Catherine Murphy (Kildare North, Independent)
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Question 404: To ask the Minister for Communications, Energy and Natural Resources if he has considered the way merchant commercial windfarms excluding Alternative Energy Requirement projects will survive financially in the single electricity market when it is flooded with Renewable Energy Feed In Tariff subsidised competition; if he expects that the contribution of existing windfarms to the 2020 target will be replaced by the new subsidised windfarms after the existing windfarms are driven out of business by the present REFIT policy; and if he will make a statement on the matter. [27448/11]

Pat Rabbitte (Dublin South West, Labour)
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Ireland has been set a legally binding target for renewable energy as a proportion of all energy consumption that must be achieved by 2020. Ireland's 16% overall target as prescribed in the Renewable Energy Directive will be achieved through 40% consumption of renewables in the electricity sector, 10% in the transport sector and 12% in the heat sector. These targets will be extremely challenging to achieve.

The Renewable Energy Feed In Tariff (REFIT) is a support scheme for new renewable generation which guarantees a minimum price over 15 years. The original REFIT scheme obtained State Aid clearance in 2007 and has been operating successfully since, with 1242MW of REFIT generation included in the 2011/2012 round as set out in the recent Public Service Obligation Decision. Due in large measure to REFIT, the amount of renewables in electricity consumption has increased from 4.3% in 2003 to 14.6% at the end of 2010.

By guaranteeing a minimum floor price, REFIT operates by ensuring that developers can pay off the debt they incur in financing a new renewable project. New wind generation is capital intensive and the initial outlay is expensive running to millions of euro, even for small projects. In order to be able to obtain finance from banks, a guaranteed minimum price over a period is required sufficient to finance the debt and allow a reasonable rate of return.

Wind itself is free in so far as it faces no fuel costs and once the initial debt and capital investment is paid off, projects should be able to operate in the market on a competitive basis similar to any other generation in the market. It is not intended that wind generation would be indefinitely supported. The new generation can avail of a support scheme for a fixed period in order to be able to finance projects. After that, they compete in the market.

Any independent wind generation in the market would normally have been in a support scheme for 15 years unless they took a commercial decision themselves to voluntarily leave that scheme for the open market. If they stayed in the support scheme for the available time, it can be assumed that their debt and the intense capital outlay on the project has been largely paid off and they should now compete in the market on a commercial basis.

The scenario posed in the question is hypothetical at this stage. At present the Single Electricity Market (SEM) is working effectively for participants. The market price for the coming year is estimated in the 2011/2012 PSO decision at €72.72 MWh which is above the REFIT floor price for wind. This would indicate that independent wind generation in the market should be operating satisfactorily. All markets that have subsidies have to be continually monitored due to the potential for market distortion. There is no indication of distortion but the Commission for Energy Regulation and the SEM Committee will continually monitor the evolving situation.