Monday 22 July 2019

Richard Curran: 'Offshore wind investment will test our climate change resolve'

Wind of change: A range of offshore wind farms are in the pipeline. Photo: Fabian Schmidt
Wind of change: A range of offshore wind farms are in the pipeline. Photo: Fabian Schmidt
Richard Curran

Richard Curran

The new wave of green political energy reflected in the recent local and European elections is about to be tested - on the east coast at least. The Government is preparing to introduce a subsidy regime for offshore wind farms.

Only one offshore wind farm exists in Ireland, but there have been at least four others in various states of gestation over many years.

One of these, Oriel Wind Farm, envisages building 55 turbines around 22km off the coast of Dundalk.

The project is backed by ESB after the State company and its partners bought out the local business interests who had supported the scheme.

Another is the Codling project proposed for the Codling Banks around 13km off the coast of Wicklow.

The location for the wind farm is to the east of the shallow sand bank offshore between Greystones and Wicklow town.

The closest towns of Kilcoole and Greystones are both about 14.8km from the area.

This project is currently 50pc owned by Norwegian energy billionaire Fred Olsen, with the remaining 50pc owned by an Irish company called Hazel Shore.

Hazel Shore is one-third owned by property developer Johnny Ronan, one-third by his former Treasury Holdings partner Richard Barrett and one-third by Ronan's brother, Conor.

As with the other offshore Irish projects, Codling was effectively shelved in 2012 when the Government decided to put all its subsidy eggs into onshore wind, which was seen as cheaper and faster for generating sustainable energy.

Other countries such as England and Scotland have ploughed ahead with offshore. The technology has evolved considerably which enables larger turbines to generate more power for more homes.

The Codling project is currently for sale and recent reports suggest that ESB is in the mix to buy it.

It faces tough competition from other prospective buyers like French giant Engie, EDF and the German group E.On.

The reported price tag is around €100m. This would equate to a €50m pay day for Hazel Shore, or a near-400pc return on the €11m its shareholders had sunk into the project by the end of 2017, according to its accounts.

A 400pc return sounds pretty good, especially when not a single turbine has been put up. But it does not take into account the length of time the project has taken to get this far.

Hazel Shore has had an interesting shareholder history. Richard Barrett owned 333 shares (one third).

Johnny Ronan owned another 333 shares, and Conor Ronan's family owned a further 333.

Treasury Holdings also had a single redeemable preference share, which didn't entitle it to any share of dividends or even voting rights at the board, but did entitle it to appoint the board. Treasury Holdings went into liquidation.

In 2012, this redeemable preference share was re-designated as a 'deferred share' by the Hazel Shore board. The same year, Johnny Ronan stepped down from the board.

The company issued 213,000 new shares for cash at €1 per share. Conor Ronan and his business partner Barrett subscribed for 71,000 each, while Johnny Ronan did not. His sister Gillian subscribed for 71,000, which gave her a 33pc share.

Then, in 2017, Johnny Ronan returned as a director and Gillian's shares were transferred to him.

The annual return does not disclose the price that was paid for the shares.

Assessing the value of the project at that stage is very difficult because the Codling asset had been written down to zero on the balance sheet, by subtracting the depreciation from the millions the investors had put into the scheme.

The imminent sale of the plan will finally bring about a pay day for the backers.

The 1,100MW Codling project will be massive if it goes ahead. It is likely to be a €3bn development with its turbines arrayed in a grid pattern.

A lot of the preliminary work has been done. Codling Bank was granted a foreshore lease in 2005. The lease is valid for 99 years.

It has secured a grid connection and is a consented 220-turbine offshore wind farm capable of generating enough electricity to power 600,000 homes. According to its website, a second phase has been submitted for planning for a further 200 turbines.

Getting it all built is far from certain, however.

Offshore wind has enormous potential to accelerate Ireland's progress in sustainable energy.

But it costs a lot of money and despite the advancements in technology, it still needs a subsidy regime.

Government policy from 2012 onwards was practically a one-way bet on onshore wind power.

This has delivered some solid results, but local communities in some areas are getting sick of turbines.

The massive challenge for the Government and the investors will be to secure full planning after public consultations for wind turbines off the Wicklow and Louth coasts.

The fact there are already some turbines off the Arklow coast might make that a little easier but these projects are on a totally different scale.

The Codling project originally envisaged selling its electricity to the UK.

This was based on the fact that the British had a favourable tax and subsidy regime for sustainable energy.

But if ESB or one of the other bidders secures Codling, it seems highly unlikely in the current environment they would sell the electricity to Britain.

The Government knows it has to catch up on renewables targets. Demand for electricity looks set to rise significantly because of a growing population, a growing economy and the expected transition to electric vehicles.

This doesn't even include data centres, which are proving to be a successful area for foreign direct investment. Data centres require very significant amounts of power.

At a time when the Government is preparing to introduce a raft of new carbon taxes in the Budget, voters' commitment to green policies will be tested.

It has been a lot easier for large population areas on the east coast to back sustainable energy projects like wind farms in places such as North Kerry or Donegal, but offshore will bring sustainable energy somewhat more into view - as it were.

Another east coast project is Dublin Array, which proposes building a 145-turbine wind farm on the Kish and Bray banks.

The east coast is in line to shoulder its fair share of our sustainable energy infrastructure.

Other countries have made more progress with offshore. Danish wind farm giant Dong has developed major projects, including Walney off the Cumbrian coast.

Walney is the largest offshore wind farm in the world. It generated its first power nearly two years ago after installing its first 87 turbines.

Major changes will have to take place if Ireland is serious about reaching European Union emissions targets and moving closer to sustainable energy sources.

Offshore will be an overdue test of our intent.

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