Winds of change

The Irish energy market is opening up to new investment. Kevin Hoy reports. Kevin Hoy is a partner at Mason Hayes & Curran.

Ireland has had a state monopoly on electricity production for many years.

But the opening up of the energy market throughout the European Union has meant that Ireland has had to rethink its approach, with the first private inroads being made in the alternative energy sector. There have been three Alternative Energy Requirement (AER) programmes. Seventeen wind energy projects were successful in AER3, the results of which were announced last month.

As far as finance is concerned, Business Expansion Scheme (BES) funding is feasible for small projects. Investors subscribe for shares for a minimum of five years and get a tax write-off against income in the year of investment. The popularity of BES funding has been substantially reduced by a IR£250,000 ceiling imposed last year.

The 1998 Finance Act introduced a new tax measure to encourage corporates to invest in alternative energy projects. Expenditure excludes land costs. The investment must be used for the project within two years and held for at least five years with no preferential rights. Certification is made by the Department of Public Enterprise, which oversees the AER programmes. As Irish corporate tax rates will reduce dramatically over the next five years to 12.5 per cent, promoters will try to access corporate funding this year if possible to maximise the tax leverage.

Banks are becoming increasingly involved in wind energy projects. Equity Bank, a member of the Bank of Scotland group (through Capital Bank), has established a leading position in the Irish market. Ulster Bank, a subsidiary of NatWest, has also been involved in a number of projects.

The sites for wind projects tend to be in remote areas, and identifying all parties with any legal interest in the property can be very difficult. For example, the land may not be registered in the Land Registry (which registers title), and documentation in the Registry of Deeds (which merely records documents) may be inconclusive as to the precise land covered.

There may be many owners involved, not all of whom may be easily contactable. Similar problems arise over title to access ways.

Ireland's planning system is a two or three-step affair. The initial decision is taken by the local authority and an appeal is available to the national Planning Appeals Board (An Bord Pleanala). Judicial review by the High Court is a possibility. An Environmental Impact Statement may be needed. The application may only be made by a person with an interest in the land or someone with such a person's permission.

The visual impact of wind farms on the local environment is giving cause for some disquiet. As the planning process is open to all, an application could be delayed because of an objection or appeal by someone who does not live in the locality. Timescales depend on each local authority, but it would not be unusual for the initial decision to take five months and for an appeal to take another five months.

As the market matures it will be less easy to identify suitable sites. The price available has fallen for each AER. However, the government continues to show its support for wind power. A green paper on alternative energy is being prepared.