Large industry finalizes its massive purchases of cheap electricity despite the renewable auctions fiasco

Following the failure of the renewable energy auction organized by the government, large industry is moving ahead with plans to hold its own tender in which electricity-intensive consumers will cross-bid with renewable energy producers. The Asociación de Empresas de Gran Consumo de Energía (AEGE), which has designed the process in collaboration with the Iberian electricity market operator (OMIE), plans to hold the bidding in the first quarter of this year, as stated this Monday by its general director, Pedro González, during a forum organized in the Congress of Deputies.

The organization, which brings together companies such as Arcelor Mittal or Asturiana de Zinc, for whom energy is in some cases almost half of their costs, has been organizing this tender for months (originally planned for September), but has been delayed by the uncertainty arising from the war. 80% of this type of companies buy their energy directly in the electricity market (the so-called 'pool'), so they suffer the current high prices that multiply by five the pre-pandemic figures. The objective, therefore, is to obtain power purchase and sale contracts that guarantee both parties a fixed price, lower than the market price, for 12 years. And one of its great attractions is that consumers will have the backing of the State, through the Spanish Reserve Fund for Guarantees for Electro-intensive Entities (FERGEI).

This massive purchase of energy will have a big difference compared to the tenders organized by the Government and is that it will not have a maximum price, which is known as the reserve price. This reduces the possibility of failure, according to the director of technology, innovation and new developments of the Iberian market operator OMIE, Pedro Basagoiti. "Many bids (in the auction organized by the Ministry for Ecological Transition) did not come out married because the prices were much higher (than the reserve price). There are no reserve prices here. Buyers and sellers have an idea of future prices. I understand that there are going to be enough offers and buyers will have to focus on how far they can go," Basagoiti explained.

The formula used is the same as that of the government bids, by playing with the price of energy, so that developers ask for an amount for the energy they generate in their plants and consumers launch bids for the price they would be willing to pay and until some figures coincide with others. But then, there is another big difference with respect to public renewable auctions, and that is that the producers will receive the amount of money proposed, while consumers will pay the average price at which the auction is held, as long as this is below their bid.

The last big difference with the usual renewable auctions is that not all the renewable park will have to go to the auction, but the producers will be able to leave a part of the production to be sold to the market. In other words, a 50 megawatt wind farm, the producer can take 45 megawatts to auction and the remaining 5 megawatts can be sold on the market. Industry sources suggest that this could be 20-30% of the wind farm, although this remains to be clarified.

"(These auctions) have an undoubted advantage which is the predictability and stability with obligations of energy delivery by producers and payment by consumers," explained Hermenegildo Altozano, partner of the law firm Bird & Bird. "And the added advantage in view of what has happened with the regulation in recent months is that if there are 'clawback' mechanisms (reduction of extraordinary profits from renewable and nuclear production) the bilateral contracts already signed are exempt," added Altozano.