Designing RES auctions wellInternational experiences and lessons
learnt
by Silvana Tiedemann
08 September 2016
© ECOFYS | |
> Supporting the design – clients amongst others:
– The Federal Ministry for Economic Affairs and Energy
– The Grand-Duchy of Luxembourg, Ministry of Economics
> Analysing international experiences and lessons learnt
– Project: AURES (AUctions for Renewable Energy Support)
– Clients: International Renewable Energy Agency (IRENA), European
Commission, Deutsche Gesellschaft für Internationale
Zusammenarbeit (GIZ), MVV Energie
> Impact on business models and strategies to win auctions
– European industry association
– Large utility active in European markets
– Trainings
Ecofys has a strong track record on RES auctions
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Introduction
> Definition:
– An auction is a competitive allocation mechanism for RES support
– A tender is a procurement process which may include an auction
– In practice, the terms tender and auction are often used interchangeably
> Content of the presentation:
1. The renaissance of RES auctions
2. Design elements
3. Design challenges
4. Auctions from a bidder’s perspective
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> In 2005, only six countries had introduced auctions for RES support
> Within ten years, the number increase tenfold
An international trend to introduce RES auctions exists
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Source: IRENA 2015: Renewable Energy Auctions: A guide to design
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> Other European countries with RES auctions: Denmark, Poland, Spain,
France, Greece
Many European countries introduced auctions
Name of support scheme Since Recent policy developments
UK Contracts for Difference
(CfD)
2014 • By 2017 CfD will become the only support
scheme for RES
• Additional budget for offshore announced
NL Stimulering Duurzame
Energie (SDE+)
2011 • Budget increase for SDE+ in 2016
• First offshore auctions took place in summer
2016 for predeveloped sites
DE PV-Freiflächen-Verordnung/
Erneuerbare Energien
Gesetz 2017 (Renewable
Energy Act)
2015/
2017
• Ground-mounted PV auction running
• Auction design for wind onshore, offshore
and PV roof-top adopted with EEG 2017law
• Agreement with Denmark to conduct joined
auctions.
IT Referred to as DM 06/07/12
(Ministerial Decree 6 July
2012)
2012 • Extension of scheme by one year
• Uncertainty over post 2016 outlook
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The European State Aid Guidelines require Member States
to introduce auctions
> State Aid Guidelines for Environmental Protection and Energy 2014-2020:
– Competitive bidding mechanisms shall become default to allocate RES
support by 2017!
– 2015/16: At least 5% of new RES capacity shall be auctioned
– The guidelines apply to all support schemes that need state aid clearance
> State Aid Guidelines for Environmental Protection and Energy 2014-2020 available at:
http://ec.europa.eu/competition/sectors/energy/legislation_en.html
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Advantages of competitive bidding explain the
renaissance of RES auctions, yet challenges arise
> Control of maximum volume and
support cost
> Support level is determined by the
market, not the administration (market
exposure and information generation)
> Competition between RES-E producers
may lower prices (compared to
administrative FIT/FIPs)
> Real-cost discovery
Opportunities
> Challenge of ensuring high realisation
rates/target fulfilment
> Higher risk for RES-E producers than
administrative FIT/FIP, challenging
particularly for smaller actors
> Common value problems, uncertainty
over project cost, and unexperienced
bidders lead to “winner’s curse”
> Risk of strategic behaviour (collusion)
leading to higher prices and support
costs
Challenges
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Auctions differ in design – many parameters exist
> The choice of design elements influence the auction procedure.
> This slide does not show which elements have the highest impact on the
acution'‘s outcome, effectiveness and efficiency.
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Grouping of technologies Timing of the auction (early/late)
Specificqualificationcriteria
Realisation period
PenaltiesVolume
High Impact on auction design Low
Auctioned and remunerated item (e.g. kWh or KW)
Mutli vs. single-item auction
Less mature
Firm RESMature
Technology-neutral
Windon-
shore
Windoff-
shore
Ground-ount.
PV
Roof-top PV
Bio-mass
…
Evaluation criteriaPrice-only vs. multi-criterion Specific criteria for multi-criterion
Ceiling priceMethodology Value
Pricing rule
Procedure: Dynamic vs. static
Min. frequency Rounds per year
De-Minimise-Rules
Qualification criteria and bid bonds
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Countries rather introduce technology-specific or multi-
technology than technology-neutral auctions.
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Less mature
Firm RES
Mature One pot
Windoffshore
Ground-mounted
PV
Windonshore
Biomass
Technology neutral ----------------Grouped --------------- Technology specific
Roof-top PV
…
UK NL IT DE
Grouped One pot with technology specific elements+ offshore specific auctions
Technology specific
Technology specific; Grouped pilotauctions planned
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Single- and multi-item auctions work fundamentally
different
> Single-item (side-specific) auctions
> Observed for large technologies
with restricted availability of
locations, particularly offshore
> Multiple-item auction
> Observed for smaller technologies
with many actors, particularly solar
and wind onshore
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Auctioneditem
Bidder 1
Bidder 2
Bidder 3
Bidder 4
Bidder 1
Bidder 2 Bidder 3
Auctioned item
UK NL IT DE
Multiple Multiple except offshore
Multiple Multiple except offshore
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The selected procedure differentiates auctions from each other, yet
both static and dynamic auction can work smoothly
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Phase 1 2 3
RemunerationCent/kWh
Cumulativespending
Availablebudget
Static auction
Volumein MW
Remunerationin €/kWh
Auctioned volume
Dynamic auction
UK NL IT DE
Static, sealed bid
Dynamic (ascending clock)
Static, sealed bid, degression from max. price
Static, sealed bid
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Successful bids
Unsuccessful bids
Successful bids
Unsuccessful bids
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Rules regarding eligible and awarded prices differ.
> Pay-as-bid price rule: each bidder receives the price he/she offered (Px)
> Pay-as-cleared (uniform) price rule: each bidder receives the clearing price
(Pmax)
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UK NL IT DE
Evaluation criteria
Price Price & timing of application
Price (auction), quality (registry)
Price
Price rule Uniform bydelivery year
Uniform by phase
Pay-as-bid (auction), fixed tariff (registry)
Pay-as-bid (during pilot also uniform)
Max./Min price Max. price Max. price Max. & min. price Max. price
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X
Auctioned volume
Puniform
Ppay-as-bid
Awarded bids
Non awarded bids
Additional rent
Volume in MW
Support in
€/kWh
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+
The timing of the auction is crucial
> The project risk (left) and the actor composition (right) differ along the
project cycle.
> Small actors are worse positioned to mitigate risk.
> Strict requirements and tight deadlines increase cost and risk.
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Preliminaryplanning
Project planning
Permittingprocedure
Construction
Operation
Formal requirements
AUCTION
REALISATION DEADLINE Planning
Approval process
Construc-tion
Com-missioning
Project
developers
AUCTIONOPTION 1
AUCTIONOPTION 2
AUCTIONOPTION 3
Others
Local cooperatives,citizen organisations
Project risk Actor composition
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Operation
The regulator decides on the timing of the auction by
defining qualification requirements
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Site selection
Early auction Realisation
- Sunk costs- Prohibitive barrier for
(some) bidders
- Risk for bidders increases
- Prohibitive barrier for (some) bidders
+ Incentive to realize due to penalties
Qualification requirements & bid bonds
Penalties
PermittingFinancing /Building
Lateauction
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+ Selection of projects with sufficient progress in planning
+ „serious“ bids
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Many countries introduced „late auctions“ and punish
delays or non-realisation
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UK NL IT DE
Timing andqualifi-cation
Late (planning consent, connection agreement)
Late (permits, proof of ownership,feasibility study for projects >0.5 MW)
Late (building permission/ concession, a connection offer)
Early for PV (early stages ofpermitting); late for wind onshore (building permission)
Moni-toring & penalty
Exclusion from further rounds, contract penalty once CfD signed, monitoring of milestones
Exclusion of project from SDE+ for three years and penalty for projects >€400M
Penalty for non-realizationand delay (reduced support)
Penalty for non-realization and for delay (PV: 50€/kW, wind onshore: 30€/kW)
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If too many restrictions are included, the number of bids
and level of competition is reduced
> Support levels can rise through insufficient levels of competition
Auctioned volume
Pmax old
Pmax new
Insufficient valid bids
Reasons for expulsion:
Bid too expensive
Wrong project size
Qualification requirements not met
Awarded bids
Non-awareded bids
Volume in MW
Supportin €/kWh
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Policy challenge: Conflicting and implicit policy goals
influence the design
> Aim:
– Political acceptance
> Problem I: Trade-off between effectiveness and efficiency
– Effectiveness: Volume control and target fulfilment through high
realization rates without delays
– Efficiency: Competitive setting of support level through sufficient levels
competition, low transaction costs and minimization of other risks
> Problem II: Policy-makers often attempt to contain the impact of price-
based auctions on further goals:
– Ensuring access of small actors to the auction
– Ensuring a regional distribution of awarded projects
– Ensuring that awarded projects have a local socio-economic impact
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Policy solution: To design an auction well, consider more
than just design elements as important
Target definition
Market analysis
Auction design
Imple-mentation phase
Auction volume
Auction object
Type ofremuneration
Eligible sites
Qualification requirements
Penalties
Type of auction
Price rule
Min/max price
Auction cycle
Etc.
Volume control
Target volume and trajectory
Cost-reduction
Technologies
Other policy goals
Market size
Level of competition
Type and number of market players
Project cycles
Main project risks and cost
Legal implementation
Evaluation
Adjustment of auction design
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Effectiveness challenge and solution: Ensuring high
realization rates while keeping bidders’ risks manageable
> Aim:
– Target fulfilment and political acceptance
> Problem: Threat of non-realization or delay
– NL: High realisation rates for wind onshore and PV (80-100%), low for
geothermal (30%)
– UK: Instances of underbidding for solar, contracts not signed
– IT: insufficient level of participation and delays (wind round 2: 50%
realized on time, 25% delayed (realization ongoing)
– DE: realization rather late but so far within realization period
> Measures to improve the realization rate
– Qualification requirements were tightened in NL and UK
– More reliable securities for penalties introduced in the IT
> No-regret:
Select qualification criteria and penalties to balance quality of bid and
bidders’ risks
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Efficiency challenge and solution: An efficient auction
requires a sufficient level of competition
> Aim:
– Ensure efficient allocation of resources
> Problems:
– A mismatch between auctioned volume and demand
– Transaction costs increase risk premiums and create entry barriers
– Risk of crowding-out small actors/market concentration
– (Wrong) expectation of competition reflected in prices
> Different measures to ensure efficiency of auctions:
– Grouping technologies to increase available volume in the market and
reduce demand fluctuation
– Early auction to ease participation barriers
– Eliminate unproductive risk
> No-regret:
Transparent, easy and non-discriminatory auction schemes
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Diversity challenge and solution: Make sure that auctions
are open and fair for all marked actors
> Aim:
– Ensure competition and political acceptance
> Problem:
– Small actors can be crowded out
> Measures to protect certain actors:
– Easy access
– Bonus or quota
– Preferential treatment (DE)
– multi-criteria (IT)
– Exemptions from auction (FR, IT, UK, DE)
> No-regret:
Transparent and inclusive policy design process
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A project needs to be competitive to win
> A project is competitive if it has a significant advantage in factors that
matter.
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Volume in MW
Px
WACC
Resourc
e
Land lease
turb
ine
Awarded bids
Non awarded bids
x
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Supportin €/kWh
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Cost, risk and information on competitors influence the
bidding strategy
Support in €/kWh
LCOEx
= Pmin
Px
Risk aversion
The bid has to be at or above
the LCOE of a project.
High support level
High risk for being unsuccessful
Source: Ecofys, based on Takon 2016
• Available volume on the market
• LCOE of competing projects
• Risk aversion of competitors
• Knowledge of competitors on market
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Lessons learnt I
> The designs of the analysed auction schemes differ, both between countries
and – where technology specific schemes exist – within countries.
> Factors impacting the auction design include among others:
– Maturity of the technology
– Maturity and composition of the market
– Political goals
> There is no “one size fits all” auction scheme.
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Lessons learnt II
> No-regret options to design auctions well:
– Analyse, understand and integrate policy goals in the design process.
– Select qualification criteria and penalties to balance quality of bid and
bidders’ risks.
– Transparent, easy and non-discriminatory auction schemes increase
the level of competition and therefore the efficiency.
– A transparent and inclusive policy design process increases the
acceptance and leads to a better support scheme.
> From a bidder’s perspective, information becomes more important.
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Thank you!
> For further information or in case of questions, please contact us:
Silvana Tiedemann Fabian Wigand Corinna Klessmann
[email protected] [email protected] [email protected]
> For Spanish inquiries contact Ana Amazo: [email protected]
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