On 26 January, the long-awaited first renewables auction was held in Spain under the new regulation. There was great expectation in the sector to see the results and we believe that it did not disappoint at all. In this article the results and the trends for future auctions are analysed.
But before we go into detail on the winners, let’s look at the main aspects of the auction, details of which can be found in this document:
- Regulatory scheme: within the objectives of the PNIEC for 2030 and under the umbrella of RDL 23/2020 and RD960/2020, this auction was called in December.
- Auctioned capacity: 3,000MW (with a maximum of 3,180 MW) of which 1 GW was for wind, 1 GW for solar PV and the remaining GW open to any technology.
- Price: The auction was a “pay as bid” system with sealed bids for a given capacity. The winners will actually participate in the market and will be paid the difference with the awarded tariff.
- Minimum and maximum energy: bidders bid for a capacity (MW) at a price (€/MWh), but have minimum and maximum limits of energy supplied (MWh) during the 12-year period.
The limits will be given by multiplying the capacity awarded by the minimum and maximum hours.
- Market adjustment: in order to incentivise production at peak hours, a 25% bonus is established for installations with at least 2h of storage capacity.
One of the criteria used to qualify auctions as a success or failure is the degree of participation, i.e. how many bids have been received. According to this criterion, the auction was a success as 9,700 MW were received for 3,034 MW awarded, i.e. a 320% coverage rate. 2,036 MW were solar PV and 998 MW of wind power.
As for the average price, it was below 25 €/MWh. A summary of the results can be found at this link
Some conclusions of the overall results:
- The multi-technology capacity on offer has been taken up by solar PV. This is a common practice which shows that, in pure price auctions, solar is practically unbeatable. If in the future there is a trend towards multi-technology auctions, complementary criteria to the price should be added, such as percentage of the investment remaining in Europe or capacity to produce at peak hours.
- The average price is below the pool and the average price of PPAs. This means that the market anticipates low prices in the future, both in the market and in PPAs.
- Prices have been very low, but more or less within expectations. Perhaps more difference was expected between the price of solar and wind, but it seems that wind is very competitive in Spain and solar has not gone crazy as in other countries (e.g. Portugal).
- These low prices reinforce the trend of putting pressure on equipment manufacturers and suppliers who are always having to reduce their prices to make developers’ books fit… and it is getting harder and harder to do so.
- It should be taken into account that this tariff does not necessarily represent 100% of the project’s income. If the market were to tend towards higher prices, projects would supply the minimum with this tariff and look for other agreements for the rest of the production.
The official list of auction winners is available here but we have filtered, grouped and sorted it a bit to make it more understandable:
Capital Energy has been the big winner of the auction with 621MW awarded, all wind. Other large developers such as Iberdrola (243 MW), Naturgy (234 MW), EDP (143 MW) or Acciona (106 MW) have also obtained capacity of over 100MW. Several things are striking:
- Absence of large companies such as Repsol, which did not obtain a single MW, or Enel, which only obtained 50 MW.
- 32 successful bidders in total, which means that capacity has been widely distributed, with several participants obtaining testimonial packages of several kW.
- Only 3 companies have been awarded wind and solar capacity: Elawan, Naturgy and EDP. It is likely that others such as Iberdrola, Acciona or Enel had a somewhat high pricing strategy for wind.
As can be seen in the graph above, there is a certain relationship between higher capacity and lower award price. Companies such as Greenalia, Solaria, Elawan and Capital Energy have obtained above-average prices with relevant capacities. At the other extreme is Ignis, which has stood out for its low prices. Iberdrola, X-Elio and EDP also seem to have gone for minimum capacity with low prices.
This auction should be considered a great success: a large number of participants, low prices, very distributed capacity and a demonstration that national developers are among the most professional in the world, being able to go to an auction with very little preparation time and optimising prices but without bidding crazy prices that could jeopardise the viability of the projects. On the contrary, equipment manufacturers and suppliers will look with concern at the results in anticipation of further price reductions on the horizon.