Success of onshore wind auctions: Effects of auction design

and national context

World Wind Energy ConferenceJune 14th 2017, Malmö

Katherina GrashofInstitute for Future Energy- and MaterialFlowSystems

(IZES gGmbH)

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1. Objectives of RE auctions

2. Trade-offs in and international experiences with RE auctions

3. Interaction effects between auction design elements and context

4. Look at the new German auctioning scheme for onshore wind

5. Ongoing research project

6. Conclusion

Structure of the presentation

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Objectives of RE auctions

Expansion of RE capacity

Low costs for RE power for consumers

Actor diversityincl. local /

small actors

Source: author

Development / preservationof local industry sector

Regional distribution of plants

Objectives ofRE auctions

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Objectives and trade-offs in RE auctions

RE expansion: realisation

rates

Low costs / bids

Actor diversityincl. local /

small actors

High competition

High participation requirements(e.g. permits)

Relevance of mass productionand buying power

Risk of sunk costsfor unsucessful bids

++--

Source: author

+

--

+

Trade-offs inRE auctions

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Difficult to assess, but tendency to miss targetsMany systems established recently: no/few rounds with terminated deadlines

• UK (1990s) Results: Only 30% realisation rateReasons: volumes, participation requirements, realisation deadlines, no penalty

• Brasil (10 rounds 2009 - 2014, realisation deadlines terminated), as of 2/2017:• 70 % realised: 23% on time, 47% late• 9 % under construction• 21% still in planning stage, suspended or aborted

Reasons: local content requirements, participation requirements did not fit grid situation

• But: South Africa (2011-12, realisation deadlines terminated): 100%Reasons: limited competition, participation requirements

Historical experiences with RE auctions regarding RE expansion

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Historical experiences with RE auctions regarding low costs

Mixed, but some spectacular results lately (realisation to be seen)

• Spain (Jan 2016) in the news: € 0/MWh above wholesale priceNote: long realisation deadline, low participation requirements, re-start after moratorium, lowpenalty

• Peru (Feb 2016) in the news: Ø USD 37 / MWh for onshore windNote: tax benefits, low volume, high capacity factors, green bonds

• Mexico (Sept 2016) in the news: Ø USD 32 / MWh for onshore windNote: further revenues, high capacity factors, low IRRs, large projects

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Tendency for large (international) firms as winners

• South Africa (2011 – 2014): 4 winners secure 60% of volume (23% Enel Green Power, 18% Mainstram Renewables)

• Brasil (2009 – 2015): winners are mainly large utilities, investment banks, international developers

• Spain (Jan 2016): 500 MW awarded to Grupo Forestalia (300 MW), Jorge (102 MW), EDP (93 MW)

• Peru (Feb 2016): 326 of 430 MW awarded to Enel Green Power

• Mexico (Sept 2016): large awards to subsidiaries of Enel Green Power, Acciona Energy, SunPower, Tractebel

Historical experiences with RE auctions regarding actor diversity

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Design of RE auctioning schemes: interaction effects

Source: author

Materielle Teilnahme-

bedingungen

Finanzielle Teilnahme-

bedingungen

Realisierungs-fristen

Zuschlags-kriterien

Ausschreibungs-volumen

Ausge-schriebenes Gut

Höchst-gebots-preise

Übertrag-barkeit von Zuschlägen

Ausschreibungsdesign

Netzanschluss-Regulierung

Zugang zu Anlagen-

standorten

Verfahren zur Erteilung von (Bau-)Geneh-migungen

Markt-Struktur:Anzahl/Art von

Akteuren

Nationale EE-Ausbauziele

Zugang zu Fremdkapital

Lokale Akzeptanz des EE-Zubaus

Nationale Akzeptanz des EE-Zubaus

Reife des EE-Marktes

Rechts- und Vertrags-sicherheit

Verankerung des EE-Marktes in der nationalen

Wirtschaft

Umgebender Kontext

Context elements

Auction design elements

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Design of RE auctioning schemes: selected factors affecting RE expansion

Source: author

CE = Context element

ADE = Auction design element

RE C = RE Characteristics

Objectives of RE Auctions

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Design of RE auctioning schemes: early vs late auctions for onshore wind

Source: author

Project development

Perm

ittin

g

CO

D

„early“auction

Realisation deadline long (e.g 4 - 5 years) short (e.g. 1 - 1,5 years)

Material pre-qualification low high

Securities/ Penalties very high lower

Transferabilityof award yes no

„late“Auction

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Guaranteed FIT for large-scale solar in DE(EEG 2012)

Adaption of FIT to installation rates in DE (EEG 2012)

Design of RE auctioning schemes: administrative complexity

Source: author

Auction scheme for large-scale solar in DE (EEG 2017)

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German auctioning scheme for onshore wind (starting in 2017)

Auction design• Onshore wind power plants ≥ 750 kW

• For sliding feed-in premium, 20 years

• 3 - 4 rounds / 2800 - 2900 MW per year; 1st round: 800 MW

• Late auction: Building permission required, realisation deadline: 24 + 6 months

• Penalty: € 30 / kW

• Awards cannot be transferred to other sites

• Pricing rule: pay-as bid

• Ceiling price: 7 ct/kWh (for ∼3000 FLH)

• Acknowledgement of force majeure: for lawsuits against building permission

• Regional distribution of awards: remuneration varies with location/FLH

• Special rules for community energy bidders: earlier auction, uniform pricing

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German auctioning scheme for onshore wind (1st round 5/2017): results

Sources: BNetzA, BMWi, author

• > 250 bids for > 2,1 GW (1,5 GW community wind), of which 70 bids (807 MW) successful

• Average remuneration awarded: 5,71 ct/kWh

• Lowest bid submitted: 4,2 ct/kWh, lowest remuneration awarded: 5,25 ct/kWh

• Highest succesful bid (= remuneration for community wind projects): in northern area: 5,58 ct/kWh, in center and southern area: 5,78 ct/kWh

• 65 bids won by community energy groups (partly supported by larger developers)Æ general principle of late auction reversed to early auction

• Resulting insecurities:• Realisation rates?

• Influence of project developersin community wind projects?

• Chances for already permittedprojects in future rounds?

Perm

ittin

g

COD

Project development

early auction late auction

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Research project of IZES gGmbH & Leuphana University of Lüneburg(2016 – 2019), commissioned by Germany Environment Agency

• Development of methodology to measure actor diversity,differentiating between e.g. community energy, project developers, utilities

• Measurement of actor structure of existing large PV andonshore wind plants (>750 kW), starting from installation year 2010

• Determination of actor structure in German auctions until 2019:

• Bidders and winners of PV auctions

• Bidders and winners of wind onshore auctions

Monitoring of the actor structure in Germany

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Conclusions

Auction design is highly complex

• adaption to local/national context important

• outcomes determined by interaction effects• between different auction design elements

• and with (national) context conditions

Results regarding objectives pursued with RE auctions

• expansion of RE capacity: Continued tendency to miss targets

• low RE remuneration: Quite low results lately, however• different in auction designs and contexts make price comparisons difficult

• unclear, if caused by auctions

• structure of actors: Continued tendency for large (international) firms as winners

Æ Internal trade-offs make it difficult to eliminate these deficits equally well

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Katherina Grashof

Institute for Future Energy- and MaterialFlowSystems(IZES) gGmbH

Albrechtstr. 22, D - 10117 BerlinTelephone +49 (0)30 5683 7292

Email grashof@izes.de

Thank you for your attention!