Ireland's offshore wind prices beat forecasts despite supply risks
Price indexation and curtailment payments spurred competitive bids in Ireland's first offshore wind auction but supply chain and permitting risks lay ahead.
Last month, Ireland awarded state-backed power contracts to four offshore wind projects with a combined capacity of 3.1 GW as it seeks to install 5 GW of fixed-bottom capacity and start developing 2 GW of floating wind by 2030.
The winning bidders were the 500 MW North Irish Sea Array developed by Statkraft, the Dublin Array (RWE and Saorgus Energy, 824 MW), the Codling Wind Park (EDF and Fred Olsen, 1,300 MW) and Sceirde Rocks (Corio Generation, 450 MW). The first three projects are located on the east coast near Dublin while Sceirde Rocks is near Galway in the west.
The bidders secured 20 year-contract for differences (CFDs) at an average price of 86.05 euros/MWh ($93.0/MWh), lower than the 95 to 115 euros/MWh range predicted by industry group Wind Energy Ireland.
Day-ahead power prices in Britain & Ireland in 2022
(Click image to enlarge)
Source: European Commission's quarterly electricity market report
The contracts include an indexation of prices during development and operation of the facilities, helping to reduce price risks during construction and operations and maintenance (O&M). Across Europe, industry officials have called for indexation of power contracts to mitigate volatile prices and logistics issues.
The contracts in Ireland also include compensation against grid constraints and curtailments that can impact wind revenues. Ireland's power demand is lower than other large European nations and curtailment of excess renewable energy during low demand periods will continue to be an issue until energy storage is deployed widely and more export lines are installed.
The curtailment clauses "take away a lot of the risk and uncertainty that we would have faced if we had to estimate the loss from curtailment in our financial models,” said Donal O’Sullivan, Head of Development at Statkraft Ireland.
Ireland will need to build out its offshore wind supply chain to reduce delivery risks. The power contracts do not contain domestic content bonuses but the government plans to publish a national industrial strategy for offshore wind in the first quarter of next year and developers expect incentives then.
The government wants the first arrays to start construction in 2026 and operations in 2027, but developers face a number of challenges in supply chain, planning approval and grid infrastructure.
"We believe it is possible we could see some of these projects operational by 2028/2029 if they are not unduly delayed," Wind Energy Ireland said in a statement.
Ireland aims to install 37 GW of offshore wind by 2050 and the government will auction a further 900 MW of capacity on the south coast in Q2 2024, followed by 2 GW of floating wind projects that could provide power for green hydrogen production.
Forecast power demand in Ireland
(Click image to enlarge)
Source: EirGrid, October 2022
The prices in Ireland's first offshore wind auction are much higher than the last auction in the UK in July 2022, but global costs have risen significantly since then and developers in the UK benefit from a mature network of supply chain and port infrastructure. Another key difference is that UK contracts are for 15 years compared with 20 years in Ireland.
The first projects in Ireland will rely on imported components, exposing them to global markets at a time of high demand in Europe and the United States. In April, European leaders pledged to quadruple offshore wind capacity in northern sea areas to 120 GW by 2030.
Projects in Ireland will face a “huge constraint from a supply chain perspective," said Ryanne Burges, Director for Offshore and Ireland at EDF Renewables.
"They are coming pretty much at the back end of the mid-2020s, some of the busiest years for the industry,” Burges told Reuters Events.
Port investment is also required, since only the Port of Belfast in Northern Ireland has the necessary attributes to support the industry. Initially, developers may need to use foreign ports, which increases costs.
Developers also need to secure planning approval from under-resourced planning authorities, industry sources said.
Ireland's planning authority An Bord Pleanala is short-staffed and has never dealt with large-scale offshore wind projects, sources note. The government plans to create a new Maritime Area Regulatory Authority (MARA) in July that will work alongside the planning authority to develop spatial planning policy and legislation.
Developers will first need to obtain a Maritime Area Consent (MAC) from MARA and once they obtain that permit they will be able to file a planning application with An Board Pleanala.
“It’s quite a long process. In the best case, I’d say it will be 2028 when these projects go online,” O’Sullivan said.
The winning developers will be responsible for building the offshore grid infrastructure for their projects and will be reimbursed by the grid operator EirGrid.
This should help developers manage grid connection timelines, but onshore grids must be upgraded and this will require the approval of new lines.
“The big challenge is to effectively upgrade transmission infrastructure in Dublin, which is 40 to 50 years old,” said EirGrid Chief Infrastructure Officer, Michael Mahon.
Regional power demand has boomed after Google, Amazon, Microsoft, and Facebook built data centres in the area. Data centres and other high energy users are forecast to account for 28% of total energy demand in Ireland by 2031, up from 17% in 2022, while electrification of transport will put further pressure on the grid.
Long-term, Ireland wants to export power and plans to build a 700 MW line with France by 2026 to supplement an existing 500 MW HVCD with the UK.
Ireland will need more transmission lines to export significant amounts of electricity and could contribute to a larger offshore wind grid planned by EU members.
“The export opportunity is very real and I think it is very important that the government is sending those signals now to attract investment and build a domestic supply chain," said Professor Andrew Keane, Director of the UCD Energy Institute at University College Dublin.
Reporting by Eduardo Garcia
Editing by Robin Sayles