Accelerating the deployment of renewable energy: Some positive developments10th May 2023
A route to market30th May 2023
Ireland’s offshore wind sector is expected to play a pivotal role in meeting our legally binding climate targets and in addressing energy security concerns during this time of economic hardship driven by the war in Ukraine and increasing energy costs. Fortunately, Ireland’s maritime area is more than seven times the size of its landmass. This, combined with wind conditions and location at the edge of the Atlantic Ocean, presents a significant economic opportunity for the generation of renewable energy and the production of green hydrogen. This is reflected in our ambition to deliver a target of at least 5 GW of offshore wind and an additional 2 GW of offshore wind for green hydrogen production by 2030.
Challenges to be addressed
While this is a significant opportunity for Ireland, relevant supports must be implemented now to create certainty in the market and position Ireland’s offshore wind sector on the international stage. Considerable investment will be required, both from Government and the private sector, to enable the development and construction of offshore windfarms, secure a robust supply chain and deliver the much-needed port infrastructure and skilled workforce. PwC estimates that €40 billion will be needed to develop offshore wind generation by 2030, with additional investments in ports (€2 billion) and grid infrastructure (€15 billion). The Government will also need to scale up its own resources, including a skilled workforce with the relevant expertise, to deliver these projects without significant time delays. Ireland must be a leader in this area to attract investment that may otherwise go to markets in the US, the UK and elsewhere.
The role of tax policy – the US example
The introduction of tax incentives and subsidies can be a powerful lever to encourage more environmentally sustainable behaviours and encourage investment in areas critical to achieving climate targets. This can be seen by the recent shift in investment to US markets due to the many green tax incentives and subsidies introduced by the US$370 billion US Inflation Reduction Act. The Act is the largest federal investment in clean energy in US history. It includes tax credits, incentives and other provisions to help companies deliver on sustainability and carbon reduction commitments and create new green jobs. It is reported that some European companies are already putting plans in place to boost US spending. The President of the European Commission, Ursula von der Leyen, recently acknowledged the success of this Act during a speech to the World Economic Forum at Davos. At the time of writing, Europe has just proposed a temporary loosening of state aid rules for investment in renewable energy or decarbonising industry in order to maintain Europe’s attractiveness in this space and counter relocation risks from foreign subsidies. This may be good news for Ireland. For example, state aid rules have been a particular challenge for port upgrades, and subsidies will likely be required to stimulate investment in this area.
Tax incentives and subsidies could be introduced here to help mobilise the private investment needed to ensure the success of Ireland’s offshore wind sector. PwC’s 2023 Climate Action Pre-Budget submission highlighted several potential tax measures and supports, including:
- tax reliefs for investment into companies carrying on qualifying renewable energy activities;
- tax reliefs for investment into companies setting up innovation hubs focused on the development of new green clean-tech technologies (including the production of green hydrogen);
- enhanced tax depreciation to encourage investment in our port infrastructure; and
- more streamlined processes for the administration of Relevant Contracts Tax (RCT) to make processes more efficient for renewable energy developers and contractors.
The tax incentives and subsidies could be linked to carbon emissions saved, with higher credits for higher-impact projects. They could also have a social benefit if linked to the creation of new skilled ‘green’ job opportunities in Ireland and could be located in areas where there is a requirement to generate new employment opportunities as part of the Just Transition.
These are difficult choices for any government. However, bold actions are needed now to develop and create certainty for our offshore wind sector. The US example has proven that tax incentives are a powerful tool that can change behaviours and attract private investment to areas that are essential for reducing emissions and meeting climate goals. As noted earlier, the Irish offshore wind sector is critical to meeting our climate targets and is a significant economic opportunity for Ireland. However, this can only be achieved with a combination of Government support and private investment. Ireland has an opportunity to act now and enhance its position as a world leader in this sector.
Energy & Utilities Practice