Energy Sector Update In Brief Q1 2024
Energy Sector Update - In Brief
Key Trends in Ireland’s Energy Sector in 2024
Energy Sector lead partner, Eoin Cassidy identifies the key issues likely to impact industry stakeholders and policy makers in 2024. In this edition of ‘Energy Sector Update - In Brief’, we feature the insights from the past month which were most read by our clients and contacts. We hope you find it informative. For more information and expert advice on issues impacting your business in 2024, please contact Eoin or another member of our Energy Sector team. Eoin Cassidy Partner, Energy Sector Lead ecassidy@mhc.ie
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Energy Sector Update - In Brief
Corporate Governance Considerations for JV Companies in the Energy Sector Nicholas Metcalfe Partner, Corporate Governance nmetcalfe@mhc.ie
The scale of energy projects mean that they are often collaborative in nature and operated through joint ventures structured through special purpose vehicle companies (JV Companies). JV Companies frequently have particular governance arrangements which can give rise to certain challenges. In this article, we explore some features commonly present in the governing documents of JV Companies and offer guidance on how to avoid any associated pitfalls.
Governing documents JV Companies are typically governed by a bespoke constitution varying certain elements of the Companies Act 2014. In addition, many JV Companies will have a shareholders’ or joint venture agreement in place to regulate the ongoing relationship of the joint venturers and to supplement the constitution. It is essential that the constitution and the shareholders’ agreement, if any, are each carefully considered before any directors’ or members’ meetings are arranged or other governance decisions are made by the JV Company.
Composition of the board of directors The Act requires a private company limited by shares to have at least one director and at least two directors, in the case of a designated activity company. The constitution and/or shareholders’ agreement
of a JV Company will commonly provide for a maximum and/or minimum number of directors. Significantly, as each joint venture party will be keen to maintain oversight and, as far as they can, control of the JV Company, the governance documents often give each of the joint venturers the right to appoint a certain number of directors. In addition, a director appointed by one of the joint venture parties will generally only be capable of being removed by that party. Any decisions taken to appoint or replace directors on the board of a JV Company need to be made with awareness of such provisions as a result. It is important to note that each of the directors, regardless of which of the joint venture parties appointed them, owe their duties under the Act to the JV Company alone. While they may have regard to the interests of the member who appointed them, they must always act in good faith in what they consider to be the interests of the JV Company.
Board meetings JV Companies’ governance documents tend to include particular procedural requirements for board meetings, notably around the following areas: Frequency The governance documents of JV Companies may specify the frequency with which board meetings are to be held, for example, monthly, quarterly or biannually. 3
Energy Sector Update - In Brief
Notice It is common for JV Companies to have strict requirements regarding notice of board meetings, generally requiring either five or seven days’ (or business days’) notice. These notices may be required to specify the date, time, and place of the board meeting. This is contrary to the default position in the Companies Act that notice of board meetings need only be reasonable. The notice may also need to be accompanied by a written agenda of the matters to be discussed at the board meeting, with no business capable of being transacted at the meeting unless provided for in the agenda. Quorum JV Companies will generally have specific requirements regarding the quorum for board meetings. This will usually involve at least one director appointed by each joint venturer needing to be present at each meeting for it to be quorate, at least in the first instance. Voting The constitution or shareholders’ agreement of a JV Company (or both) may provide for weighted voting rights for members of the board. This means that the directors appointed by one joint venturer may be entitled to cast the number of votes necessary to maintain the agreed control proportions. In effect, some directors present at a meeting are able to cast more than one vote each. Alternatively, a mechanism may be included to resolve any deadlock between the directors, such as providing for a casting vote for the chairperson.
Reserved matters It is customary for a shareholder’s agreement of a JV Company to contain a number of shareholder and/or board reserved matters for which the consent of either the majority of shareholders or directors is required.
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While certain matters are always reserved to shareholders under the Act, for example amending the company’s constitution or winding-up the company, these reserved matters may be more operational and dayto-day. It is vital that reserved matters are reviewed before the JV Company takes any particular action outside of day-to-day activities.
Conclusion JV Companies typically require bespoke constitutional provisions and usually shareholder’s agreements to facilitate their common purpose, maintain the relationship between the parties and successfully manage the governance of the JV Company. This is perhaps particularly true of energy sector JV Companies, as the projects they manage are regularly large in scale and often have a cross border element, and so may require tailored governance provisions to ensure their effective operation. It is therefore essential that the governing documents of the JV Company are carefully reviewed before any governance decisions are made. Particular attention should be paid to provisions relating to the composition of the board, board meetings, and reserved matters. These provisions will usually require fair representation from each of the joint venture parties and include other requirements designed to ensure the smooth governance of the JV Company. It is important that care is also taken to apply these provisions correctly as failure to do so could result in the breakdown of the relationship between the joint venture parties.
Energy Sector Update - In Brief
Update on the European Wind Power Action Plan and Wind Charter Rob McDwyer Partner, Energy rmcdwyer@mhc.ie
The European Commission published the European Wind Power Action Plan in October 2023. The European Union target of at least 42.5% renewables by 2030 will require installed wind capacity to more than double, from 204 GW in 2022 to over 500 GW in 2030. The Plan outlines a series of actions for the European Union, Member States and the industry that should be taken to achieve this objective and address current operating challenges. One such action was the signing up by Member States and industry representatives to voluntary commitments under the European Wind Charter. The Plan is divided into the following six pillars.
1. Acceleration of deployment through increased predictability and faster permitting Actions under this pillar include accelerating permitting processes through digitalisation and training, and enhancing cooperation between European Union wind energy forums. This pillar also promotes increased visibility of wind project pipelines, and the adoption of an action plan to facilitate the build-out of electricity grids.
2. Improved auction design
projects. The Commission will propose a set of auction criteria covering concepts such as cyber security, sustainability, environmental protection and ability to deliver.
3. Access to finance The Plan lays out several actions designed to facilitate access to European financing and encourage investment in the wind industry. In particular, the European Investment Bank will play a key role in providing funding, derisking tools and counter-guarantees.
4. Creating a fair and competitive international environment Actions under this pillar include the facilitation of access by European companies to foreign markets, increased protection of the internal market against trade distortions, and enhancement of standardisation in the wind energy sector.
5. Skills Under this pillar, the Commission will support large-scale skills partnerships that enhance skills development for the wind sector. It will also facilitate the launch of European net-zero industry skills academies as part of Member State reskilling and upskilling initiatives.
This pillar promotes the use of well-designed, objective, transparent, non-discriminatory pre-qualification and non-price award criteria in the auctions for the support of wind energy 5
Energy Sector Update - In Brief
6. Industry engagement and Member State commitments The final pillar calls on the industry and Member States to take a more active role in matters such as hedging against inflation and price volatility of main manufacturing inputs, such as raw materials, and developing further long-term partnerships between wind manufacturers and operators.
The European Wind Charter The European Wind Charter was published in December 2023. It builds on the Plan and its policies, and aims to facilitate the rapid implementation of the stated action points. Ireland signed up to the Charter on 19 December 2023. Most EU Member States have already signed up, and more than 300 companies from the wind sector – including wind turbine manufacturers, wind farm developers, owners and operators – have expressed their support. The Charter, which considers both onshore and offshore wind, focuses on a range of areas, including National Energy and Climate Plans, wind auctions, governance, regulation, and equipment manufacturing. It includes commitments from the Member States who have signed up to the Charter to:
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Strengthen their collaboration on identifying barriers in permitting procedures, and to work together and with the European Commission in identifying potential new ways to accelerate permitting further
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Improve, simplify and provide consistency in the design of auctions for wind energy
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Remove the remaining barriers to the conclusion of Power Purchase Agreements in line with legal requirements under EU law
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Take appropriate measures to maximise the execution rate of wind projects through appropriate incentives, including penalty clauses for non-execution of projects, and
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Scale up wind equipment manufacturing capacity in the EU to meet the expected increased demand for wind projects
As part of the Charter, Ireland also signed a voluntary ‘wind pledge’ committing to the delivery of onshore wind energy targets for the period 2024-2026. Under this pledge, Ireland has anticipated that its installed onshore wind capacity will grow by 150 MW in 2024, by 500 MW in 2025 and by 250 MW in 2026, by which time the total expected installed onshore wind capacity in Ireland will be 6,050 MW. Ireland also pledged indicative targets for 2030 of 9 GW of onshore wind generation and 5 GW of offshore wind generation. These targets are consistent with Ireland’s Climate Action Plan 2024, which was approved by the Government on 20 December 2023. Realising Europe’s decarbonisation goals will require a significant increase in installed wind generation capacity. The Plan and Charter together signal that participants in the Irish renewable electricity sector should continue to expect a programme of changes – hopefully positive – in the related regulatory processes.
Energy Sector Update - In Brief
Review of Climate Action Plan 2024 Jay Sattin Partner, Planning & Environment jsattin@mhc.ie
The Climate Action Plan (CAP) is the Irish Government’s roadmap to delivering on its climate targets. It was first published in 2019 and was later updated in 2021 and 2023. Under the Paris Agreement and the European Green Deal, Ireland is committed to reducing greenhouse gas emissions (GHG) by 51% against 2018 levels by 2030 and to becoming carbon neutral by 2050. The aim of these commitments is to try collectively with other nations to limit global warming to 1.5°C. While CAP 2024 is yet to undergo environmental assessment and public consultation, we review its targets and policies for renewable energy.
Where we are now The Environmental Protection Agency (EPA) of Ireland has reported that electricity generation accounted for 14.4% of Ireland’s total GHG emissions in 2022. During the whole of 2022, GHG emissions from electricity generation fell by 1.9% due to an increase in renewable electricity generation coupled with a reduction in the use of fossil fuels. However, to stay within the first carbon budget of 40 MtCO2eq assigned to the electricity sector for the period 20212025, the electricity sector requires a decarbonisation rate of 17.3% per annum in the period 2023-2025. For context, the average decarbonisation rate between 2018 and 2022 was 1.4% per annum. The EPA’s projections indicate that if all the measures in CAP 2023 and the ‘yet unallocated emissions savings’ (savings
Deirdre Nagle Partner, Head of Planning & Environment dnagle@mhc.ie
that are expected to be achieved through future advancements in technology and other areas) are accounted for, the projected total emissions reduction for all sectors by 2030 will be 42%. This represents a 9 percentage point shortfall of the EU’s 2030 reduction target of 51% against 2018 levels. This is a significant residual gap that CAP 2024 aims to close by setting out further policies, measures, and actions in addition to those set out in earlier editions of the CAP. These additional measures are outlined below. A radical reduction of emissions in the electricity sector, through the adoption of a renewables-led system, remains at the core of CAP 2024.
Where we are going The key targets from CAP 2023 with regard to renewable energy are retained in CAP 2024. They are: National Target
2025
2030
Renewable Energy Sector Share
50%
80%
Onshore Wind 6GW
9GW
Solar
Up to 5GW
8GW
Offshore Wind
-
At least 5GW
Flexible Gas Plant
-
At least 2GW
Demand Side Flexibility
15-20%
20-30%
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Energy Sector Update - In Brief
New policies, measures and actions Some of the new policies, measures and actions included in CAP 2024 to achieve these targets include: Accelerate renewable energy generation To reach 80% of electricity demand from renewable sources by 2030, the Government is aiming to accelerate the delivery of utilityscale onshore wind, offshore wind, and solar projects through a competitive framework. This will involve updating existing policies and guidelines to streamline the consenting process. It is intended that the following documents which were intended to be published under CAP 2023 save for the newly proposed Solar Energy Development Guidelines will be revised, updated, and published during the lifetime of CAP 2024: • Update the revision of the National Planning Framework • Publish a new Electricity Generation Grid Connection Policy • Publish the Draft Renewable Electricity Spatial Policy Framework White Paper • Publish the revised methodology for Local Authorities Renewable Energy Strategies • Publish the Draft Revised Wind Energy Development Guidelines • Commence drafting Solar Energy Development Guidelines • Adopt the Electricity Storage Policy Framework
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• Following finalisation of a Regional Roadmap, regional assemblies will publish and implement Regional Renewable Electricity Strategies (RRES). This will enable a unified methodology for national and regional spatial and capacity targets, and identify areas suitable for renewable electricity deployment at regional and county levels that can inform the statutory planning process, and • Following adoption of the RRES, local authorities will include a statement within their next Local Authority Climate Action Plans which identifies the methods or processes that will be used to implement the required policy supports to achieve renewable electricity targets. 2030+ Offshore Renewable Energy Roadmap The publication of a ‘2030+ Offshore Renewable Energy Roadmap’ is planned for Q2 2024. The purpose of the roadmap will be to determine pathways to deploy offshore/ocean technology. This will involve producing technology scenarios, conducting stakeholder consultation, and identifying enabling policies and the appropriate regulatory framework. Offshore Renewable Energy Innovation Park By Q4 2024, the Government aims to finalise and publish a ‘Designated Maritime Area Plan’ for the development of an offshore renewable energy innovation park. This will involve exploring options for grid connection, options for routes to access and operating model, and publishing a report on the critical path deliverables achieved to facilitate the ‘Routes to Access Phase’ of the proposed innovation park.
EnergySector Sector Update In Brief Energy Update - In -Brief
Hydrogen ambition The Government intends to address unallocated GHG emissions savings by increasing hydrogen ambition to achieve hydrogen uptake in line with the ambition outlined in the National Hydrogen Strategy. This will be primarily through scaling electrolyser capacity. The Government is also aiming to support green hydrogen production through surplus generation from 2GW of offshore wind energy. This is to provide greater certainty for investors and to create the production scales needed to enable greater infrastructure deployment. Low carbon flexibility opportunities To further address unallocated GHG emissions savings, the Government intends to build out low carbon flexibility opportunities such as long duration energy storage. The deployment of carbon capture, utilisation, and storage (CCUS) technology was not integrated in previous editions of the CAP. By incorporating CCUS into CAP 2024, it is hoped to address a portion of unallocated savings in Ireland between 2026-2030 with regard to electricity generation. It is expected that this technology will play a significant role in future decarbonisation of the energy sector. To achieve this, the Government intends to incentivise and enable large energy users to participate in flexible demand initiatives. This approach is designed to enable low / zero carbon demand growth, and to create a route to market for medium and long duration storage facilities which can provide flexible demand.
This is fundamental to increasing the level of consents being granted for renewable energy projects.
Comment Delivery and integration of onshore and offshore wind and solar PV continues to be recognised in the CAP as the bestperforming mitigation measure to deliver the required emissions abatement at scale and at speed to achieve Ireland’s GHG emission reduction targets. This is because no other supply-side measure comes close to the emissions abatement achieved by the early and rapid deployment of wind and solar capacity. It is estimated that an eight-times increase of renewable energy deployment to 2.3GW annually is needed between 2024 and 2030, together with the delivery of at least 2GW of new flexible gas-fired generation. CAP 2024 seeks to achieve these targets by trying to build on measures in earlier editions of the CAP, such as the expected enactment of the Planning and Development Bill 2023, aimed at streamlining the consenting process. CAP 2024 will be subject to public consultation and environmental assessment. It is possible therefore that there will be further changes to the plan.
Community Benefit Fund All new or repowered renewable electricity generation projects will be required to implement a Community Benefit Fund equivalent to the RESS requirements of €2/MWh. The establishment of community benefit funds for renewable energy projects is considered to improve public acceptance of projects at a local level.
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Energy Sector Update - In Brief
RESS 2 Deadlines Extended Peter McLay Partner, Energy pmclay@mhc.ie
Certain milestones must be achieved by RESS 2 projects under the Terms and Conditions (RESS 2 Ts&Cs). Failure to meet these milestones could result in a project’s RESS 2 Letter of Offer being revoked and draws made against its performance security.
Deadlines extended The Minister has extended the deadlines for the remaining milestones on foot of “exceptional circumstances” facing RESS 2 projects. These issues include grid reinforcement delays by EirGrid and ESB Networks, difficulty in procuring critical materials to develop grid connections for renewable energy projects and grid outage availability. The Minister’s use of his powers to amend the deadlines on an industry-wide basis is particularly significant as this is the first time this power has been used under a RESS scheme. The Minister has chosen to make the amendments under his powers under Section 1.11 of the RESS 2 Ts&Cs. No.
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Milestone
This amendment provides that subject to Article 6 of the Renewable Energy Directive, the Minister reserves the right to alter or amend any provision, Section or part of the RESS 2 Ts&Cs. This includes instances arising as a consequence of any directions, conditions or requirements of any consents, clearances or licenses. It is interesting that the Minister has made these changes using his general power under Section 1.11, rather than the more specific deadline extension mechanism under Section 11.9. The extended deadlines will apply to each RESS 2 project to the extent it has not already achieved the relevant milestone. Any force majeure extension may be for a maximum period of one year to 31 December 2041. The force majeure provisions are otherwise unchanged. The amended milestones are as follows:
Interim Milestone Date and
Final Milestone Date and
consequences for failure to
consequences for failure to meet
meet Interim Milestone Date
Final Milestone Date
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The Generator to submit a declaration to the Minister confirming that funding to construct the RESS 2 Project and achieve Commercial Operation is in place in respect of the RESS 2 Project.
If not complete by 31 December 2023, the Minister will be entitled to drawdown up to a maximum of 25% of the Performance Security (4% per month). This date has now been extended to 31 March 2024.
If not complete by 30 June 2024, the Letter of Offer will be revoked and remaining portion of the Performance Security will be drawn down. This date has now been extended to 30 September 2024.
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The Generator shall provide a letter to the Minister confirming receipt from the TSO/DSO of the ‘Second Stage Payment’ under the Grid Connection Agreement.
If not complete by 30 June 2024, drawdown on Performance Security up to a maximum of 25% (4% per month). This date has now been extended to 30 September 2024.
If not complete by 31 December 2024, Letter of Offer will be revoked and remaining portion of the Performance Security will be drawn down. This date has now been extended to 31 March 2025.
Energy Sector Update - In Brief No.
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Milestone
The Generator shall achieve Commercial Operation.
Interim Milestone Date and
Final Milestone Date and
consequences for failure to
consequences for failure to meet
meet Interim Milestone Date
Final Milestone Date
If not complete by 31 December 2024, erosion of the contract term equivalent to the period of time between 31 December 2024 and Commercial Operation Date.
If not complete by 31 December 2025, Letter of Offer will be revoked and remaining portion of the Performance Security will be drawn down.
This date has now been extended to 31 This date has now been extended December 2026. to 31 December 2025.
Replacement performance security If a RESS 2 project does not achieve commercial operation before 31 December 2025, the developer must replace the existing performance security with a new performance security instrument. The Minister will return the previously held performance security, provided the replacement performance security meets the requirements. Any such replacement performance security must: 1. Have an Expiry Date of 31 July 2027 - the required Expiry Date under the RESS 2 Ts&CS prior to this amendment was “the earlier of the date falling seven months after the Commercial Operation Date or 31 July 2026”. If a RESS 2 project achieves commercial operation earlier than the extended Longstop Date, the replacement performance security will be returned to the issuer prior to this expiry date 2. Be for an amount calculated in accordance with Section 8.3 of the RESS 2 Ts&Cs. Where one or more demands were made under the previous performance security, the replacement performance security is required to be equal to the balance of the uncalled security 3. Be issued by a financial company with an approved credit rating 4. Subject to (1) and (2) above, be in the form set out in the RESS 2 Implementation Agreement, and
Failure to provide the replacement performance security to the Minister before 31 December 2025 will be a breach of the Implementation Agreement and the RESS 2 Ts&Cs and will be treated by the Minister as an event of default.
Duration of support Under the amended RESS 2 Ts&Cs, where a project has achieved each milestone by the relevant Final Milestone Date and is otherwise entitled under the RESS 2 Ts&Cs to receive RESS 2 Support, it is obliged to do so: • No earlier than 1 July 2023, and • No later than 31 December 2026. The end date for RESS 2 support is also updated from 31 December 2039 to 31 December 2040, subject to any extension due to a successful claim of force majeure. These milestone extensions have preserved the position that the period of RESS 2 Support is subject to a maximum duration of 16.5 years and a minimum duration of 14 years.
Comment The extensions to the deadlines under the RESS 2 Ts&Cs will come as welcome news for affected RESS 2 projects. It will be interesting to see whether this relief results in a lower attrition rate for the RESS 2 fleet, and whether similar amendments are made to the RESS 3 deadlines.
5. Be effective so there is no gap in security cover. 11
Energy Sector Update - In Brief
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