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    Why has the renewable auction failed?

    November 23, 2022 - CE Noticias Financieras


      Pending the publication of the official result, therenewable auction held this Tuesday was a tremendous fiasco: only 50 megawatts of the total of 3,300 offered by the Ministry for Ecological Transition were distributed. It is the third major auction, after two organized last year that were a success, for their reception and for the result, the average price was 24.47 euros and 30.56 euros. What happened this year?

      "It is a convulsive moment", recognized this Wednesday in the corridors of the Congress of Deputies the third vice president and Minister for Ecological Transition, Teresa Ribera, when asked about the outcome of the contest. This type of auctions serve to provide financial security to the promoters of clean energy projects, by guaranteeing them a fixed price for a long period of time (in this case 12 years) . The government establishes quotas - in this case 1,800 megawatts of solar power and 1,500 megawatts of wind power - and the winner is the one who offers the lowest price at which it is willing to produce that electricity.

      Days before the event, the most repeated word in the sector was "uncertainty" due to the high prices of raw materials (which make the installations more expensive) and the current financial uncertainty. They ruled out a massive bidding at prices as low as those of the time, but there was one unknown that they pointed out as key: the reserve price, which is the maximum price at which it is possible to bid and which, they said, would determine the balance to one side or the other.

      This reserve price is a figure set by the Government and is secret, although it could have been around 50 euros per megawatt, as industry sources point to an average price of the two successful bidders of about 45 euros per megawatt and some participants recognize that the "reasonable" would have been a reserve price of between 55-60 euros per megawatt-hour, which gives a clue as to where the bidding could have gone.

      And why was a higher reserve price not set? The vice-president, who does not want to reveal this ceiling "so that there is no information for the next auctions", has defended that if the reserve price has not been higher is to "maintain a price limit to protect the consumer", since the price at which the auction ends will mark the remuneration received by these facilities during the 12 years following its implementation. "Today's prices will not be the prices of 8, 10 or 5 years from now and, therefore, it makes little sense to raise them too much," he added.

      In this sense, the general director of the Spanish Wind Energy Association (AEE), Juan Virgilio, explained a few days ago that developers have three years between winning the auction and putting the wind farm into operation. They can do it before, but with the current prices, if the auction price is low, it makes no sense to do it and, therefore, they unsuccessfully proposed to the Government that during 18 months these facilities could go to the market.

      Does this failure mean a slowdown in the growth of renewables? Not necessarily. The auction only guarantees a fixed price to developers, but in Spain there are requests for access and connection of wind and solar for 143.7 gigawatts of power, which is more than triple the current generation in service (43.5 gigawatts). And this is where another variable that experts also anticipated comes in: long-term contracts (PPAs) with an industrial customer guarantee a fixed price for a certain time and, probably, that price, given the high market prices, is higher than the price offered by the Government. "At this moment the market has other more interesting alternatives," reaffirmed an industry source on Tuesday night after learning the results of the auction.

      In addition, Ribera added that many more megawatts were accredited that "have not necessarily made a concrete proposal". Companies must 'sign up' to the auction with some advance notice, and the vast majority did so, but a significant part of them decided not to make any offer this Tuesday. However, Vice-president Ribera has called for "tranquility" in view of this result and has confirmed that "there will be more auctions" in the future.


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