- An EC report delves into the impact of tendering schemes in the EU on bringing down state support for renewables
- It sees for solar PV, the average total support cost, post the introduction of auctions came down by 4.73%, while that for onshore wind it was evaluated at 14.02%
- Average annual capacity addition of solar PV and onshore wind in several EU markets increased significantly in most markets
- PPAs are coming up as a possible alternative to growth in renewables whose popularity can lead to undersubscribed auctions in the future
The introduction of tenders for renewables in the European Union has been a clear success for the European Union (EU) since these have helped reduce state support cost significantly, enhanced their deployment capacities and provided a solid framework for technological improvement, according to a European Commission (EC) report.
According to the report, in this sense the auctions have been a clear success in the EU helping policymakers gradually switch over from feed-in-tariffs (FIT) and bring down the necessary level of support to the ‘lowest possible subsidy’ for an energy or capacity product.
For solar PV technology, introduction of auctions lowered the average total support cost by 4.73% for most nations, while also supporting build-up of competitively priced clean energy. In case of onshore wind, barring Ireland, the introduction of the tender scheme led to an average reduction of support costs at 14.02%.
In fact, for both solar PV and onshore wind, as the report writers analyzed, higher competition leads to higher support cost reduction compared to the auctions where competition is less intense.
“Tenders achieved positive results in terms of capacity additions, as well as in terms of high realization rate of the awarded projects, without prejudice to additional factors. In some countries, the introduction of tenders was the regulatory measure which triggered the extensive deployment of some renewable technologies, while for many countries the tenders contributed to faster paced renewables deployment,” reads the analysis.
Presenting a pre- and post-tender annual average new capacity installation scenario in some of the EU nations, the commission opines that post auction period capacity expansion is larger than pre-tender regime.
Results of auctions for small scale tenders also shows that there is a significant price premium, for most cases it is larger than €10.0 per MWh which shows that tender specifications that favor small-scale projects is associated with additional financial burden in terms of cost of support paid to the awarded projects.
Drawing attention to the growing power purchase agreements (PPA) system, there is a ‘drastic expansion of new renewable capacities’ providing an ‘alternative or complementary avenue to tenders, and may result in undersubscribed auctions’. Yet it is too early to make any concrete assessment regarding impact of cancellation of support schemes on an increased PPA market since the latter is still evolving and is not present everywhere, it cautions.
“Even if tenders might become less relevant in terms of financial support, they would however keep their strategic role as an instrument to effectively disburse scarce resources,” explain the authors. “Examples such as the auctions of Portugal that allocate grid connection capacities show that the tendering process can be redefined and linked to grid integration rather than to its original goal to allocate operational support.”
The commission plans to come out with another report under the Renewable Energy Directive to analyze further impact of tendering support schemes as an instrument to foster the deployment of renewables and contribute to the goals underlined in the European Green Deal and REPowerEU.