irish scottish links on energy study isles ii towards...
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Irish Scottish Links on Energy StudyISLES II – Towards Implementation
Business Plan and Network Regulation and Market Arrangements workshop
March 2015
BUSINESS PLAN: INTRODUCTION TO BARINGA
PARTNERS ENERGY ADVISORY
> Formed through merger with Redpoint Energy in Spring 2012> Offering unparalleled combination of energy market expertise
and commercial insight> Proud to work with some of Europe’s foremost policymakers,
regulators, investors, developers, lenders and energy companies operating across the energy supply chain.
VersicherungenStrategy &Commercial Optimisation
Investment Analysis
Policy & Regulation
EnergyAdvisory
˃ Expertise in assisting clients design and execute business strategy, focusing on realising growth opportunities
˃ Extensive experience in Performance Improvement.
˃ Implementation of cost reduction and efficiency programmes in leading companies.
˃ Customized solutions in various areas of the value chain..
˃ Supporting our clients on regulatory issues, especially in strategy development
˃ Experience in the dialogue with regulators.
˃ Our clients are international energy and water suppliers.
˃ Expertise in investment strategy, valuation and Due Diligence.
˃ Experience with transactions throughout Europe both in the power and in the gas market.
˃ Supporting private equity firms and institutional investors.
BUSINESS PLAN: INTRODUCTION TO SOURCE LOW
CARBON
• Independent partnership providing advisory services to developers, investors
in the low carbon sector and to government bodies responsible for renewables
programmes
• Sole advisors to Isle of Man Government to design and manage
offshore wind leasing programme
• Policy advice, seabed lease agreements, planning framework and
UK market access
• Management of Walney Extension project through planning process
• Over a decade of development experience:
• first hand experience of risks, process,
decisions involved
• Impact of policy and regulatory change
• Services:
• Development services
• Policy and programme
management:
• Market intelligence
NETWORK REGULATION AND MARKET ALIGNMENT
STUDY: PÖYRY MANAGEMENT CONSULTING
Europe’s leading specialist energy practice
(c) grafikdienst.com
Pöyry offices
Pöyry Management Consulting’s
energy practice offices
Offering expert advice from strategy to implementation on policy, regulation, business operations, financing and valuation and sustainability
Providing in-depth market intelligence across Europe…
…with a growing presence in Middle East, Far East; and Central and South America
Over 200 energy market experts in 12 offices across Europe:
– Düsseldorf – Oslo
– Helsinki – Oxford
– London – Stockholm
– Madrid – Paris
– Milan – Vienna
– Moscow – Zurich
NETWORK REGULATION AND MARKET ALIGNMENT
STUDY: ENERGY-LINK
Energy-Link was formed in May 2000 and has operational experience in Europe, US and Nigeria
3 Directors have nearly 100 years experience in the electricity industry between them.
Clients include Energy Market Participants, Asset owners, Industry and End user groups, Capital Investors
Commercial focus for clients involved in complex energy project structures including due diligence, investment valuations and energy risk analysis
Operational Risk Management and corporate governance
Solutions orientated Business Applications
- SaaS and Java specialist IT delivery
- ETRM and Investment Due Diligence
- Trading Systems
- Trade capture user interfaces and Data Search and Compiler
- Billing Models
- UK Electricity & Gas market price forecasting models
- Dynamic Analysis – plant capabilities
- Irish Power Market Model – real time, day ahead to multi-year
- Specific Plant (CHP. CCGT) and Contract Portfolio Optimisers
- Buyer Model (Pilipovic)
- Compliance with ETRM Philosophy and Risk Management Procedures
INTRODUCTION
INTRODUCTION: ISLES
• ISLES: IRISH SCOTTISH LINKS ON ENERGY STUDY
• There are opportunities for the coordinated development of marine renewable
energy projects and offshore electricity networks in the ISLES zone
• Regulatory and market barriers exist that restrict efficient development on a coordinated
basis
• ISLES is an initiative to facilitate this coordination - to enhance integration of marine
and offshore renewable energy between the three ISLES project partner counties
(Scotland, Ireland, Northern Ireland) and with the wider UK,
• ISLES is not a project in itself: the vision will be realised by the combined efforts of market
participants
• Key themes:
• Offshore renewable energy
• Network coordination
• Interconnection
• Project of Common Interest:
• Contribute to market integration
• Improve security of supply
• Reduce CO2 emissions
INTRODUCTION: ISLES II
• Three ISLES II Work Streams
1. Business Plan
2. Network Regulation and Market Alignment Study
3. Spatial Plan and Sustainability
• ISLES I: Vision for Delivery - April 2012
• ISLES II: ‘Towards Implementation’ – concluding summer 2015
• Aims to identify and seek to address the barriers to coordinated generation and
network development
INTRODUCTION: OBJECTIVES OF TODAY
• Workshop Part 1:Network Regulation and Market Alignment Study
• Workshop Part 2: Business Plan
• Workshop Part 3: Round table discussions:
• 2 sessions
Objectives
• Identify the regulatory, market and other barriers exist that restrict efficient
development on a coordinated basis,
• Discuss the context and framing of the opportunities in the ISLES zone, and
key messages for the ISLES Business Plan
• Review of options for NRAMAS work stream
• Get input from a wide, well-informed group of stakeholders
High level agenda
CONTEXT
ISLES I: VISION FOR DELIVERY
• Offshore integrated network economically
viable, potentially able to deliver a range of
wider economic, environmental and market
related benefits
• 16GW maximum resource potential
• No technological barriers
• Sufficient onshore network capacity
• No significant adverse environmental
constraints that can’t be adequately mitigated
• Potential benefits from an coordinated network
development:
- Levelised cost reductions for generation
projects, improving project economics
relative to non-integrated solutions
- Development efficiencies (e.g.
consenting)
• However, ISLES I also identified complexities associated with establishing a
cross-jurisdictional framework in the region
• Key areas identified:
• Low carbon support/subsidy arrangements
• Anticipatory investment issues and need for approach for coordinated
offshore build
• Network classification and implications for regulatory treatment
• Transmission charging – equitable, affordable
ISLES I: VISION FOR DELIVERY
• ISLES II: three work streams to tackle some of the barriers to coordinated
development
• Regulatory and market barriers exist that restrict efficient development on a
coordinated basis, e.g.
• jurisdictional boundaries
• absence of mechanisms to ensure development decisions appropriately take
into account costs and benefits external to an individual project, including
optionality for future developments
• The ISLES II Network Regulation and Market Alignment Study (NRAMAS) is
exploring options to address these barriers:
• Mix of benefits, costs and risks from coordination will depend on the circumstances
of each project, jurisdiction
• One size does not necessarily fit all: flexibility in regulatory and market arrangements
rather than prescriptive over who should incur cost/risk
ISLES II: TOWARDS IMPLEMENTATION
BUSINESS PLAN INTRODUCTION
• ISLES II Business Plan
• An information document about the ISLES opportunity, presenting and building on
conclusions of the ISLES II work performed to date
• A viable plan of action for key stakeholders
• 2020-2030 timeframe for development
• Use of worked examples
• Key stakeholders for the Business Plan
• Governments (host and customer)
• Regulators, planning authorities
• Project developers
• European institutions
• Supply Chain
• Objective for today: to introduce key issues, principles and get feedback about the
challenges and opportunities
BUSINESS PLAN CONTEXT: POLICY DRIVERS
European Energy Union: Commission Communication (25th February 2015)
• Successor to the Third Energy Package of energy legislation
• Continuation of policies, deepening objectives.
• Energy Flows: “Fifth Freedom”
• Five dimensions
• energy security, solidarity;
• a fully integrated European energy market;
• energy efficiency
• decarbonising the economy;
• research, innovation and competitiveness.
• Lack of interconnection highlighted as major obstacle. Need for major infrastructure
projects, driven by private sector. Annual reporting on interconnection
National policies/targets
• more of a moving feast – elections, revisions to strategies, changing regulatory
context
BUSINESS PLAN CONTEXT: REGULATORY
CONSTRAINTS
Competitive Allocation of Support for Renewables
• Introduced across Europe from 2017
• Impacts on:
• Appetite for development risk – high upfront cost of offshore development
• Ability/willingness for generation developers to coordinate
• UK Electricity Market Reform: competitive support, limited budget for offshore wind
• International CfD: no commitment to principle ahead of election
• NI CfD: Work still ongoing
State Aid
• Any selective advancement of a particular beneficiary through the provision of state
resources or some other economic advantage
• Consistency with domestic policies and European frameworks will be maintained
• Project landscape has changed
significantly since ISLES I:
• (Map: Nov 2012, The Crown Estate)
• Offshore wind projects in northern ISLES
zone (Scotland, NI) have fallen away
• Wider context of project attrition in UK,
limited progress in Irish waters
• Important given the increased development
risk now facing developers
• New site awarded in Isle of Man waters
CONTEXT: CHANGES SINCE ISLES I
THEMES FOR ISLES II
• In light of the current context, ISLES partners are supportive, but expectations are realistic.
• Commitments to adopt recommendations vary across jurisdictions
• Therefore the work streams are focusing on practical next steps that key stakeholders can
take, and will see benefits in taking, to enable progress in the ISLES zone
• Our Business plan is going to be more focused on promoting offshore generation in the
ISLES zone as something that is credible and beneficial so that governments(customers)
and potential investors can get behind it.
• We will seek to build on the NRAMAS work to consider solutions to a number of the issues
standing in the way and promote coordinated development.
• We are also very interested in the wider principles: the big issues that need to be
grappled with at EU level:
• In particular the tension between objectives of market integration and competitive
allocation of support – how to enable cross-border coordination?
NETWORK REGULATION AND MARKET ALIGNMENT STUDY
CHALLENGE: REGULATORY BARRIERS TO
COORDINATION OF GENERATION AND NETWORKS
• There are opportunities for the coordinated development of marine renewable
energy resources and offshore electricity networks in the ISLES zone
• Regulatory and market barriers exist to the efficient development of these
resources on a coordinated basis, e.g.
• jurisdictional boundaries
• absence of mechanisms to ensure development decisions appropriately
take into account costs and benefits external to an individual project,
including optionality for future developments
• The ISLES II Network Regulation and Market Alignment Study (NRAMAS) is
exploring options to address these barriers to efficient coordination of
offshore generation and networks in the ISLES zone
• Development
• Operation
• Ownership
• Ongoing revenue and responsibilities
20
AIM: REGULATORY FRAMEWORK SHOULD DELIVER
THE RIGHT INCENTIVES TO THE RIGHT PARTIES
21
• There is not an universal set of drivers of a coordinated approachContext
• Approaches explore whether incentives to coordinate sit best centrally or privately
Principles
• Efficient incentive design is important but not sufficient for practical implementation
Toward implementation
CONTEXT:There is not an universal set of drivers of a coordinated approach
22
CONTEXT: COORDINATION SHOULD BE
INCENTIVISED WHEN IT IS AN EFFICIENT APPROACH
Coordinated development of offshore generation and networks can lead to:
23
Direct benefits for the delivery of a project
Wider (monetised) energy sector benefits
Support for wider policy goals
But coordination can also lead to negative factors in all of these areas;
e.g. increased project risk rising from greater complexity
CONTEXT: IDENTIFYING THE MOST EFFICIENT
APPROACH TO DEVELOPING ASSETS IS NOT SIMPLE
24
• Mix of benefits, costs and risks from coordination will depend on the circumstances of
each project
• Hence, regulatory and market arrangements must be flexible rather than overly
prescriptive over which parties should face the incentives for coordination
Direct benefits for the delivery of a project
• Lower offshore network capex
• Increased reliability
• Lower cost funding
Wider (monetised) energy sector
benefits
• Market to market capacity
• Onshore transmission benefits
• Optionality for future generation development
Support for wider policy goals
• More integrated European electricity market
• Supply chain
• New generation technologies
• Environmental goals
PRINCIPLESApproaches explore whether incentives to coordinate sit best
centrally or privately
25
PRINCIPLES: WE FOCUS ON 3 MAIN QUESTIONS FOR
COORDINATION OF GENERATION AND NETWORKS
26
‘Centrally-driven
coordination’‘Developer-driven
coordination’
1. What are the arrangements for developing ‘shared’ offshore networks?
‘Regulated’ ‘Merchant’More risk
borne centrally
More risk borne by
private projects
2. How can ‘shared’ offshore network capacity be released to other users?
3. What is role of governments in award of cross-jurisdictional RES support ?
PRINCIPLES: NETWORK DEVELOPMENT 27
‘Centrally-driven
coordination’‘Developer-driven
coordination’
1. What are the arrangements for developing ‘shared’ offshore networks?
‘Regulated’ ‘Merchant’More risk
borne centrally
More risk borne by
private projects
NETWORK DEVELOPMENT: RISK ALLOCATION KEY
IN COORDINATED NETWORK DEVELOPMENT
• Shared offshore networks have multiple uses, such as:
• transfer capacity for (multiple) directly connected generation;
• market to market capacity
• onshore transmission capacity
• Arrangements for coordinated network build should appropriately incentivise
delivery of capacity for future uncertain uses (i.e. anticipatory investment)
• In ISLES II, we focus on the differences between two approaches in the
management of risk of coordinated network development
• effective risk management vital in delivering cost-competitive individual
projects,
• reflects ‘track record’ of individual projects seeking to retain control of
development of dedicated network assets
28
NETWORK DEVELOPMENT: THE TWO APPROACHES
DIFFER IN ALLOCATION OF RISK OF COORDINATION
29
‘Centrally-driven
coordination’‘Developer-driven
coordination’
1. What are the arrangements for developing ‘shared’ offshore networks?
‘Regulated’ ‘Merchant’More risk
borne centrally
More risk borne by
private projects
Individual projects shielded
from exposure to risk of
coordinated network
development
Individual projects bear
some risk of coordinated
network development
• We have focused on risk management rather than detailed cost allocation
methodology for committed uses
• risk management approach should inform cost allocation methodology
• cost allocation methodology will then determine the jurisdictional
allocation of cost for each offshore network development
NETWORK DEVELOPMENT: SOME BIG QUESTIONS
FOR THE PRACTICAL APPLICATION OF PRINCIPLES
• How allocate risk of ‘accidental’ anticipatory investment?
• Importance of ‘certainty’ of network cost forecast during development
process – e.g. RES bidding into competitive allocation process;
interconnectors applying for (partly)-regulated revenue framework
• How strongly should benefits for using coordinated networks be linked
to allocation of risk of developing them?
• If a private project is not bearing any of the risk of coordinated network
development, should it enjoy the full reduction in network capex (e.g. from
economies of scale)?
• If ‘spare capacity’ fully utilised, should there be a surplus/profit for the
party underwriting that spare capacity?
• How might ‘privately-borne risk’ best be allocated between
generation and network projects?
30
PRINCIPLES: NETWORK SHARING 31
‘Centrally-driven
coordination’‘Developer-driven
coordination’
‘Regulated’ ‘Merchant’More risk
borne centrally
More risk borne by
private projects
2. How can ‘shared’ offshore network capacity be released to other users?
NETWORK SHARING: SHARING BY DIFFERENT
USERS CAN INCREASE NETWORK UTILISATION
32
Example: 2GW of offshore wind with
2GW export link to onshore system Opportunities for network sharing
– Offshore wind needs 41% of the
network transfer capacity on average
– In 75% of hours, at least 500MW of
transfer capacity available for other
uses –
NETWORK SHARING: APPROACHES DIFFER IN WHO
BEARS RISK AND REWARD OF CAPACITY RELEASE
33
‘Centrally-driven
coordination’‘Developer-driven
coordination’
2. How can ‘shared’ offshore network capacity be released to other users?
‘Regulated’ ‘Merchant’More risk
borne centrally
More risk borne by
private projects
TSO of shared offshore
network responsible for
releasing firm capacity to
other users
Projects ‘sell’ short-term firm
capacity on shared offshore
network to other users
• Forecast errors make it hard to measure the ‘optimality‘ of capacity release
• Long-term incentives important where additional network investment required
to facilitate network sharing
NETWORK SHARING: EXAMPLE OF GENERATION
AND INTERCONNECTION SHARING CAPACITY
34
2GW of offshore wind
with 2GW export link to
onshore system
(System A)500MW link
built to
another
onshore
system
(System B)
NETWORK SHARING: APPROACHES DIFFER IN
IMPACT OF CAPACITY RELEASE ON OTHER USERS
35
2000MW
500MW
TSO
releases
500MW
capacity for
market to
market flows
2000MW
Capacity
Generation
project ‘sells’
500MW firm
capacity to
market to
market flows
Non-firm capacity
for market to
market
Non-firm capacity
for generation
Firm capacity
for generation
Firm capacity
for market to
market
‘Centrally-driven
coordination’
‘Developer-driven
coordination’
2000MW1500MW
500MW
500MW
2000MW
500MW 500MW
2000MW = total
export capacity to
system A
Capacity
PRINCIPLES: RES FUNDING 36
‘Centrally-driven
coordination’‘Developer-driven
coordination’
‘Regulated’ ‘Merchant’More risk
borne centrally
More risk borne by
private projects
3. What is role of governments in award of cross-jurisdictional RES support ?
RES FUNDING: APPROACHES DIFFER IN HOW
ADDRESS JURISDICTIONAL BARRIERS TO FUNDING
37
‘Centrally-driven
coordination’‘Developer-driven
coordination’
3. What is role of governments in award of cross-jurisdictional RES support ?
‘Regulated’ ‘Merchant’More risk
borne centrally
More risk borne by
private projects
Cross-jurisdictional support
delivered through specific
joint intiative agreed
between Governments
Individual projects compete
directly in support schemes
with projects in customer
jurisdiction(s)
• RES funding will cover the ‘value of the renewable energy’, not necessarily all
the project costs
• Can wider benefits be captured to make RES delivery more cost-
competitive for an individual project basis?
TOWARDS IMPLEMENTATIONEfficient incentive design is not enough for practical implementation
38
PRINCIPLES: WE FOCUS ON EFFICIENT INCENTIVE
DESIGN FOR COORDINATED DEVELOPMENT
39
‘Centrally-driven
coordination’‘Developer-driven
coordination’
1. What are the arrangements for developing ‘shared’ offshore networks?
‘Regulated’ ‘Merchant’More risk
borne centrally
More risk borne by
private projects
2. How can ‘shared’ offshore network capacity be released to other users?
3. What is role of governments in award of cross-jurisdictional RES support ?
Cross-jurisdictional support delivered
through specific joint project arrangements
agreed between Govts
Individual projects compete directly in
support schemes with projects in customer
jurisdiction(s)
Cross-jurisdictional support delivered
through specific joint project arrangements
agreed between Govts
Individual projects compete directly in
support schemes with projects in customer
jurisdiction(s)
Cross-jurisdictional support delivered
through specific joint intiative agreed
between Governments
TSO of shared offshore network
responsible for releasing firm capacity to
other users
Individual projects shielded from exposure
to risk of coordinated network development
Projects ‘sell’ short-term firm capacity on
shared offshore network to other users
Individual projects bear some risk of
coordinated network development
IMPLEMENTATION: INCENTIVE DESIGN ONLY ONE
PART OF DELIVERING PRACTICAL ARRANGEMENTS
• Drivers of coordination will vary between different generation and
network developments
• cannot have a single universal approach to coordination, based on a
presumption of a universal cost allocation
• Regulated and merchant approaches are not mutually exclusive
• possibility to mix and match approaches to best fit circumstances
• flexibility may come at risk of increased complexity
• Workable arrangement to support near-term developments unlikely to
fit neatly in the existing legal frameworks
• regulatory framework for an asset should ideally follow function rather
than strict legal definition (jurisdictional and/or European)
• respect existing jurisdictional boundaries
• relies on further cross-jurisdictional cooperation between policy-makers
• workable arrangements made easier to implement where consistent with
existing policy initiatives, as far as possible (even if those
initiatives may not be consistent with idealised long-term visions)
40
MAIN MESSAGES
41
AIM: REGULATORY FRAMEWORK SHOULD DELIVER
THE RIGHT INCENTIVES TO THE RIGHT PARTIES
42
• There is not an universal set of drivers of a coordinated approachContext
• Approaches explore whether incentives to coordinate sit best centrally or privately
Principles
• Efficient incentive design is important but not sufficient for practical implementation
Toward implementation
BUSINESS PLAN
BUSINESS PLAN INTRODUCTION
• What is the ISLES II Business Plan?
• An information document about the ISLES opportunity, presenting the
conclusions of the work performed to date, and
• A viable plan of action for key stakeholders to take to enable delivery of
infrastructure in the region
• Use of worked examples
• Who are the key stakeholders for the Business Plan?
• Governments (host and customer),
• Regulators
• Planning authorities
• Project developers
• Supply chain and
• European institutions
• Not a business plan in the conventional sense:
• Customer ambiguity
• Unable to assume adoption of all recommendations
• To account for the changes observed since ISLES I, the consultants have agreed with
the Government partners to adopt the following approach:
• Highlight the implications of recent changes for developers/investors in the ISLES zone
• Importantly, while resource potential, technology availability are probably not
constraints to development in the region, they are not in themselves sufficient to
deliver projects
• Focus on drivers for demand and regulatory obstacles
• Timelines are post-2020
• Partners supportive, but expectations are realistic.
• Commitments to adopt recommendations vary across jurisdictions
• Therefore the work streams are focusing on practical next steps that key stakeholders
can take to enable delivery in the ISLES zone
• Consider issues in a wider context: application of principles further afield where
similar opportunities and challenges are arising
CONTEXT: APPROACH FOR ISLES II
BUSINESS PLAN: STATUS
Current state of play/
identifying constraints on
messaging
Gather
stakeholder
feedback on
presenting the
opportunity
Business Plan
drafting and
publication
• Reviewed changes
since ISLES I
• Meetings with DECC,
Crown Estate and
other key stakeholders
on scope
• Agreed approach with
Partner Governments
• Stakeholder events in
London and Belfast
• Supplier events in Glasgow,
Belfast and Dublin
• Bilateral meetings
• Ongoing engagement with
anchor projects
• Publication due for summer
2015
BUSINESS PLAN: CONTENT
Policy drivers and rationale for ISLES
Updated overview of viable development
opportunities including spatial plan work
Description of anchor projects and opportunities
for coordination
Challenges to implementation
Overview of NRAMAS options
Delivery strategy including application of
NRAMAS options
Supply chain opportunities
Recommended next steps
BUSINESS PLAN: PRINCIPLES UNDERPINNING MAIN
CONTENT
Policy drivers and rationale for ISLES
Updated overview of viable development
opportunities including spatial plan work
Description of anchor projects and opportunities
for coordination
Challenges to implementation
Overview of NRAMAS options
Delivery strategy including application of
NRAMAS options
Supply chain opportunities
Recommended next steps
• Some key principles will underpin the
remaining content of the Business Plan
• Developed with key stakeholders and upon
reviewing the current status of ISLES
projects:
1. A specific “customer” jurisdiction for
ISLES projects cannot be assumed
2. Consistency with domestic policies
and European frameworks will be
maintained
3. Next steps will be identified, but some
challenges remain outside of ISLES’
capabilities
4. Concepts will be demonstrated around
“anchor projects”
BUSINESS PLAN: PRINCIPLES: CUSTOMER FOR
ISLES ENERGY
Customer identification
Potential
demand for
renewables
post-2020?
Further demand for
interconnection?
• Customer jurisdiction(s) for each
potential ISLES project needs to be
identified and have their eligibility agreed
to secure support and regulatory regime
(not an issue for projects targeting their
domestic regimes)
• Identifying a “customer” jurisdiction(s) is key for
developing infrastructure projects
• Buy-in from customer is required to drive necessary
changes – primarily to market and regulatory
arrangements
• However, steer from policy makers that no one
customer country should be assumed
• Pre-empts national decisions
• Limits how specific we can be about demand
and ultimately source of funds/subsidy
• Therefore:
• Business Plan will put forward principles of
coordination, but not be specific on country/ies or
support instruments
• Principles should be relevant to multi-jurisdictional
opportunities across Europe
Cost
• Lower cost than
marginal domestic
alternative
Industrial
benefits
• Supporting
development of an
industry in
customer
jurisdiction
• Jobs
• Specific
community
benefits
Fit with domestic
needs/political
objectives
• Scale, timing and
nature of
generation needs
to be compatible
with host country’s
economic need
and political
acceptability
Credibility
• Meeting the same
(or better) pre-
requisites and
eligibility criteria as
existing generation
• Principles for gaining buy-in from customer jurisdictions will be outlined
• Precedents include: Hinkley C, Swansea Tidal Lagoon, and to an extent the Scottish Isles
have all received political support which has then spurred Government work streams
• Drivers of political buy-in have included the one or more of the following:
BUSINESS PLAN: PRINCIPLES: CUSTOMER AND
GAINING BUY-IN
BUSINESS PLAN: PRINCIPLES - CONSISTENCY WITH
EUROPEAN AND NATIONAL POLICY FRAMEWORKS
• Suggested next steps will be consistent with direction of travel in Europe and
within the ISLES region – in particular:
In Europe:
• Competitive Allocation of Support
• Tenders to grant support to all new installations from 2017
• Generators will need to sell their electricity in the market.
• Impacts on:
• Appetite for development risk
• Ability/willingness for generation developers to coordinate
• State aid: Any selective advancement of a particular beneficiary through the provision of
state resources or some other economic advantage
BUSINESS PLAN: PRINCIPLES - CONSISTENCY WITH
EUROPEAN AND NATIONAL POLICY FRAMEWORKS
• Nationally:
• Challenge is to develop principles that do not cut across existing (different) policies
Jurisdiction Low carbon
support
Interconnection Transmission
regulation
Market
arrangements
GB CfD Cap and
floor/merchant
OFTO GB BETTA
arrangements
Northern
Ireland
CfD (NI?) Fully
regulated/other?
Not yet designed I-SEM
Ireland REFiT
replacement
Fully
regulated/other?
Not yet designed I-SEM
ISLES I ISLES IIApplication of ISLES to anchor
projects
BUSINESS PLAN: PRINCIPLES - NEXT PHASES OF
ISLES
• Set out vision for
the ISLES projects
• Overall benefits
• Scale
• Cost
• High level
deliverability
• Principles for
offshore network
funding and
access
• Principles for
project revenue
streams
• Principles of
customer demand
• Opportunities for
supply chain
• Project level:
• Identify “Customer jurisdiction(s)”
• Finalise project offering (e.g. renewable
energy, interconnection or both to deliver
at a price)
• ISLES partners:
• Support anchor projects
• Detailed regime design and
implementation around anchor projects
that come forward
• Given the lack of an identified customer, the Business Plan will outline where further
implementation work will be needed, and the potential for further barriers to be uncovered
INTRODUCING ANCHOR PROJECTS
• We will use anchor projects to frame the opportunity for coordination
presented by “live” projects in the ISLES zone
• Advanced stage of development:
• relatively near term: project development lead times
• Importance of development risk under competitive allocation
• Commercially viable: likely to be competitive
• Customer identified
Scotland Northern Ireland Ireland
Development
status
No projects under
development
No projects under
development
Consented projects
LCOE Challenging sites – e.g.
ground conditions
Potentially competitive Potentially competitive (in
different jurisdiction)
Customer
Identification
Domestic demand exists Domestic CfD under
review
No domestic signal or firm
international framework
• Potential asymmetries in timing of benefits across partner jurisdictions
BUSINESS PLAN: ANCHOR PROJECTS (2) – ISLES
ZONE PROJECT LANDSCAPE
Generation-only projects Interconnector-only projects Multi-purpose projects
ISLES zone project landscape
• 2-3 reasonably advanced
projects
• Supportive of ISLES concept
subject to deliverability
• 1 project actively developing
in the ISLES region
• No involvement in ISLES to
date
• More of an option for
existing generation
projects than a single
project proposal
BUSINESS PLAN: ANCHOR PROJECTS (3) - IRELAND
• ORIEL
ORIEL WIND FARM
Developer ORIEL Wind farm Ltd
Potential Capacity 330MW
Depth: 14-30m
Distance to shore
(Ireland)
22km (Dundalk)
CODLING BANK
Developer Fred Olsen Renewables
Potential Capacity 1.1GW
Depth: 9-16m
Distance to shore
(Ireland)
13km (Greystones,
Wiklow)
• Two consented projects have agreed that the
Business Plan can use their projects as worked
examples
BUSINESS PLAN: ANCHOR PROJECTS (4) –
ILLUSTRATIVE COORDINATION OPPORTUNITIES
• Opportunities for coordination:
• Oriel (330MW)
• Too small for direct connection (to UK) but coordination could be possible with
larger projects in the vicinity, which could include:
• Shared links (i.e. oversized) and interconnection
• Offshore hub development
• Codling (1.1GW)
• Has capacity to justify direct connection to UK, and therefore could be incentivised
to coordinate in network design, which could include:
• Shared links (i.e. oversized) and interconnection
• Offshore hub development
• Note that suggestions for coordination will be illustrative in the Business Plan and will
not prejudice developers’ discretion in finalising the design of projects
INTRODUCING ANCHOR PROJECTS
Scotland and Northern Ireland:
• No offshore wind projects under active development.
• Site identification:
• ISLES spatial work
• Government’s marine renewable energy sectoral plans/marine plans
• Scotland: 500-600MW nominal offshore wind project
• Northern Ireland: Torr Head tidal project (100MW)
• We will assume an integrated
approach to development and
construction for anchor
projects
• Strong precedent for
deliverability
• CfD terms likely to increase
importance of managing
interface risk:
• Evidence of substantial
commitment to investment
within 1 year of contract
signature
• Penalties for delay beyond
a target commissioning
date.
Company A Company A
Company B
Company A
Company B
Company A
Company B
Integrated approach to construction
Disaggregated approach to construction
Interface
risk
BUSINESS PLAN: ANCHOR PROJECTS (5) –
INTEGRATED DEVELOPMENT ASSUMPTION
• Given the policy context and principles that we have outlined for the Business Plan:
• What specific messages should the Plan aim to outline for key stakeholders:
• Governments, regulators (e.g. support schemes, IGAs, level of engagement in
facilitating coordination)
• Developers (e.g. eligibility, commercial terms, coordination opportunities
• European stakeholders (e.g. 2030 legislation, CACM flexibility)
• What do you see as the main barriers to ISLES and to what extent can these be
mitigated through the actions of the ISLES host jurisdictions?
• What approach could be taken by a “customer jurisdiction” to allocate low
carbon support to ISLES projects?
ROUND TABLE DISCUSSION: YOUR INPUT TO THE
ISLES BUSINESS PLAN