Markets - 07/November/2018

Strength in diversity

The focus on awarding contracts to the lowest bidders among established renewables technologies under Europe’s auctions of power purchase contracts could prevent less developed forms of renewable energy from reaching their potential

On the face of it, competitive auctions of renewable energy contracts seems to be a policy that is truly working in Europe as a replacement for the fixed-price power purchase subsidies of the past. Regular tenders offering long-term contracts are proving to provide investment certainty and are triggering the development of cheap and even subsidy-free renewables. Bringing clean energy to the grid at the lowest cost for governments and consumers is at the heart of most European auction and tender markets. But this approach comes with some challenges, not least the impact it may have on nascent renewable technologies.

Under the rules of the single European energy market, EU member states have been required since 2017 to introduce competitive tendering procedures to determine the level of operational support granted to renewables installations. These procedures, or auctions, are either technology neutral, whereby all renewable technologies compete for contracts against one another on the basis of cost, or focused on specific technologies. Under EU guidelines, competitive bidding procedures should in principle be technology-neutral unless such an approach were to lead to suboptimal results because of, for instance, network constraints or diversification needs, in which case bidding processes can be technology-specific, says a report by the Council of European Energy Regulators (CEER) published in June 2018. ...

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