Offshore Wind in Ireland: The State of Play
With abundant maritime resources and high wind speeds, Ireland is uniquely positioned to revolutionise its energy sector through offshore wind. As well as having sufficient resources to address its own energy needs, Ireland has such a surplus of offshore wind resources that it could generate substantial revenues by exporting surplus electricity via interconnectors to other countries. Additionally, Ireland could potentially export green hydrogen through a repurposed gas pipeline or dedicated hydrogen pipeline.
In recent years, Ireland has scaled up its offshore wind ambition with the aim of installing 5GW of offshore wind by 2030, 20GW by 2040 and up to 37GW by 2050. Policy and legislative changes have been put in place to realise these targets. These changes include: a streamlined consenting process through the Maritime Area Planning Act 2021, a new maritime regulatory body to oversee the consenting process, and a new route-to-market mechanism in the form of the Offshore Renewable Electricity Support Scheme ("ORESS") offering long-term price certainty for developers, which is crucial for securing financing. These changes have helped to build momentum in the sector and provide confidence to developers, investors and lenders.
Ireland's port infrastructure requires significant investment to develop a commercial offshore wind industry. Specialist port infrastructure is needed to support the construction, operation and maintenance of offshore wind farms and Belfast Harbour is currently the only port on the island of Ireland with this type of infrastructure. While the Pork of Cork secured a €99m financing deal last year to fund the development of offshore renewable energy facilities, further investment in other Irish ports and the timely build of this critical infrastructure will be an important factor in realising Ireland's offshore wind ambitions.
Challenges in the Global Offshore Wind Sector
The global offshore wind industry has faced challenges in recent years in the form of rising costs and higher interest rates, which have placed intense economic pressure on developers. As mentioned, BP, Shell and Equinor have all recently retreated from offshore wind development, citing development costs and inflation as key reasons. Additionally, Vattenfall decided in July 2023 to suspend work on its 1.4GW Norfolk Boreas project in the UK after a 40% rise in the costs of the project.
Rising costs and interest rates have also affected the attractiveness of offshore wind auctions for developers. For example, the aforementioned failure of Denmark's latest offshore wind auction in December 2024 to attract any bidders, with the auction design being widely criticised. Key issues for developers with the Danish auction included the absence of a Contract for Difference (CfD) mechanism to provide price certainty, the use of uncapped negative pricing mechanisms, and requiring developers to bear the cost of grid connections. Similarly, the UK held an offshore wind auction in 2023 that failed to attract any bids due to a price cap, which developers argued was set too low to make projects financially feasible.
These cases illustrate the importance of balancing developer incentives with electricity consumer affordability when it comes to auction design.
Headwinds for Ireland? Assessing Economic Pressures and the ORESS Auction
In the current environment, offshore wind developers in the Irish market will be looking even more closely at how pricing and cost increases are treated in the ORESS. It was notable how, at a recent offshore wind roundtable event hosted by Addleshaw Goddard in Dublin, industry leaders in Ireland signalled concern about price fluctuation and its impact on the sector.
In 2023, the first ORESS auction ("ORESS 1") secured a weighted average strike price of €86.05 MW/h, one of the lowest prices paid by an emerging offshore wind market in the world. This was positive news for the Irish electricity consumer, who funds the ORESS through an electricity levy. It also means that successful developers should be able to progress their projects with long term price certainty. However, a key concern for these developers awarded State-backed contracts is if their strike price can withstand further cost increases between now and when they achieve commercial operation.
The terms and conditions for the second ORESS auction, set to take place in Q2 2025 for the Tonn Nua site off Co. Waterford ("ORESS Tonn Nua" – also known as ORESS 2.1), recently received Government approval. While it is challenging for Irish policy makers to structure the ORESS to fully insulate offshore projects against fluctuating costs impacting the global wind sector, cost protection mechanisms have been factored into the scheme. ORESS 1 and ORESS Tonn Nua terms and conditions allow for strike price indexation, compensation for curtailment and oversupply, and (in the case of ORESS Tonn Nua) compensation for delays in EirGrid's development of the offshore grid, although further information on the level of compensation is awaited.
ORESS developers are, however, still exposed to some price fluctuation risk. They are required to obtain certain consents (development consent, planning permission and grid connection) after auction award that will likely take a number of years to obtain. It means developers need to submit competitive bids with the aim that the bids will retain economic viability through the post auction consenting process to the operational stage. This is a key risk that ORESS developers have to manage. The time delay between the auction bid and the operational stage can also impact on a developer's ability to "lock down" prices with its supply chain, who are generally reluctant to make commitments too far in advance.
By awarding development rights to the lowest bidder, ORESS Tonn Nua encourages a competitive bidding process. It remains to be seen when ORESS Tonn Nua goes to auction this year whether its cost protection mechanisms are sufficient for developers to submit competitive bids despite increased economic pressures on developers and the fluctuation risk that goes with the post-auction consenting process.
An alternative path for ORESS developers particularly concerned with price fluctuation risk could be in the form of corporate power purchase agreements ("CPPA"), which would allow developers to set prices directly with a corporate. Two projects that were unsuccessful in ORESS 1 (Arklow Bank Wind Park II and Oriel Wind Park) remain committed to delivering their projects on a merchant basis through CPPAs. With negotiations likely ongoing, the developers of these projects have the advantage of factoring in recent cost increases into their CPPA prices. With a prominent data centre industry in Ireland and more data centres becoming operational, there may be a growing corporate-side demand for offshore CPPAs in the years ahead. Strong demand also gives developers leverage to negotiate more favourable terms than the ORESS terms and conditions. That said, Ireland's plan-led strategy — where designated maritime sites selected by the State will be auctioned exclusively through ORESS, with no option for successful projects to opt out in ORESS Tonn Nua (which may be replicated in future ORESS auctions), may limit the prominence of CPPAs in the future of the Irish offshore wind sector.
Striking the Right Balance
In the current economic climate, Irish policymakers face an increasingly delicate task of designing auctions that achieve the desired outcome, in terms of participation, competitiveness and cost. Striking the right balance between the interests of developers and consumers is essential. Ireland can take advantage of lessons learned from other jurisdictions such as the UK and Denmark in this respect.
If the design of the ORESS auction can achieve an outcome of participation, competitiveness and cost effectiveness, Ireland will have a great opportunity to realise the enormous potential of its offshore wind resources, both from an economic and decarbonisation perspective.
For developers seeking a competitive edge in the auction process, partnering with advisors who have deep experience in advising in this space will have an advantage. Addleshaw Goddard brings strong experience in advising clients on both international and domestic auction processes.
