On Christmas Eve, the Government published the terms and conditions of their latest renewable scheme.

The long-awaited Small-Scale Renewable Electricity Support Scheme (SRESS) will open for applications on 27 January and is set to pave the way for export-focused, small-scale commercial and community wind and solar projects above 50kW and up to 6MW.

This scheme is highly relevant to farmers, as it is designed to facilitate the development of small-scale wind turbines, solar farms and rooftop solar systems as a farm diversification option.

Once accepted into the scheme, farmers will receive a State-backed payment for the electricity they produce and export to the grid for 15 years.

However, many have been left disappointed by the tariff rates, as they are too low to make many commercial renewable projects stack up. This article runs through the details.

Structure

SRESS will offer a more straightforward route to market for small-scale wind and solar projects that are not necessarily suited to or eligible for existing renewable schemes.

The scheme is open to three main groups: SMEs, community groups and farmers.

Farmers are treated on the same basis as SMEs. To meet the EU definition of an SME, the enterprise or farmer must have fewer than 250 employees and an annual turnover less than or equal to €50 million or a balance sheet total less than or equal to €43 million.

The scheme is structured as a two-way Feed-in Premium (FiP) tariff. When electricity prices are low, projects will receive a premium on the market revenues paid by a supplier for their renewable electricity.

The tariff is described as “two-way” because, when the market price of electricity falls below the tariff, the difference is paid to the supplier from the PSO Levy.

However, when the market price of electricity exceeds the tariff, the supplier is required to pay the difference into the PSO Levy.

Tariff rates

The SRESS tariffs will provide support to small-scale renewable electricity projects through a guaranteed tariff.

Applicants to the scheme will receive a letter of offer entitling the electricity supplier who enters into a Power Purchase Agreement (PPA) with the successful applicant to receive SRESS support through the Public Service Obligation.

There are two categories of payments. SMEs and farmers receive a lower tariff rate, while renewable community groups (REC) receive a higher one, as shown in Table 1.

The Government states that a higher tariff rate is provided for RECs due to the additional barriers they face when establishing projects, such as planning, grid connection and financing, when compared to farmers and SMEs.

The size of the project also dictates the rates. Smaller solar projects from 50kW to 1MW receive the highest tariff. The tariff rate decreases for solar projects between 1MW and 6MW. Wind tariff rates remain the same regardless of size.

Rooftop solar PV is eligible under the scheme, but solar PV systems funded through TAMS are excluded.

To qualify, a project must be classified as a “New Project,” meeting several key criteria: it must use new electricity-generating equipment that has not been previously utilised at the site, require a minimum investment of €300 per kW of capacity after receiving the Letter of Offer, and, if the site has been used for renewable energy before, the new project must produce at least 50% more energy annually than the previous system.

The scheme will run until 2030, but once the target capacity is met for each category, the application window will close. Tariff rates will be reviewed in three years.

Despite originally being designed as a technology-neutral scheme, it has been limited to wind and solar PV installations. As the scheme progresses, the Government states that the possibility of expanding the range of tariffs to include other technologies may be considered.

All SRESS 1 projects must establish a Community Benefit Fund to the value of €0.002/kWh for 15 years, and wind turbines built within 1km of a house must pay that house €1,000 per year.

Example

Perhaps the best way to explain how challenging these tariff rates are is to run through a high-level example of a typical 250 kWh farm-scale wind turbine.

While 250 kWh turbines are not overly common in new installations anymore they are commonly found around Northern Ireland. Assuming a grid connection is secured, along with planning, this project could cost anywhere from €600,000 to €1 million.

Using assumptions from the UK AHDB for this example, let’s assume the cost of a fully installed and commissioned project is €800,000.

Assuming a 35% capacity factor, a 250 kWh wind turbine could generate approximately 766,500 kWh per year, taking into account the various caveats regarding site generation potential and suitability. This would result in an annual income of €61,320 with a basic payback period of 13 years.

However, once the cost of finance is factored in, that payback period is pushed out to over 18 years, which simply isn’t viable.

Comment

This scheme has been in development for a long time, and it is encouraging to finally see it launched. It incorporates many of the right elements, such as long-term pricing and clear categorisation.

However, while some developers and even advanced community groups will likely be able to make this work, the tarrif rates fall signifcantly short for farmers.

The Government compares farmers to SMEs with a turnover of less than €50 million and 250 employees, implying easier access to funding and resources. In reality, no farmer will come close to this.

Ironically, those farmers most actively seeking to diversify and create new income streams are probably those least likely to access the required funding and resources.

Rates

The tariff rates are too low to support the development of commercial, investable farm projects. Some speculate that the scheme is designed to fail, especially given that the tariff rate for wind turbines (€0.08c/kWh) is lower than the rate from the last RESS auction (€0.09c/kWh) for large-scale commercial developers.

It’s also only about one-fifth of the payment that farmers in Northern Ireland receive for the same wind turbines. Something just doesn’t add up.

A specific category for farmers is now essential, with tariffs higher than SMEs and community projects.

It is astonishing that this scheme was allowed to proceed without such a category, particularly given the immense pressure on farmers to significantly adapt their business models due to impending climate targets.

Eamon Ryan.

Minister for the Environment, Climate and Communications, Eamon Ryan, stated that this scheme would allow farmers to maximise their participation in the energy transition.

His department has suggested that farmers now have the option to lease land to developers or to develop projects of their own.

With this scheme, the letter certainly isn’t true.