6 October 2008
27 May 1997
In terms of growth, if not number of fee earners, Dublin firms Dillon Eustace and Matheson Ormsby Prentice head the Republic of Ireland Top 25 table
28 May 1996
3 October 2005
2 April 2001
30 May 1995
With the anniversary of the introduction of the single electricity market (SEM) approaching, energy at the forefront of EU policymaking and the combined value of a handful of deals this year already exceeding E5bn (£3.98bn), Ireland’s energy lawyers are enjoying a remarkably healthy climate.
Michael O’Connor, partner and head of the energy team at Matheson Ormsby Prentice, who advised the regulators on both sides of the border on the legislative, licensing and transition aspects of the SEM, says the introduction of the SEM has had a significant impact on renewable energy projects.
While the Irish energy sector may be small, it has nevertheless become a real earner for otherwise languishing law firm departments. The highly specialised nature of the industry has seen a handful of Irish firms – including Arthur Cox, A&L Goodbody, Matheson Ormsby Prentice, William ;Fry, ;McCann ;FitzGerald, O’Donnell Sweeney Eversheds, LK Shields and Beauchamps – slowly build up a solid reputation for energy expertise since the liberalisation of the market, reaping considerable rewards.
“Because the energy sector is so complex there’s a high barrier to entry for legal advice,” says Mark Varian, a partner at ;O’Donnell Sweeney Eversheds, a firm with considerable expertise in the wind farm arena, and currently advising Oriel ;on ;its 300MW-plus offshore wind farm. “As a firm we’ve found it a very lucrative market.”
Given market conditions, M&A and financing activity remain surprisingly strong in the energy sector. One partner we spoke to believes that every piece of e1bn-plus (£789m) acquisition work undertaken in Ireland this year will be energy-related.
Another commented that he had never started a year with a known pipeline of work like this one, predicting that his firm alone would advise on upward of E5bn (£3.98bn) in M&A work, and E2bn (£1.59bn) in financing. These are extraordinary numbers, both for a jurisdiction the size of Ireland and in terms of anything that has gone before in the energy sector.
Much of the boom concerns renewable energy, specifically wind. LK Shields partner Philip Daly, whose relatively young practice has worked for clients including Some Wind, Dalkia and BioPower Group, says: “Ireland’s market for wind energy is small, but we probably have the best seascape and landmass for production in Europe.”
Alongside good wind resources and plentiful sites, there is also political will behind the sector, as demonstrated by the appointment of green party member Eamon Ryan as minister for communications, energy and natural resources.
What is more, renewable energy is viewed as one of the few remaining ‘safe harbours’ by investors and bankers. Investment has traditionally come from small to medium-sized developers, but the market is rapidly consolidating.
“Bigger companies are now looking to get into the market,” says Varian.
“We’re faced with the unusual situation that four large government-owned energy bodies have all declared a strong interest in wind farms and are now competing against each other in the same market.”
“There’s a lot of interest from private investors in this type of technology,” agrees Patricia Lawless, energy group head at McCann FitzGerald. “The success of the Airtricity deal led to far greater demand than we would otherwise have expected to see. Our impression is that demand for investment opportunities exceeds the actual projects available.”
McCann clients include Airtricity, the Irish state energy company Bord Gáis Éireann, which it advises on an ongoing basis, and national grid operator EirGrid, most recently in connection with the SEM development.
The sale of wind farm operator Airtricity to Scottish and Southern Energy (SSE) for around E1.9bn (£1.51bn) completed on 4 January this year and certainly shook up the market. Arthur Cox acted for the vendor, and A&L Goodbody for SSE. The deal was followed by the Electricity Supply Board of Ireland’s reported E450m (£357.87m) sale to Endesa. Michael O’Connor and Peter O’Brien of Matheson Ormsby Prentice led a 20-lawyer multidiscipline team advising Endesa, the successful bidder.
More recently, market speculation is rife that Viridian’s E2bn (£1.59bn) generation and supply assets – which include a significant wind business – are up for sale. Six months ago Viridian acquired a company called Eco Wind Power for a reported price of E50m (£39.76m).
The 500MW East West Interconnector linking the electricity grids in Ireland and Wales is another significant energy project with implications for the renewable industry. The only way for Ireland to realise its full renewable energy potential – which is far greater that the country itself needs – is to develop connections into Europe, so investment in interconnection is absolutely critical. Bids are in and contractors on the East West project, which has a value of E600m (£477.16m), should be selected by the end of the year.
CMS Cameron McKenna and PricewaterhouseCoopers in consortium are advising EirGrid on the procurement, with Arthur Cox and Deloitte advising on the funding.
Arthur Cox’s head of projects and energy specialist, Alex McLean, is particularly proud that his team is advising in its own right on what is a landmark project for Ireland. “This project is the first of its kind in Ireland and is an extremely significant appointment for a local law firm” he says.
One of the most significant catalysts behind the renewable energy bonanza is the European Union target of 20 per cent of energy from renewable sources by 2020. With the EU eager to be seen to be setting the world agenda on climate change, energy is being pushed up the policy agenda.
“Energy is widely perceived to be the sector where the easiest wins from a climate change perspective can be achieved,” says McLean. “Making a big difference to climate change through agriculture is enormously difficult, as is transport. The energy sector can arguably deliver results most easily.”
The third stage or ‘package’ of EU reform of the internal markets of electricity and natural gas is now underway. While the first and second phases dealt with liberalisation and cross-border harmonisation, the third moves even closer toward a single European market and will be structurally significant. That coincides with the European Commission’s climate action and renewable energy package (Care). The third package and Care remain moveable feasts for now and energy lawyers are following their progress with great interest.
One of the key issues causing disagreement between the European Commission, Parliament and Ireland’s Council of Ministers is priority grid access. Indeed, despite the strong desire to increase renewable energy use, grid access is perceived by the industry across Europe as an almost insurmountable problem, particularly in Ireland.
McCann’s Lawless says: “With renewables, the issue on any given project is always getting on to the grid.”
While in most countries the amount of electricity generated and consumed tends to track GDP fairly closely, Ireland’s incredible growth means the grid struggles to keep up. This, coupled with underinvestment during in the 1970s and 1980s when times were less prosperous, means that its transmission and distribution system are woefully underdeveloped. Plant cannot be connected to the grid as fast as people are applying to without a significant upgrade – which will require considerable time and money. But those increased capital costs of upgrading the grid, on top of record energy prices, have to be balanced with the need for new connections.
The renewables industry is also getting to grips with a number of new regulatory and structural changes, including the SEM, which went live in November last year. This created a gross mandatory pool whereby all electricity will be sold by generators to the pool and all suppliers have to purchase their electricity requirements from the pool.
As Valerie Lawlor, a partner at McCann FitzGerald, explains: “Generators bid their plant to the pool, setting out their pricing, so that the most efficient generators will be called on to generate electricity first, subject to system constraints.”
A&L Goodbody partner Ross Moore, who advises a number of stakeholders in relation to the SEM, adds: “For investors and banks to get comfortable investing in the Irish market, especially in new marginal generation capacity, they needed to first be comfortable with the pricing in the market. The SEM is designed to provide transparency in pricing. However, there’s probably not enough historical data yet for investors to get soundly confident.”
Another change is the renewable energy feed-in tariff – a government support mechanism for renewables which provides for E119m (£94.64m) of investment in renewable energy projects over a 15-year period and has been hailed as a boon to the industry. However, lawyers are waiting for ministers to provide clarity on the new rules.
“Such policy announcements are great news for the industry, but the market is still waiting to see them implemented into law,” explains O’Donnell Sweeney Eversheds’ Varian. “A lot of suppliers are holding off to see how those are implemented because it may lead to an uplift on the revenue they can generate.”
Talking to Irish firms about their numerous projects in the pipeline, one can detect frustration over delays. The list of causes of those delays is a well-worn one. Planning has become increasingly drawn out and problematic, mainly, say lawyers, due to lack of resource and poor implementation. Major landslides on two high-profile projects are likely to make planning officers even more cautious going forward.
There is also a continuing problem with back-up capacity. The more wind penetration Ireland achieves, the more back-up capacity must be in place for those times when wind does not deliver. But there simply is not sufficient back-up capacity in place, and what is there is is old and needs to be replaced.
Yet these challenges have done little to dampen the enthusiasm of Ireland’s energy lawyers, who are very optimistic about both the prospects for their practice and the growth of the industry in general.
“My view is that there’ll be a lot more work in this area going forward,” says Beauchamps partner Ainsley Heffernan, whose property department is one of the largest in the country and who handles an increasing amount of wind farm work for clients such as Prowind. “Because of lack of state support, renewables didn’t take off here like they did in other countries, but we’re making up for that now.”
If delays on grid connections and infrastructure challenges can be overcome, Irish energy lawyers will have more work than they can handle for the foreseeable future.
“There’s a veritable dam of projects waiting to burst in the renewables sector,” enthuses Varian.