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    The failure of the last 5G and renewable auctions puts pressure on the government for the next auctions.

    January 17, 2023 - CE Noticias Financieras


      Public resources are limited and when they are auctioned, they arouse great interest among companies, so governments are tempted to take advantage of this expectation to satisfy their voracity for revenue (in the case of telecommunications) or to accelerate the deployment of non-emitting technologies at favorable prices for the consumer (in the case of renewable energies). Sometimes, however, they achieve the opposite effect to the one they are aiming for. This is what has happened in the recent auctions for 5G mobile telephony and renewable energies.

      Telecommunications operators and energy companies have decided to lower their bids, and some of them have even dropped out of the process because they believe that the large outlays do not guarantee a return in the form of business. This is also a method of pressure for the government to look for other formulas or to lower its level of ambition when, in the next auctions - there will be more in the coming years - it returns to allocate frequencies or green megawatts.

      The latest example of this failure was the auction of the 26 gigahertz (GHz) frequency band, the last one left free for 5G mobile telephony, which was held on December 21. The process barely lasted a few hours (the joke circulating among the companies is that it has taken longer to read the conditions than to place the bids) and ended with a disappointing collection of 36.2 million euros, far from the 56 million of the starting price and even more from the target of 100 million that the Ministry of Economic Affairs and Digital Transformation had set itself.

      It was a minor auction, because the bulk of frequencies had already been allocated. Of the 12 national blocks, three were left deserted. Only Telefónica acquired five blocks of 200 megahertz (MHz) that corresponded to it as maximum, but for the minimum starting amount (20 million euros). Orange and Vodafone only acquired two blocks each, also for the minimum price. But the worst news came from the regional side. In order to please the Basque and Catalan nationalists, the Ministry of Economy reserved for the first time in an auction of this type 38 regional concessions whose value was fixed according to population. Only the Valladolid-based Globe Operator Telecom participated in the auction to acquire the frequencies of Castilla y León for 200,000 euros. The rest of the regional concessions were not awarded.

      The department headed by Nadia Calviño cannot claim that it was not warned. The companies had asked for the postponement of this auction to 2023 or 2024, because the development of 5G is still in its infancy and there is not enough mature technical equipment to apply this technology in high frequency bands, suitable for deployments in areas where many devices or people accumulate, such as factories, airports and stadiums.

      Moreover, this was the fourth auction of frequencies for 5G networks held in Spain, after the auction of the 3.6 GHz band held in 2018, the 20 MHz auction of that same band held in February 2021 and the 700 MHz auction in July 2021. In the latter, the main one due to the starting amount, the Government also failed in its objectives, since it was held in just two days since its beginning due to the low bidding, with a collection of 1,010 million euros, slightly above (1.5% more) the starting price of 995.5 million euros, and well below the 2,100 million euros that the Ministry of Finance set as a collection target in the General State Budget for 2021.

      The added problem is that although operators do not yet use these frequencies for their commercial services, they must pay from the first year the so-called radioelectric fee associated with the concession, which discourages them when it comes to bidding.

      Renewable auctions

      Something similar has happened with the commitment to renewable energies. At the end of November, an open secret was made public in the energy world: the large renewable energy auction called by the Government in 2022 ended in a resounding failure, with less than 50 megawatts (MW) of wind and photovoltaic power being awarded out of a total of 3,300. The big names in the sector opted not to participate in this process, which was practically deserted. And those that did, were not awarded a single plant due to the low reserve price, at which the companies commit to sell the energy they generate 12 years ahead. Something very similar to what happened a month earlier, with solar thermal, biomass and distributed photovoltaic.

      The sector, both as an individual company and as an employer, has raised its voice against prices they consider not adapted to these times of inflation in materials, which is raising the cost of installing panels and wind turbines, and rising interest rates, which is forcing more than ever to adjust the spreadsheets that determine the feasibility or otherwise of a project. With this background, they believe that they can get much better deals outside this framework than within it. This rejection is especially relevant at a time like the present: renewable auctions are one of the main keys to the proposed reform of the European electricity market recently submitted by the Spanish government to Brussels.

      In the collective imagination of renewable plant developers there is a clear maxim: if inputs do not become cheaper soon and the price of money does not go down, in order to revive this auction instrument - which has given such good results in the past - the Government will have to improve the price in the following calls for tenders. In other words, end electricity consumers will have to pay a higher premium to the generating companies to offset this increase in their costs.

      The failure of this latest round of renewable auctions has nothing to do with a reduced appetite for these energies, which have no carbon footprint and are much cheaper than their fossil counterparts. Quite the contrary. The sector has not stopped growing in Spain, although it has done so in a different way, giving preference to bilateral supply contracts (known as PPAs). In this type of contract, a supplier agrees to deliver energy to a customer for a given period of time and at a given price, with much greater bargaining power than in an auction, which is by definition more rigid. The other option is to sell the energy directly to the market, without a remuneration framework fixed in advance.

      In the renewable sector, the concern is far from being the lack of appetite for new installations - outside these processes - but rather other problems. If in the specific case of the auctions the low reserve price is the biggest stumbling block, on a more general level it is the administrative funnel: if the central government and, above all, the autonomous communities do not speed up the processing of environmental approvals, dozens of projects will be in limbo at the end of January.

      "Several factors have come together that do not put the auction system in crisis, but that have slowed it down temporarily," says Luis Atienza, former president of REE. "There is the cost inflation in the renewables supply chain and that the high prices for the coming quarters discourage developers from going to auctions with a fixed price for 12 years when they can get a higher price in the market. But the main thing is the bottleneck in the pace of project approvals, which is holding back developer participation in auctions."

      The solution, says Atienza, may involve revising "somewhat" the reserve price in future calls - "although not much: you have to keep a cool head so as not to set very high prices, which penalize consumers in the long term" - and, above all, speed up processing times: "This is the most important thing, because it will have a tractor effect on the next calls: if you speed this up, you will have more appetite and greater supply pressure in the auctions".

      With or without auctions, the installed capacity of green energies in Spain has not stopped growing in recent times. And this year is no exception. According to data from Red Eléctrica de España, solar PV will end 2022 with almost 25% more installed capacity than a year earlier. Although more modest - and here much more ambition is required to meet the targets of the National Integrated Energy and Climate Plan (Pniec, Spain's roadmap for renewables deployment) - the increase in wind narrowly exceeded 4%. In 2021, the increase was more than 30% and almost 4%, respectively.

      The Ministry for Ecological Transition has denied, so far, that it will introduce changes in future calls and relies on this remarkable growth of the renewable park even without auctions. Regarding the poor results of the last calls, sources from the department headed by Teresa Ribera claim that "the schedule has been met and an excessive payment for consumers has been avoided due to a temporary situation". And they emphasize that the power not awarded "is reserved for future tenders". The Government, these sources point out, "will continue to launch auctions in accordance with the planned calendar until 2026, which establishes the holding of a minimum number of tenders that can be increased if deemed appropriate, as in 2021, when two auctions were held for wind and photovoltaic".

      In view of the bad tone of the last calls sponsored by the Administration, the Association of Companies with Large Energy Consumption (AEGE) has already designed, together with the Iberian Energy Market Operator (OMIE), a new framework for wind and photovoltaic auctions with the aim of enabling its associates - the electro-intensive companies - to cover their needs. The supply term would be around 12 years -similar to that of conventional auctions, which are called by the Ministry-, in which these companies would ensure clean energy at a much lower price than they would get by going to the market.


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