Riding the New Wave: The Terms and Conditions of the ORESS Tonn Nua Auction

On 30 October 2024, the Department of the Environment, Climate and Communications released the final terms and conditions for the upcoming ORESS 2.1 auction (to be known as the ORESS Tonn Nua Auction) – available here. The ORESS Tonn Nua Auction will be the first auction under the plan-led system for offshore wind. The auction seeks to procure a developer to develop a single fixed bottom offshore wind project in the maritime area designated in the recently approved South Coast Designated Maritime Area Plan.

Whilst the Terms and Conditions of ORESS Tonn Nua mirror in many respects features of the Terms and Conditions for ORESS 1, there are certain differences owing, in part, to the move to a plan-led system. In this briefing, we look at some of the key aspects of the Terms and Conditions of ORESS Tonn Nua.

What is the project?

Eligible developers will compete in the ORESS Tonna Nua Auction to be awarded the rights to develop a 900 MW fixed bottom offshore project.

What support is on offer?

Similar to the structure of ORESS 1, ORESS Tonn Nua support, other than the unrealised available energy compensation and grid delay compensation, is structured as a two-way floating feed in premium. Generally, a licenced electricity supplier who enters into a power purchase agreement with the successful bidder will be entitled to receive ORESS Tonn Nua support (in the form of support payments and be required to pay difference payments). The support period can last for a period of up to 20 years.

How will bidders compete in the ORESS Tonn Nua Auction?

EirGrid will administer the auction on behalf of the Minister for the Environment, Climate and Communications. Comparable to ORESS 1, EirGrid will publish an auction timetable which will include the opening and closing dates for receipt of applications for qualification, the bid bond posting date, the submission deadline date and the final auction results date. The qualification phase of the Tonn Nua Auction is anticipated to open in Q1 2025, with the bidding phase in Q2 2025. Bidders will be required to lodge a bid bond of €20,000,000.

Qualified bidders will be invited to submit an offer price (denominated in €/MWh) for the proposed project. The Minister will determine the winner of the ORESS Tonn Nua Auction by selecting the qualified bidder with the lowest offer price.

The following are some of the new features of the ORESS Tonn Nua application process:

Each bidder must include with its bid an application for a Maritime Area Consent (“MAC”) for the proposed project. The application must be held ready for submission to the Maritime Area Regulatory Authority (“MARA”) if the bidder is successful in the auction. Following the final auction results, the successful bidder is required to submit the application to MARA within 5 working days. If the successful bidder is unable to secure an appropriate Maritime Area Consent, then the Minister is entitled to ask EirGrid to re-run the ORESS Tonn Nua action.
Each bidder must provide a director declaration confirming that the bidder satisfies certain experience requirements for developing offshore wind projects.
Each bidder must also complete a Project Information Document for the proposed project that details the key characteristics of the proposed project, including technical and spatial characteristics, the proposed final installed capacity and the anticipated output of the project. It must also include a detailed Gantt chart illustrating how the proposed project will be delivered.

Next steps for the successful bidder and Performance Security

The successful bidder in the ORESS Tonn Nua Action will be required to enter into a Project Delivery Agreement (effectively the new name of the Implementation Agreement under ORESS 1) and provide Performance Security in the amount of €80,000,000.

There are three phases for the provision of the Performance Security. After the expiry of the withdrawal period for unsuitable site conditions (which is the earlier of 3 years after the signing of the Project Delivery Agreement and the date of submission of the planning consent application), the Performance Security is increased to €100,000,000. The Performance Security is then increased to €120,000,000 after the planning consent date (or successful outcome of a judicial review of the planning consent) and remains in place until 7 months after the commercial operation date, or the longstop date, whichever occurs first.

The Minister may call on the Performance Security for various defaults, including failure to achieve commercial operation by the longstop date, abandonment of the project, insolvency and material breach of the Project Delivery Agreement or the Terms and Conditions.

Some of the other key next steps for the successful bidder include the obligation to apply for a full connection offer and submit a planning consent application without undue delay.

Target and longstop dates for Commercial Operation

The successful bidder is required to achieve commercial operation of the project by a longstop date (which is 1 January 2037, subject to any extensions granted under the Project Delivery Agreement). If commercial operation is not achieved by the target commercial operation date (which is the later of 31 December 2032 and the date which is 60 months after the planning consent date) this will lead to the erosion of the ORESS Tonn Nua support period.

Withdrawal from ORESS Tonn Nua post successful bid stage

The project must at all times remain in ORESS Tonn Nua, such that it can at all times make or receive ORESS Tonn Nua payments until the end of the support period. However, the successful bidder may be entitled to withdraw the project from ORESS Tonn Nua in the following circumstances:

A “Planning Consent Failure Withdrawal”, which may occur if the project fails to obtain planning permission and the Minister accepts a withdrawal request in these circumstances;
An “Unsuitable Site Conditions Withdrawal”, which may occur if the conditions of the offshore site would prevent the project from achieving commercial operation by the longstop date or being developed, constructed and/or operated at the site and which are demonstrably and materially different and detrimental to those conditions which would be consistent with standard industry practice for proceeding with the development, construction and/or operation of the project; or
An “Onerous Planning Condition Event Withdrawal”, which may occur if any of the following conditions are contained in the planning consent for the project and the Minister accepts the withdrawal request:

A condition that will require the project to cease operations before the date falling 30 years from the longstop date;
A condition that will directly prevent the project from achieving its minimum installed capacity; or
A condition that will directly prevent the project from achieving an annual output that is at least 85% of the target annual energy quantity (which is 3,547.8 GWh).

New Waves, New Connections

A key feature and risk associated with ORESS Tonn Nua is the timely delivery of the grid connection of the project by EirGrid. EirGrid aims to deliver the grid connection (including the issuance of an interim operational notification) by 30 June 2032. EirGrid may update this target date from time to time.

If the target date for grid delivery is updated or the grid is not or will not be delivered by the target date, and the successful bidder can demonstrate that such circumstances would prevent the project from achieving commercial operation by the target commercial operation date or the longstop date (depending on the occurrence of the grid delay event) then these dates will be extended (as applicable) on a day-for-day basis.

The successful bidder will be entitled to receive compensation because of a delay in delivering the grid connection of the project. Compensation is conditional upon the grid connection not being delivered by a certain date and the project achieving an installed capacity equal to or greater than the minimum installed capacity (which is 90% of the target capacity of 900 MW).

Grid delay compensation will be calculated by the successful bidder on a monthly basis using a methodology determined by the CRU. It will be paid monthly and will compensate the successful bidder by reference to the capacity of the project installed for the relevant day, multiplied by an appropriate capacity factor (based on P50) and multiplied by 100% of the auction strike price (adjusted for transmission and distribution losses and subtracting any revenues in respect of the capacity of the project installed).

Strong tailwinds or oncoming headwinds?

The publication of the Terms and Conditions for ORESS Tonn Nua (following the recent approval by the Oireachtas of the SC DMAP) represents another significant milestone in the development of the Irish offshore wind industry. These Terms and Conditions build upon the strong foundation established by ORESS 1 and represents another positive signal from Government that Ireland wishes to attract major investment in the bourgeoning offshore sector.

Nevertheless, the practical realities of successfully delivering the ORESS Tonn Nua project post any award of support under ORESS Tonn Nua cannot be understated. A successful applicant’s to-do list includes successfully navigating the planning system, obtaining a Maritime Area Consent and fully assessing the site conditions. In parallel, the successful applicant will be closely monitoring the timely development of the grid connection by EirGrid.

Tonn Nua is an important opportunity to advance offshore wind in Ireland. The success of the project could create a new wave for offshore projects in Ireland.

If you require any further information on offshore wind in Ireland, please contact a member of our Energy Team.