2012 prices), this has been suggested to be an appropriate level to set for Ireland. Table 7 shows that the equivalent tariff in Ireland would be €0.143/kwh taking into account inflation and adjusting for the lower level of solar radiation. Given that this rate is marginal for projects in the UK, an initial tariff of €0.15 seems correct, particularly if the final rate is determine via an auction mechanism. It should be noted that £79.50/MWh was also the rate secured by onshore wind. In Euros and adjusting for inflation, this is €119.58/MWh, representing a significantly higher cost to the taxpayer than for equivalent wind projects in Ireland. Further, while the CfD auction was initially considered a success, the UK government is now taking dramatic measures to scale back the deployment of onshore wind. Consequently, wind projects may no longer be eligible to participate in future CfD auctions. Table 12. Conversion of UK CFD tariff Base Tariff -­‐ 2012 rate £79.50 Inflation to 2017 (9%) £86.66 Conversion to euro @1.38 € 119.58 Adjustment for lower solar radiation (20%) € 143.50 5.2 Commercial Rooftop and Domestic Rooftop (< 6 kw) 5.21 Feed-­‐In-­‐Tariff Mechanism With respect to rooftop Solar, a different type of support mechanism to utility-­‐scale should be applied. A Generation Tariff should be paid for every kWh generated from rooftop solar, similar to the UK scheme. This is a 20 year incentive per kWh generated which increases with inflation each year. Different levels of support are defined for different sizes of projects. Some of the reasons why an auction for rooftop is unviable are outlined in our response to the suggested questions but can be generally summarised as: •
•
•
Ability and experience of business energy users to partake in CfD type auctions. Timelines to complete and small scale of many rooftop PV projects. Nature of self-­‐consumed distributed generation, and the business model for same. 28 An auction could be considered for larger rooftop PV projects (>1MW), however if considered, it should be within a separate auction category from utility scale projects. A ‘generation’ tariff rather than an ‘export tariff’ is required for rooftop PV projects. Furthermore for rooftop solar PV which is exported to the grid an export tariff should be provided which is a supplier led (all suppliers obliged to offer export rates) streamlined payment of tariff and export from supplier. This export price should be determined by and linked to the SMP. In this way there is some exposure to market for rooftop solar PV projects. Mandatory export tariffs are in place in GB. This export tariff has a back stop of 4.85pence/kWh which is government backed however because it is market driven by competing electricity supply companies, export tariffs are generally at a premium to this (circa 6pence/kWh ) A feed-­‐in-­‐tariff (FiT) is therefore proposed as the most suitable support for rooftop PV projects. The UK and German FiT models are referenced below as potential examples of where a FiT has been effective in delivering rooftop solar PV. The FiT scheme should have the following features (reference is made to the jurisdiction where this is already in operation): 1.
Mandatory administration by electricity suppliers (UK model): The FiT should be administered by all suppliers of a certain scale. In the UK this is mandatory for suppliers with more than 250,000 customers. On a population pro-­‐rata this would indicate that a FiT scheme in Ireland would be mandatory for any supplier with 20,000 customers or more. Suppliers should then reclaim the cost of the FiT scheme, plus an administration margin, from a central FiT administration body 2.
The FiT should be paid for all generated energy (UK and German model): The supplier would then pay the relevant FiT rate for all energy generated by the rooftop solar PV system, regardless of whether this energy is self-­‐consumed on site or exported. 3.
A regulated export price should be paid for any ‘spill’ (UK model): The supplier would also pay an export tariff for any excess, non self-­‐consumed, energy. This export price should be determined by and linked to the SMP. In this way there is some exposure to market for rooftop solar PV projects. 4.
Self consumption should be incentivised (German model) Self-­‐consumption on site should be incentivised with a higher level of FiT for a higher self-­‐
consumption. 5.
Installers should be certified (UK model) Only rooftop PV systems installed by registered installers should be eligible for the FiT scheme. SEAI already have an approved installer database which could be widened to require an SEAI cert before a FiT is given to a project. 6.
Banded FiT Levels and Regular Reviews (UK and German model) There should be several bands of FiT with FiT premiums for higher self consumption sites. The FiT Levels should be reviewed on a bi-­‐annual basis with the next three years FiT levels and degression published each year. The deployment of rooftop Solar should be done in such a way that self-­‐consumption on site should be incentivised with a higher level of generation tariff for higher self-­‐consumption. There should be several bands of generation tariff with premium tariffs being paid for higher self-­‐consumption sites. This would also serve to encourage the development of storage solutions which is progressing rapidly. It is already possible to generate electricity from solar power and store it for a future period of peak demand. Based on the required generation tariff outlined in Section 1 for rooftop PV the following FiT bands and rates are proposed. Note that these are 29 2017 proposed FiT levels based on ISEA analysis of the project capital and operational costs and a review of FIT levels should be made on a bi-­‐annual basis during the scheme. 5.22 Structure of Support – Rooftop ISEA propose that distributed, demand side, generation (such as rooftop solar PV) will require a different support mechanism to export only, centralised generation. Generation Tariffs are the most suitable support mechanism for distributed generation such as rooftop solar PV. The Generation Tariff should be paid for all generation (self-­‐consumed and exported) but should incentivise self-­‐consumption. The ultimate vision is one of decentralized energy where the home-­‐owner can generate much of their own power needs, storing it in the attic or in their electric vehicle. Solar panels already last 25 years, and have 25 year electrical performance guarantees. It is low maintenance and easy to install. This is now a mainstream fit-­‐and-­‐forget product with a strong track record of performance and reliability. All energy suppliers (of a certain scale) should be obligated to provide a Generation Tariff and export price package for distributed generation such as rooftop solar PV. Generation Tariff levels should be categorised by system rating (in kW) with higher levels for lower kW system ratings. Distributed, demand side generation (such as rooftop solar PV) support mechanism should: •
•
•
•
•
Be provided for every kWh generated (whether it is self-­‐consumed or exported) Incentivise self-­‐consumption (i.e. higher tariff for higher self-­‐consumption), e.g. German FIT Incentivising consumptions levels >30%. Be tailored to reflect the higher cost of lower rated solar PV systems (smaller systems have a higher LCOE), i.e. tariff banding Be tailored to reflect the typical electricity cost paid by each sector (domestic compared to industrial customers -­‐ smaller consumers pay a higher retail electricity cost) Allow for multiple generation systems to be installed, at a single demand site, over the course of the available tariff as capital availability and costs allow, i.e. do not lock out a site from further generation after an initial project An auction may be suitable for larger projects (possible greater than 1MW) but consideration should be given regarding the nature and lead time for commercial and industrial rooftop PV projects. Business owners may not have the required knowledge/experience to take part in an auction, and the scale and lead time of the project (from 10’s of kW) may mean that it would not be commercially worthwhile to enter into an auction process. Certainly any exposure to the energy market for commercial and industrial rooftop PV projects of less than 1MW will represent a barrier to entry as business owners are not professional developers and so would not have the systems and tools to effectively understand this risk. 5.23 Duration of Support ISEA response is the same as that given for utility-­‐scale PV for the duration of a FiT scheme. 30 Case Study: FiT in Germany From 2000, Germany introduced a Feed-­‐In-­‐Tariff scheme for renewable energy technologies. This scheme was designed to provide transparency, certainty and longevity (TLC) for investors in renewable projects. Initial FiT levels were extremely high (€0.57/kWh or higher). FiT levels degression was minimal over the first number of years of the scheme. From 2009 rapid cost drops in Solar PV technology meant that more regular and larger degressions in the Solar PV FiT were required. As of 2014 the FiT for small rooftop systems was around €0.12/kWh. Germany can have up to 20% higher energy yield (kW/kWh) than Ireland. Within the German FiT scheme self-­‐consumption has been incentivised. Initally this was through a higher FiT for systems with >30% self-­‐consumption. In 2009 a surcharge mechanism was introduced for energy exported to the grid. This had the effect of incentivising self-­‐consumption as this charge could be avoided in part or totally. This incentivised the installation of home energy storage systems, and smart demand management. This self-­‐consumption effect of this surcharge has been somewhat reduced in 2014. In 2012 an option for a market premium, versus a fixed FiT was introduced to incentivise storage and load shifting to make best use of distributed generation. The German FiT system has shown that a FiT scheme can adapt to ensure distributed renewable generation is installed effectively and the benefits of distributed generation are realised. 6. Conclusion In order for Ireland to achieve its EU Horizon 2020 targets, and its future EU2030 Climate and Energy targets solar must be considered as a material part of the renewable energy technology mix for electricity generation. From a policy perspective, Ireland benefits from a late mover advantage and can develop a regulatory environment and support mechanism based on best practices and lessons learnt, thus avoiding some of the policy U-­‐turns adopted by other countries. In particular a sustainable support mechanism needs to be implemented immediately, that will provide appropriate incentives for early investors, without creating a long term burden for taxpayers. Implementing a an auction-­‐based mechanism with a set budget and a cap on the potential strike price of €0.17/kwh for solar in 2017, with a likely clearing price between €0.14 and €0.16, that reduces by 5-­‐10% per annum for subsequent auctions, would meet these requirements and would cost the taxpayer an average of €0.023/kwh over 25 years. For solar rooftop, a straightforward ReFIT mechanism is recommended to encourage distributed generation. A generation tariff of between €0.095 and €0.15 depending on the size of the installation is recommended for 2017. Finally, in spite of the absence of a domestic market, the Irish solar industry is already very successful, with major projects being led by Irish companies across Europe, Africa and Latin America. These companies, through the Irish Solar Energy Association, are willing to deploy their global expertise in order to work with policymakers to develop a sustainable and fair policy framework for solar energy in Ireland. 31 Appendix: Answers to Consultation Questions Process Layout and Approach 1. Is the structure and approach to the process to develop the support scheme appropriate? 2. Are there any additional considerations to build into the process plan? Member State United Kingdom Support Schemes and Lessons Degression Mechanisms for Solar PV FiT – Pre-­‐planned degression based on quarterly reviews of tariffs, provides a clear picture of tariff attractiveness, key in promoting the sector. Limited capacity added to grid to manage and align costs of energy generation. Levy Control Framework – sets upper limit on charges to customers to fund renewable energy projects; has served as a positive signal to private sector investors that the UK will not over spend on projects. Feed in Tariff Renewable Obligation Certificates Contracts for Difference auctions Premiums are paid for each unit of electricity even when used on the residential or commercial property that generated the energy; excess can be fed into the network and producers receive 3p/kWh. Microgeneration Certification Scheme – In the UK, all installers of micro-­‐
generation must be MCS certified and all projects must provide an MCS certificate before they are accredited for supports. A similar scheme would be beneficial to ensure minimum standards are applied across projects. SEAI operate an installer certification scheme which could be replicated for Solar PV installers. Use of green certificates with quotas Lessons: 1. Feed In Tariffs were set at too high levels, resulting in a 70% cut in 2011. 2. Further uncertainty created in Renewable Obligation Certificate regime, with eligibility changes introduced in 2014 and 2015 to keep the Levy Control Framework under control. 3. Contracts for Difference introduced unsuccessfully for solar in 2014. Only 5% of the available budget was allocated to solar projects with the bulk being allocated to wind projects due to connect in 2018 and 2019. Germany Challenges and Lessons: German FIT – where self-­‐consumption is incentivised with a premium tariff which increases further if >30% self-­‐consumption is demonstrated. This encourages sizing rooftop renewable solar PV systems to the base load of the user within the building and also encourages societal changes where the user can somewhat shape their consumption patterns to maximise the benefits from the renewable generation. Grid was not ready to manage energy capacity developed by renewables. Vital to ensure that grid is up to date and able to handle energy from various sources. 32 Spain Specifically transmission and distribution lines. Impact assessment important tool. Regulators created a registry of projects with secure FiT access. Use of discounts that are not retroactive. Mismatch between FiT and investment has led to implementation of monthly reviews of tariffs to regulate the market; now conservative market for PV to counteract liberal policies; balance needed in considering the internal rate of return. Self-­‐consumption is increasing and government has regulated rates using percentage of PV generated against building energy consumption. Challenges and Lessons: 9
CSP Market – was successful through FiT and Feed in Premiums Government over estimated costs resulted in retroactive policies that several hindered investor confidence; in part this was due to a lack of caps on number of projects deployed. Avoid retroactive changes with thorough investigation of market and implement caps accordingly. Self-­‐consumption not allowed. Energy produced goes directly to the grid irrespective of generation source. FiT best means of compensation should be calculated based on energy prices, ability to pay, period and horizons. ISEA is supportive of the overall process and approach proposed by DCENR for undertaking the review of renewable technologies. As solar PV is not listed as one of the technologies supported under the existing scheme, it is through this submission that ISEA intends to make the case for its inclusion. Policy Context 3. Are there any additional aspects, such as policies, publications or reports that should be considered? 4. Are there any particular support schemes in other Member States that would be beneficial to consider in an Irish context? If so please provide evidence and reasoning. Research and publications put forth by IRENA, IBM Smarter Cities, and EPIA, show that solar is moving towards 10
becoming the dominant renewable energy technology, and will likely be the technology of choice by 2050 . In the case of Ireland, where wind energy is in abundance, solar PV does have the potential to be an equally reliable source of clean and reliable energy. Ireland has high levels of solar radiation, approximately 78% of the level of solar radiation experienced in France. Further, the UK has successfully developed a reliable electricity supply from solar PV with 7 Giga Watts of installed capacity. Thus, the deployment of solar PV technology to generate electricity in Ireland is highly feasible. Furthermore, the development of an Irish Solar Energy Market stands to benefit immensely from Ireland’s late entrance into the market, in several ways namely, from the experience of other countries. For example, Table. 13 summarises the experience of several member states and their experience with various support mechanisms that can inform the design of Ireland’s support mechanisms. 9
FiP – intended to spur innovation in the market by offering a premium on market prices. 10
IRENA (2014), BNEF Annual Outlook 2015 33 Table 13. Member states support schemes Some references to publications are linked below which highlight the wider economic benefits of distributed generation: •
•
•
•
Carbon Connect – ‘Distributed Generation – From Cinderella to Centre Stage’ http://www.eti.co.uk/wp-­‐content/uploads/2014/03/CarbonConnect_DistributedGeneration_PDF.pdf University of Cambridge – Energy Policy Research Group -­‐ “Distributed Generation: Opportunities for Distribution Network Operators, Wider Society and Generators” http://www.eprg.group.cam.ac.uk/wp-­‐content/uploads/2015/04/EPRG-­‐WP-­‐1510.pdf Association of Decentralised Energy – ‘Invisible Energy’ http://www.theade.co.uk/invisible-­‐energy-­‐-­‐
hidden-­‐benefits-­‐of-­‐the-­‐demand-­‐side_2831.html Institute of Local Self Reliance – ‘The Political and Technical Advantages of Distributed Generation’ http://ilsr.org/political-­‐and-­‐technical-­‐advantages-­‐distributed-­‐generation/[1] Technology related 5. What technologies should be considered for support? 6. What are the likely characteristics of deployment? a. Is there a range of potential deployment characteristics, for example in terms of technology type, installed capacity, fuel etc? b. What is the anticipated energy yield of the technology? 7. What potential categorisation of technologies would be appropriate? 9. What is the levelised cost of energy (LCOE) per MWh for each category? Do you foresee these costs changing – how and over what timeframe? Please provide a breakdown of what costs have been included and how these costs have been derived. 10. Should repowering of existing sites be considered? a. If so how would the cost of deployment vary from the use of new technology? b. What types of repowering could occur? In theory, the potential energy yield is unlimited, but it will be ultimately capped by the number of suitable sites with low connection costs and reasonable resource characteristics. We believe a figure of the order of 1000 – 1500 MW for utility scale solar would be appropriate. We note that approval of the full 1500MW need not be required immediately, noting the proposed budget limitation on auctions, but caution that lower volumes might not allow for the economies of scale presented in the main body of our paper. Solar projects deliver a load factor, after internal losses, of around 11% of installed capacity, that energy delivered consistently during the day when it is required. This is expected to increase over time as technology improves. With respect to commercial rooftop we estimate Ireland’s market potential of 800MW of suitable rooftops which could be retrofitted. For the purposes of this submission we estimate a penetration of 25% of these could have rooftop PV deployed by 2023 hence a suitable support mechanism is proposed for 200MW for Retrofit commercial rooftop. Furthermore there is a potential for at least another 100 MW for refurbishment and New build commercial rooftop projects hence a total of 300MW up to 2023 has been projected for commercial rooftop. Domestic rooftop has a further 300MW deployment projected until 2023. Solar PV energy yield is highly predicable and well proven. PV energy yield is normally given in kWh/kWp, i.e. kilowatt-­‐hours per kilowatt (peak) installed. This value can also be given as a capacity factor (aka load factor) 34 for the technology. The expected yield of rooftop PV systems depends on a number of technical factors, but a typical range in Ireland is given below. •
•
Energy Yield: Capacity Factor: 800-­‐1000kWh/kWp 9-­‐11% Figure 10 Indicative LCOE of solar PV over time The Levelised Cost of Energy (LCOE) continues to fall for Solar PV as illustrated by Figure 10. The British Photo Voltaic Association asserts that Solar power is creating an energy revolution. Working groups within ISEA have identified those falling costs mean that solar will compete with all other energy sources even without subsidy by 2023. Having conducted a case study on a 1MWp commercial rooftop the LCOE on a real basis and excluding incentives was calculated at 9.1c/kWh as illustrated in Table 14. 35 Table 14. Case study LCOE commercial rooftop This result corroborates with the most recent research on the subject, which indicates rooftop above 10kW in 2017 is around 10c/kWh. Figure 10 shows that future projects for LCOE up to 2020 for solar are expected to fall. This reduction in costs is expected to be more dramatic that other more established technologies such as wind which provides another good reason to back Solar PV as a technology due to its future potential LCOE. Figure 11 Future projections for LCOE Given the research and development that is underway, and the prospective technological progress, solar costs are likely to continue downwards on their impressive trajectory. If Ireland is to benefit from cheap, secure solar energy, it is crucial that the DCENR should start to support the industry’s early success. We project that, 36 even in grey and cloudy Ireland, solar power will be competitive with fossil fuel electricity by 2023. So while we are looking incentives in place by 2017 by 2023 the support for this infant industry will no longer be necessary Please also see sections 2, 3 and 4 Eligibility 12. Based on the guidelines for state aid, what aspects of the cost of deployment should be eligible for support? 13. Is the current definition of eligible electricity appropriate? 14. What criteria should be utilised to assess eligibility for support? a. Are there any particular criteria that should be applied to individual technology categories? Eligibility for state aid is critical to the successful deployment of renewable energy technology. Thus ISEA holds the view that the full costs of deployment for all new renewable projects for support. In relation to the definition eligible electricity, again ISEA holds the view, that all energy that contributed to Ireland’s renewable targets should be eligible. Power consumed on-­‐site should therefore be eligible for support. Furthermore, given the uncertainty of the contractual deliverability of power under the I-­‐SEM market design, projects located in Ireland, irrespective of the jurisdiction of their connection point or potential end-­‐use of the power should be eligible for support. However, as the quality and reliability of renewable electricty generation needs to be guaranteed to ensure that supply is diverse, constant, and poses few issues for system integration, ISEA believes that State Aid Guidelines should be followed. Additionally, ISEA proposes, that the following criteria should be utilised to assess eligibility •
•
•
•
•
•
Technology category supported. Self-­‐consumption level (through approved method of pre-­‐estimate calculation). Self consumption level demonstrated (through measured performance). Capability and capital to delivery project demonstrated. Significant development of project (planning, grid, designs complete). The self-­‐consumption criteria should be applied to rooftop solar PV, and higher self-­‐consumption levels should trigger higher levels of support. Support mechanism 15. Do you think a single support mechanism should apply to all applications? 16. What are the key components you would like to see in the support mechanism? 17. Taking account of the objectives of the new scheme what type of mechanism do you think would achieve this within the overall objectives of the scheme and the State Aid guidelines? Please see section 5 Allocation 18. Do you consider that the State Aid guidelines will necessitate a competitive bidding process for allocation? 19. Do you foresee any exemptions under the conditions outlined in the State Aid guidelines? 37 20. Do you have any concerns regarding the introduction of a competitive bidding process and how do you see these concerns being addressed? In line, with the proposed support mechanism, ISEA recognises that a competitive bidding process in the allocation of support. However, as per the discussion on support mechanism, ISEA recommends that competitive bidding consider that renewable technologies are different. Thus, competitions for allocations should be for projects of the same technology, not wind against solar. Pitting technologies against each other is counterintuitive to diversifying Ireland’s renewable energy and electricity supply and building its resilience. Moreover, the UK CfD Case Study has shown that inappropriate bundling of technologies, and allocation of multi-­‐annual budgets to a single auction has created non-­‐meaningful outcomes for some participants, and created a highly cyclical investment scenario. Simultaneously, while State Aid Guidelines are beneficial to ensuring the quality of renewable energy, they may hinder the development of smaller projects, which still add value to Ireland’s ability to meet its EU targets. Therefore, ISEA proposes that smaller solar developments (< 1MW) in the commercial and the domestic sector should be excluded from market participation. The State Aid Guidelines apply to all generators that ‘sell its electricity directly in the market’. It is clear that distributed generation such as rooftop solar PV, whereby the energy generated is directly self-­‐consumed on the site do no ‘sell electricity directly in the market’. Therefore rooftop solar PV for self-­‐consumption sites would be exempt of the state aid guidelines. Also there is also a clear exemption for projects under 0.5MW in the state aid guidelines. A large number of commercial rooftop PV projects would be less than 0.5MW rated capacity. The State Aid guidelines note that one condition applying to schemes from 1 January 2016 is that “…aid is granted as a premium in addition to the market price (premium) whereby the generators sell its electricity directly in the market” but that this does not apply “…to installations with an installed electricity capacity of less than 500 kW or demonstration projects, except for electricity from wind energy where an installed electricity capacity of 3 MW or 3 generation units applies”. An additional concern with competitive bidding process for ISEA is the deadlines, which may be set by a competitive bidding process. These deadlines can mean projects do not get built if delays push the project too close to the deadline. Larger Rooftop PV projects (>1MW) can be developed and built within an extremely short timeframe. Annual competitive bidding would not be appropriate for such short timeframe projects. Semi-­‐annual auctions with strict qualification criteria may be appropriate, but only for larger rated systems. To address this, ISEA suggests in the case of utility-­‐scale ground mounted solar projects with a capacity greater than 1MW, a 6-­‐monthly auction with a tailored budget cap (linked to the enduring grid access regime and the number of qualifying participants as appropriate) to create a more predictable, stable, supply chain of solar development in Ireland over the coming years. Please also see section 5 Scheme Limits / Cost controls 21. What would be appropriate scheme limits to introduce – should it be a single limiting factor or a combination including volume, capacity or budgetary? 22. What would be appropriate backstop dates for the scheme given the pipeline of potential projects and estimated connection timeframes? 23. Does the 15 year support duration still remain an appropriate support period and if not why? 38 ISEA acknowledges that unlimited support for renewable energy projects is not feasible. In order for government to sustain support and create a diverse and resilient renewable energy market, controls and limits are needed. ISEA proposes the following controls: •
•
•
•
•
Budgetary Cap, to act as a “double-­‐lock” for value to the customer, ensuring that more capacity can be deployed per euro of support as the auction process drives clearing prices down. Capacity limits or quotas for rooftop have to be decoupled from any other qualifying renewable technology including utility-­‐scale ground mounted Solar PV. Certainty of investment is key and a capacity limit may ultimately mean that investment stops before the capacity is reached for fear of not accessing the available support once constructed. Again early, pre-­‐construction, confirmation of support will allow this risk to be mitigated and avoid stranded assets. Tariff to be reviewed and digressed every 6 months (each January and July) however notification for what that digression will be comes 9 months in advance (each March and October) Pre accreditation for Rooftop Solar would be appropriate if certain requirements have been met prior to construction (Grid approval, planning or permitted development and contracts signed) In addition to these controls, ISEA acknowledges that support cannot be indefinite. Therefore, in terms of an overall scheme duration, based on projections, that solar technology will reach grid parity by 2023. ISEA suggests a six-­‐year scheme, comprising twelve auctions, to be re-­‐evaluated after that time. In terms of individual project backstop date it should be considered that the nature of rooftop-­‐mounted systems is that construction time can be very quick, but the development time can vary depending on the building owner, and whether they are opting for a self-­‐funded or third party funded system. Typical values for third party funded systems are given below: •
•
•
•
Building owner engagement and securing commitment to project (3-­‐6 months). Development (planning, grid application, structural survey) (3 months). Installation (dependant on system size) (1 – 16 weeks). Total time – could be 6-­‐12 months. Any back stop date should consider at least 12 months this and that the project may be uncertain for the first 6 months of the development while a building owner considers a proposal. Again early, pre-­‐construction, confirmation of support will allow this process to be managed appropriately by developers. ISEA believes, assuming that energy inflation will outstrip general inflation, that costs are reduced for the PSO customer through longer-­‐term 20-­‐year PSO support. It reduces the amount of support required in the early years, and provides for greater opportunity for the mechanism to be a net contributor to the PSO customer in later years. This is within the standard depreciation timeframe for solar project of 25 to 30 years. Please also see section 5 Tariffs 25. Given your submission to the allocation methodology, do you have any suggestions on the process for determining tariffs? 26. Do you think that degression should be introduced to a new support scheme and if so please suggest if only for certain categories? If so, how you see it being introduced such as degression methodology and degression periods? 27. Should the tariff retain an element of reference to market revenues? Given that ISEA has highlighted in the previous sections that solar PV and other renewable technologies differ significantly, ISEA reiterates that the process for determining tariffs should reflect these differences. In the 39 context of solar PV, given its adaptability and suitability for deployment in both urban and rural environments, and that the generation of electricity can be used on-­‐site, exported to the grid or stored; ISEA is highly supportive of tariffs that considered these variables. As an example, it is critical, to note the difference in business models for rooftop and ground-­‐mounted solar when determining tariffs. For ground mounted solar PV the business model is an export only and so the 2-­‐way contract for difference based tariff supports this. The business model for Rooftop PV depends on whether the project is self-­‐funded or third-­‐party funded. For domestic rooftop solar PV the business model herein includes an offset of the retail electrical cost whereas for commercial it includes a revenue stream from a PPA which supplements the generation tariff and in doing do enables commercial rooftop to be supported with a relatively low, competitive generation tariff which presents good value to the government in incentivising it. We propose degression should be included, in line with the State Aid guidelines, by placing a degressive cap on the allowed clearing price for the auction. We fully anticipate, however, that competitive forces will naturally provide for reducing subsidy in the solar industry as EPC costs fall over time. While ISEA supports degression, however, this support is dependent on a pragmatic flexibility on setting the degressive cap. Global assumptions can change. Furthermore, local market factors – which the support scheme design itself – will influence the level of an appropriate cap. The inclusion or not of balancing costs within the scheme, and setting a sufficient renewable subsidy budget for solar generation to allow local economies of scale to develop are two clear examples. While digression should be considered, as demonstrated in the UK market, digression deadlines can lead to a rushed construction period which can have quality implications. Digression, if implemented, should be applied only to pre-­‐construction projects with a back stop date. This means projects will have certainty and there will not be a rush to complete projects prior to digression dates. Digression amounts should be on an bi-­‐annual basis and should be based on actual costs from the market. This can be achieved with an annual consultation with industry stakeholders and independent analysis of the costs of development and construction of generation. Tariff from Auction – Utility Scale The consideration of the optimal solar deployment profile in Ireland and the resulting cost-­‐benefit is dependent on the development activity in the sector (timings associated with grid application, secured land rights, planning permission) and the falling levelised cost of energy. The deployment figures here represent a sustainable industry in Ireland enjoying economies of scale in the delivery of solar. Lower and higher budgets are possible, with the corresponding impact on the economies of scale modelled in this paper. Table 14 provides ISEA’s projections of the required level of subsidy for projects greater and less than 10MW maximum export capacity (the de minimis threshold). These projections assume that Integrated Single Electricity Market (I-­‐SEM) market change does not materially change the SEM-­‐achievable pass-­‐through market value for generators and suppliers, with the exception that the capacity payment might not available for subsidised generators and a fall in capacity charge on Supplier Units. Balancing costs are ignored for the purposes of this table (see later). 40 Table 15. Projected evolution of solar PV auction clearing prices in Ireland. Tariff/kWh
Market Revenue (> 10MW)
Subsidy/kWh (>10MW)
Year of Installation
2017
2018
2019
2020
2021
2022
2023
2024
€ 0.15 € 0.14 € 0.13 € 0.12 € 0.11 € 0.10 € 0.09 € 0.08
€ 0.066 € 0.069 € 0.073 € 0.076 € 0.080 € 0.084 € 0.088 € 0.093
€ 0.08 € 0.07 € 0.06 € 0.04 € 0.03 € 0.02 € 0.00 -­‐€ 0.01
Market Revenue (< 10MW)
Subsidy/kWh (<10MW)
€ 0.076 € 0.079 € 0.083 € 0.086 € 0.090 € 0.094 € 0.098 € 0.103
€ 0.07 € 0.06 € 0.05 € 0.03 € 0.02 € 0.01 -­‐€ 0.01 -­‐€ 0.02 We propose the renewable support scheme ends in 2023 which is our modelled date for grid parity for new installations. Generation tariff -­‐ Roof top See section 5 of the main document. Table 16. Project digression of the generation tariff proposed for rooftop Considering at 250kWp commercial rooftop example the proposed tariff can digress at 1c/kWh per annum based on installed capacity caps being achieved. While an indicative Tariff is suggested above it should be reviewed and digressed every 6 months (each January and July) however notification for what that digression will be comes 9 months in advance (each March and October) 41 Appendix I: Solar PV Jobs in Ireland The demand for renewable energy to meet energy demands and the need for energy security is an opportunity for not only for innovation but employment. A 2012 study by International Renewable Energy Agency (IRENA) has shown that there are approximately 5.7 million people employed in the renewable energy sector, with 11
1.36 million jobs in solar PV . This is only expected to increase as the demand for alternative sources of energy to replace fossil fuels rises. According to Bloomberg, the total global investment in solar has outpaced all other forms of renewable energy every year since 2011. This trend is set to continue with further cost reductions and technological advancements in PV manufacturing. In the European context, the solar market is 12
growing, with a positive trend in the number of jobs created both directly and indirectly . Ireland has yet to join the Solar PV market; an advantage that allows Ireland to learn from others and develop a sustainable market that supports job growth and meets the population’s energy demands. Key for Ireland’s entry into this market, is the formulation of policy that: 1.) Supports the development of solar, 2.) Stimulates the benefits of solar to Ireland’s economy, and 3.) Insures that the employment generated by this market is sustainable. Solar PV can create 11.3 direct jobs per MW of installed capacity and 38.42 indirect jobs per MW of installed 13
capacity . Driving Factors A key driver for solar is favourable policies that promote the uptake of Solar PV, as a viable source of renewable energy that is competitive and generates economic growth. Another driving force for growth in the solar PV sector is the decreasing costs of technology resulting in lower costs for solar panels, thus driving the 14
demand for solar PV as an alternative energy source . Additional forces include: •
Policies for achieving renewable energy targets set at the EU and national levels to meet energy demands and reduce CO2 emissions; •
Trade and investment (globally), in solar PV technology Employment Generated 15
Within the renewable energy sector there are several types of employment created : •
Direct employment: Jobs provided by companies directly involved in the core activities pertaining to PV such as, production of PV products, installation, construction and implementation of projects •
Indirect employment: Jobs provided by companies that support the core activities of primary companies, e.g. real estate, legal and finance. •
Induced employment: Tertiary employment, jobs generated by the sector increasing purchasing power of people involved, for example jobs in goods and services such as food and retail. •
Long-­‐term employment: Jobs that are maintained for several years, e.g. operations and management. •
Short-­‐term employment: Temporary jobs that are generated for specific aspects of the implementation of PV projects, namely construction. 11
IRENA (2013). “Renewable Energy and Jobs” IRENA (2013); Meyer and Sommer (2014). “Employment Effects of Renewable Energy Supply: A Meta Analysis” Policy Paper NO. 12 WWWFOR. Rutovitz and Harris (2012). “Calculating Global Energy Sector Jobs: 2012 Methodology”. Institute for Sustainable Futures 14
IRENA (2013); Meyer and Sommer( (2014 15
IRENA (2013); EPIA (2012) “Sustainability of Photovoltaic Systems”, 12
13
42 Potential Employment Projections for Ireland: Projections for Ireland presented here are based on ISEA’s projects for the growth of the solar PV market between 2017 and 2023. Employment in the sector is calculated using market factor analysis for direct employment and multiplier analysis for indirect employment. The number of direct jobs generated is a product of the market factor and the MW of capacity installed in a given year. The number of MWs represented in figure 1 was used as the basis to calculate the number of potential jobs. The resulting estimates of the number of jobs to be generated in Ireland are presented in figure 12. The number of jobs generated is assumed to be for one full time for one year. The construction of a solar PV project will take an average of one year. Importantly the jobs generated in operations and management, are long-­‐term jobs created for the lifetime of the project, which averages 20 to 25 years. Numbers for construction and installation are higher due to a market factor of 11, and the number of O&M jobs is lower due to a factor of 0.3. O&M jobs are however, over the long run more sustainable. 16
3850 675 4525 15028 14671 3850 570 4420 2019 3850 465 4315 2018 3850 360 4210 13957 3850 255 4105 13600 4000 5000 3850 10000 150 5763 15000 1650 45 1695 Number of jobs 20000 14314 Jobs in Solar PV 15385 Figure 12. Number of jobs created per year 2020 2021 2022 2023 0 2017 Year Construcion Operaions & Management Total Direct/yr Total Indirect/yr Models for predicting employment are time limited and simplified (i.e. focused on domestic market). External factors such as, labour flows within the energy sector and technology are not accounted for. Including these factors requires a greater knowledge of the market. The solar PV market is studied in the broader context of renewable energy, and data pertaining to employment is aggregated. Disaggregating the information specific to the solar PV sector will not be without challenges. 16
Direct jobs employment factor 11 for construction for 1 year, 0.3 for operations and management life time of project, indirect jobs multiplier of 3.4 Rutovitz and Harris (2012). “Calculating Global Energy Sector Jobs: 2012 Methodology”. Institute for Sustainable Futures. 43 Appendix II: ISEA Members Arthur Cox has been at the forefront of developments in the Irish legal profession for more than 90 years. We are a group of legal professionals who believe in providing sound judgement, in-­‐depth knowledge and new solutions through genuine client partnerships. Bank of Ireland is a diversified financial services group offering a comprehensive range of products and services to a vast customer base of personal, business and corporate customers. We are the leading provider of financing to the project finance/ renewable energy sector. Beauchamps Solicitors is one of Ireland’s leading full service law firms focused on achieving practical business solutions for clients. Our clients include multinational companies, owner managed businesses, government and public bodies and regulatory authorities. BNRG Renewables is an international Renewable Energy development company founded in 2007. Based in Dublin, the company has projects under development in in seven countries across three continents. BNRG specialises in developing utility-­‐scale solar photovoltaic (PV) plants. British Solar Renewables generates and supplies clean energy. We are a leading UK integrated solar developer, owner and operator. We offer an end to end service including financing, design, development, construction, grid connection, operation and maintenance of large scale solar farms, commercial buildings and solar car park canopies. BSG Ecology was established in 1997 as an independent ecological consultancy. We employ over forty people in seven offices across the UK and Ireland. We have a record of successfully tackling complex ecological issues on a very wide range of projects for clients across all market sectors. Scientific rigour, pragmatism, clarity of thought, commercial awareness and positive professional relationships underpin our approach to resolving clients’ ecological challenges. We believe that relevant and effective consultancy advice needs to have wildlife legislation and policy as its basis. This allows clients to clearly understand the merits of their options, and to better assess their next steps. CareyGlass Solar is the renewable division of CareyGlass. Established in 1965, it is the largest independent glass processing company in Europe. Our main production facility is in Co. Tipperary with facilities in Northern Ireland and Chester. We design and manufacture PV panels, reliably distributing in Ireland and Great Britain. CareyGlass Solar offers a bankable panel with a guarantee from a local highly reputable, easily accessible and successful company with a name synonymous in the UK Construction Industry. At CareyGlass we thrive on challenge and are a solutions orientated company focused on ever improving quality, efficiency and product ranges. 44 Conergy UK built Britain’s first 5MW solar farm in 2011 and has been involved in some of the UK’s most innovative rooftop projects. Today we are one of the leading companies in the development, design, build and operation of large PV plants, with a construction pipeline of 120MW and 176MW already built, we will reach the 250MW milestone by the end of Q1 2015. ConstructionPV is a wholesale supplier of solar photovoltaic equipment – panels, mounting systems and inverters for both domestic and industrial solar photovoltaic systems. The company supplies Trina tier1 solar modules, ABB and Solis inverters and Renusol mounting systems, along with other balance of system components. Since 2008, the company has built extensive experience in the design of microprocessor based controllers for renewable energy systems and in solar PV system design for both grid tied and off-­‐grid systems. DP Energy is a renewable energy company operating worldwide to develop renewable energy projects which are both sustainable and environmentally benign. Energypro is an asset management company. Currently it is managing a number of windfarms in Ireland. Entrust is one of Ireland & the U.K.’s leading Solar Planning & Environmental Consultancies having provided a service on over 700 projects over the past 5 years with an overall success rate of 95%. We provide a complete technical planning & environmental solution for Solar PV and other Renewable Technologies, Wireless Communications and Infrastructure Sectors. We provide our clients with access to our bespoke Solar GIS platform which allows the best sites to be chosen whilst maximising electricity production. Entrust’s management team are uniquely placed to add value and optimise solar energy opportunities for developers and landowners alike. Esave is a cleantech technology company that designs and manufactures Smart Grid Network Solutions that deliver superior power quality and energy storage solutions that maximize renewables integration, and result in increased revenues and reduced operational costs for wind and solar plant assets. Exemplar Energy procure electricity and gas for large energy users. Established in 2009 we have established ourselves as Ireland’s leading procurement consultant. Eversheds is Ireland’s only full service international law firm providing expert legal services to a predominantly business client base across a broad spectrum of areas. 45 FTC is a global management, engineering and environmental consultancy. Set-­‐up in 1990, we have grown to be one of the largest Irish-­‐owned independent consultancies. We have offices in Cork and Dublin, Edinburgh and our Middle East base is in Al Khobar, Saudi Arabia. We believe in a co-­‐ordinated approach to problem-­‐solving. Our engineers, scientists and designers work together providing sustainable solutions for a better world. Our commitment to high quality design has been recognised in national engineering awards and we work to ISO accredited quality standards. We specialise in: Environment, Energy, Data Management, Infrastructure, Waste Management, and Planning. We are small enough to guarantee a personal service and big enough to have delivered complex, affordable & sustainable projects for local and global clients. Grant Thornton, one of Irelands leading professional services firms, has advised in relation to over €700m of renewable energy financings. Acting on behalf of private developers, investors and financial institutions,Grant Thornton has been at the forefront of the significant developments in the renewable energy sector on the Island of Ireland. With offices in Dublin, Belfast, Cork, Galway, Kildare and Limerick, our specialist advisors have the expertise, extensive industry knowledge and key relationships to give our clients a critical advantage in exploiting opportunities and understanding the challenges of the renewable energy sector. From project conception through to energisation, Gridconnect delivers first-­‐class technical advice for the renewable power generation industry. We are specialists in grid connection, design and construction supervision of generator installations. Highfield Solar are a leading solar development company focused on the development of utility scale PV projects in Ireland. Highfield’s management team has extensive experience in the renewables industry in Ireland and internationally. JBM is a developer of ground and roof mounted solar PV projects at both commercial and utility scale. Kingspan is a global leader in high performance insulation, building fabric, and solar integrated building envelopes. Kingspan Energy, a strategic Business unit within the Kingspan Group has delivered some of the largest turnkey rooftop solar PV projects in Australia, North America, UK and Ireland. Utilising our roofing expertise, Kingspan Energy specialises in providing a range of fully integrated and lifetime warranted rooftop solar PV solutions for industrial and commercial buildings. 46 Mainline Group is a leading service provider within the water, telecommunications and electricity sectors. Our business is centred on the build, replacement, repair and maintenance of utility network infrastructure, and incorporates three distinct areas of expertise, across each of the utility sectors: Infrastructure and Network Build (including all associated Civil Works), Field Support Services (In-­‐
home/business Installations and Maintenance), ICT & Data Capture (including Data Analytics) In practice, our business naturally breaks into “Dirty Boots” Construction and “Clean Boots” Technical operations, supported as necessary by our ICT (Information & Communications Technology) & Data Capture division, which also incorporates collection of data from the field (ie. Meter Reading & As-­‐built Records). McCarthy Keville O’Sullivan Ltd. is a specialist planning and environmental consultancy, delivering challenging and complex projects on behalf of our clients. The Company employs more than 25 professionals and offers services in fields such as renewable energy planning, environmental impact assessment, ecology and project management, amongst many others. We have significant expertise in a wide range of development sectors, including energy, electricity grid infrastructure, quarrying & waste activities and commercial development. Our clients include industry-­‐leading private developers, local authorities, state agencies and educational institutions, as well as other professional services firms such as engineers and architects. Natural Power is a leading independent renewable energy consultancy and products provider. We have successfully completed 288.906MW of services on solar projects to date. With a global team of 300 renewable energy experts spread across three continents, we offer proactive and integrated consultancy, management and due diligence services across the solar, onshore & offshore wind, wave, tidal and biomass sectors. We continue to maintain a strong outlook on all new and emerging renewable energy sectors. Philip Lee is one of Ireland’s leading commercial law firms. We are recognised leaders in several areas of law, including competition, construction, data, employment, energy, environmental, EU, intellectual property, PPP, procurement, real estate and tax. The firm has offices in Dublin, Brussels and San Francisco. We represent pioneering Irish and international private companies operating in the world’s leading sectors and public sector bodies with real vision. Philip Lee is the only Irish member of Multilaw. With 8000 lawyers and a combined turnover of $1.5bn, Multilaw is ranked by Chambers Global as an ‘Elite’ international network of law firms. We are a team of talented and innovative thinkers, who embrace collegiality within the firm and with our clients. Power Capital was set up in 2011 as a development and investment company for the renewable energy sector specialising in the European Photovoltaic market. The company has capabilities across the entire value chain with the ability to manage all phases of solar development. Our professional 360º service incorporates advice, bespoke design, tailored integration, installation and maintenance. We have built our reputation by developing outstanding 47 performance ratio solar plants that exceed expectations. Premium Power is an Irish electrical engineering consultancy providing harmonics studies, harmonic mitigation solutions, feasibility studies, grid studies, software solutions and system design to the renewable industries. Premium Power have a long track record of delivering on specialist electrical projects and have a dedicated team of specialists focussed on delivering solutions to the Irish, UK and European solar industries. Rexel Energy Solutions is a distributor of renewable energy and energy efficiency products. We stock the top brands in Solar PV, Air Source Heat Pumps, Energy Saving, and Electric Vehicle Charging. As we are not tied to any particular manufacturer, we are able to offer Solar PV solutions from across the entire market. All products we offer are subject to rigorous due diligence testing by Rexel Europe. We work with Solar PV installers via our own Installer Partner Network. Via this network we provide training, industry news, product offers, and leads for installation projects. Rexel Energy Solutions is part of the worldwide Rexel Group, this group operates in Ireland via Kellihers Electrical, C.T. Electric and Fitzpatricks Electrical – Ireland’s largest electrical wholesaler. International Trade and Installation of Renewable Energy (Solar PV, Solar Thermal and Wind Turbine) and Import/Export of Innovative Technologies Solution. Shannon Energy is a specialist solar developer and funding consultancy. We compile and concentrate the Independent Power Producer (IPP) requirements from a Financial, Legal, Technical and Environmental perspective to achieve Financial Close (FC) on large scale Solar Utility projects. Our Partnerships and Associations have commissioned 90 MW of projects in South Africa, where we have another 90 MW in Construction Funding Solar Electric Ireland is a 100% Irish owned company based in Killanne, Enniscorthy, County Wexford established in 2012 with it`s core focus on PV with complimenting products and services on offer. Source Renewable Partners is an independent company specializing in the project management and property aspects of renewable energy projects. We provide the full range of professional services required for the acquisition and management of land for renewable energy projects. SgurrEnergy is a leading renewable energy consultancy with a reputation for technical excellence and responsiveness. Our team of over 230 consultants and engineers has assessed more than 160GW of renewables projects in over 90 countries from our network of 13 offices across Europe, North and South America, Africa and Asia. Total Green Energy specialises in the supply and distribution of Solar PV products. Founded in 2010, Total Green Energy provides Solar PV modules to a number of high profile installers in the UK and Ireland. Total Green Energy is the master distribution partner for Vikram Solar, Tier 1 listed by Bloomberg New Energy Finance. 48 Warik Energy sell through electrical wholesalers in Ireland , Northern Ireland and the UK for systems up to and including 50kWp. Customers can contact us directly for indicative pricing for larger installations. Our services include project management of large scale systems, which are managed from concept to full installation. Wexford Solar is a community based solar energy development company, specialising in large scale solar park development in the Republic of Ireland. 49