World Wind Energy Conference June 14th 2017, Malmö Success of onshore wind auctions: Effects of auction design and national context World Wind Energy Conference June 14th 2017, Malmö Katherina Grashof Institute for Future Energy- and MaterialFlowSystems (IZES gGmbH) 1

Structure of the presentation Objectives of RE auctions Trade-offs in and international experiences with RE auctions Interaction effects between auction design elements and context Look at the new German auctioning scheme for onshore wind Ongoing research project Conclusion

Objectives of RE auctions Expansion of RE capacity Low costs for RE power for consumers Objectives of RE auctions Actor diversity incl. local / small actors Ranking of goals among participants Regional distribution of plants Development / preservation of local industry sector Source: author

Objectives and trade-offs in RE auctions High participation requirements (e.g. permits) High competition - - + + + + RE expansion: realisation rates Low costs / bids Trade-offs in RE auctions Relevance of mass production and buying power Risk of sunk costs for unsucessful bids - - Actor diversity incl. local / small actors Source: author

Historical experiences with RE auctions regarding RE expansion Difficult to assess, but tendency to miss targets Many systems established recently: no/few rounds with terminated deadlines UK (1990s) Results: Only 30% realisation rate Reasons: volumes, participation requirements, realisation deadlines, no penalty Brasil (10 rounds 2009 - 2014, realisation deadlines terminated), as of 2/2017: 70 % realised: 23% on time, 47% late 9 % under construction 21% still in planning stage, suspended or aborted Reasons: local content requirements, participation requirements did not fit grid situation But: South Africa (2011-12, realisation deadlines terminated): 100% Reasons: limited competition, participation requirements Bra: low part req. No secure grid connection needed No EIA needed

Historical experiences with RE auctions regarding low costs Mixed, but some spectacular results lately (realisation to be seen) Spain (Jan 2016) in the news: € 0/MWh above wholesale price Note: long realisation deadline, low participation requirements, re-start after moratorium, low penalty Peru (Feb 2016) in the news: Ø USD 37 / MWh for onshore wind Note: tax benefits, low volume, high capacity factors, green bonds Mexico (Sept 2016) in the news: Ø USD 32 / MWh for onshore wind Note: further revenues, high capacity factors, low IRRs, large projects Spanien (Jan (2016) Forestalia (300 MW Zuschlag) suchte 7/2016 nach Partnern bis 70% Anteil (Bloomberg) Für Q1-2017 neue Auktion (3GW tech-offen) geplant, IB bis Ende 2019, mit vielen Milestones und Kontrollen Peru (Feb 2016), 4. Runde, Preishalbierung seit 1. Runde (von $ 80/MWh zu $ 43/MWh im Durchschnitt aller Zuschläge) Tender in US-$ - Vergütung auch an $ gekoppelt? Unternehmenssteuer: 26% Kapazitätsfaktor berechnet aus: 162 MW bezuschlagt, für 738,6 GWh/a (www2.osinerg.gob.pe/EnergiasRenovables/contenido/Documentos/4tasubastaRER_ACTAS/160216%20-%20Acta%20de%20adjudicacion%20y%20Buena%20Pro.pdf) Mexiko (Sept 2016), bezuschlagt Verträge für Feste Kapazität, Stromerzeugung und Zertifikate für 2,871 MW neu installierter Leistung Nur 80% bezuschlagt (wg. Produkt-Preisoberrenzen und Netzanschluss-Kapazitäten) tech-offene Auktion, Wind (6 Projekte) erwarb 11 % des Zuschlagsvolumens für garantierte Leistung (bei Strommenge 43%), deutlich mehr als bei 1. Auktion Solar (17 Projekte), ansonsten erfolgreich: Hydro, Geothermie, Gasturbinen, insg. Schlagzeilen: Wind durchschn. 35,7 US-$ geboten – allerdings keine LCOE, da Erlöse aus Kapazitäts- (offenbar für 100 wichtigste Stunden), Strom- und Zertifikatserlösen; zudem muss nicht ganze Projekterzeugung abgegeben werden, d.h. Dritt-Markt-Erlöse sind möglich Wind Onshore durchschnittlich 44% load factor (Kapazitätsfaktor, d.h. mittlere erzeugte Leistung/installierte Leistung), die höchsten zwei hatten 47% und 51% (unklar ob 100% = volle instl. Leistung der Anlagen oder nur volle in Auktion angebotene Leistung) Doppelt so viel Gebote wie Zuschlagsvolumen (allerdings mehrere Gebote möglich) Frist: Mai 2019 Pöyry vermutet teils < 6% IRR („below standard commercial benchmark rates for this type of projects“)

Historical experiences with RE auctions regarding actor diversity Tendency for large (international) firms as winners South Africa (2011 – 2014): 4 winners secure 60% of volume (23% Enel Green Power, 18% Mainstram Renewables) Brasil (2009 – 2015): winners are mainly large utilities, investment banks, international developers Spain (Jan 2016): 500 MW awarded to Grupo Forestalia (300 MW), Jorge (102 MW), EDP (93 MW) Peru (Feb 2016): 326 of 430 MW awarded to Enel Green Power Mexico (Sept 2016): large awards to subsidiaries of Enel Green Power, Acciona Energy, SunPower, Tractebel Brasil: Simas M, Pacca S. Assessing employment in renewable energy technologies: a case study for wind power in Brazil. Renew Sustain Energy Rev 2014;31:83–90. http://refhub.elsevier.com/S1364-0321(16)31075-9/sbref63

Design of RE auctioning schemes: interaction effects Context elements Auction design elements Materielle Teilnahme-bedingungen Finanzielle Teilnahme-bedingungen Realisierungs-fristen Zuschlags-kriterien Ausschreibungs-volumen Ausge-schriebenes Gut Höchst-gebots-preise Übertrag-barkeit von Zuschlägen Ausschreibungsdesign Netzanschluss-Regulierung Zugang zu Anlagen-standorten Verfahren zur Erteilung von (Bau-)Geneh-migungen Markt-Struktur: Anzahl/Art von Akteuren Nationale EE-Ausbauziele Zugang zu Fremdkapital Lokale Akzeptanz des EE-Zubaus Nationale Akzeptanz des EE-Zubaus Reife des EE-Marktes Rechts- und Vertrags-sicherheit Verankerung des EE-Marktes in der nationalen Wirtschaft Umgebender Kontext Source: author

Design of RE auctioning schemes: selected factors affecting RE expansion CE = Context element ADE = Auction design element RE C = RE Characteristics Objectives of RE Auctions Source: author

Design of RE auctioning schemes: early vs late auctions for onshore wind Project development Permitting COD „early“ auction „late“ Auction Realisation deadline long (e.g 4 - 5 years) short (e.g. 1 - 1,5 years) Material pre-qualification low high Securities/ Penalties very high lower Transferability of award yes no Source: author

Design of RE auctioning schemes: administrative complexity Guaranteed FIT for large-scale solar in DE (EEG 2012) Adaption of FIT to installation rates in DE (EEG 2012) Auction scheme for large-scale solar in DE (EEG 2017) Source: author

German auctioning scheme for onshore wind (starting in 2017) Auction design Onshore wind power plants ≥ 750 kW For sliding feed-in premium, 20 years 3 - 4 rounds / 2800 - 2900 MW per year; 1st round: 800 MW Late auction: Building permission required, realisation deadline: 24 + 6 months Penalty: € 30 / kW Awards cannot be transferred to other sites Pricing rule: pay-as bid Ceiling price: 7 ct/kWh (for ∼3000 FLH) Acknowledgement of force majeure: for lawsuits against building permission Regional distribution of awards: remuneration varies with location/FLH Special rules for community energy bidders: earlier auction, uniform pricing

German auctioning scheme for onshore wind (1st round 5/2017): results > 250 bids for > 2,1 GW (1,5 GW community wind), of which 70 bids (807 MW) successful Average remuneration awarded: 5,71 ct/kWh Lowest bid submitted: 4,2 ct/kWh, lowest remuneration awarded: 5,25 ct/kWh Highest succesful bid (= remuneration for community wind projects): in northern area: 5,58 ct/kWh, in center and southern area: 5,78 ct/kWh 65 bids won by community energy groups (partly supported by larger developers)  general principle of late auction reversed to early auction Resulting insecurities: Realisation rates? Influence of project developers in community wind projects? Chances for already permitted projects in future rounds? Permitting COD Project development early auction late auction Sources: BNetzA, BMWi, author

Monitoring of the actor structure in Germany Research project of IZES gGmbH & Leuphana University of Lüneburg (2016 – 2019), commissioned by Germany Environment Agency Development of methodology to measure actor diversity, differentiating between e.g. community energy, project developers, utilities Measurement of actor structure of existing large PV and onshore wind plants (>750 kW), starting from installation year 2010 Determination of actor structure in German auctions until 2019: Bidders and winners of PV auctions Bidders and winners of wind onshore auctions

Conclusions Auction design is highly complex adaption to local/national context important outcomes determined by interaction effects between different auction design elements and with (national) context conditions Results regarding objectives pursued with RE auctions expansion of RE capacity: Continued tendency to miss targets low RE remuneration: Quite low results lately, however different in auction designs and contexts make price comparisons difficult unclear, if caused by auctions structure of actors: Continued tendency for large (international) firms as winners  Internal trade-offs make it difficult to eliminate these deficits equally well

Thank you for your attention! My questions to you: RE auctioning schemes with consistently high realisation rates? RE auctioning schemes with good participation from smaller/local actors? Katherina Grashof Institute for Future Energy- and MaterialFlowSystems (IZES) gGmbH Albrechtstr. 22, D - 10117 Berlin Telephone +49 (0)30 5683 7292 Email grashof@izes.de

Backup

German auctioning scheme for solar PV (pilot auctions 2014 and 2015) Auction design Ground-mounted solar plants (100 kW - 10 MW) For sliding feed-in premium, 20 years 3 rounds / 450 MW per year Early auction (low pre-qualification) Realisation deadline: 18 + 6 months Penalties: € 25 - 50 / kW (depending on maturity of project) Transferability of awards to other sites: with reduction of remuneration Pricing rule: single auction, mostly pay-as bid; ceiling price: ca. 11,2 resp. 8,9 ct/kWh No acknowledgement of force majeure, but limited award return option at reduced penalty No steering of regional distribution of awards

Average auction result German auctioning scheme for solar PV (pilot auctions 2014 and 2015): results Uniform pricing Uniform pricing Wettbewerbsintensität: 1. Runde 5fach überzeichnet (715 MW geboten), später 3-4fach, letzte Runde 2,4fach Preisentwicklung erklärbar durch Starker Modulpreisverfall (von 0,48/49/47 €/Wp bis Aug 2016 runter auf 0,42 €/Wp (Nov 16) und 0,40 €/Wp (Jan 17) war anfangs nicht erwartet worden Enorm niedrige Zinsen Erste Runden (trotz starken Wettbewerbs) eher rantasten, welche Preise/Renditen durchsetzbar sind, so langsam wird’s wohl realistisch: habe nun mehrfach gehört, dass < 6 bis 6,5 ct nicht machbar ist Preise sind Gesprächen zufolge v.a. für integrierte Anbieter interessant, d.h. ohne Verkaufsabsicht nach IB Realisierungsraten scheinen bisher ok zu sein, Stand Ende Dez. (jeweils noch bis Mai bzw. Jul 2017 verlängerte Realisierungsfrist): 1. Runde: 66 % 2. Runde: 58% Ausfälle i.W: zu erwarten, wenn B-Plan-Verfahren gescheitert und keine Ersatzfläche (zum gewünschten Preis) gefunden werden konnte. Sybag (40% Zuschlagsvolumen der Runde Apr 2015) sucht offenbar immer noch nach Flächen Einordnung In Situation mit starkem Modulpreisverfall: enorme Mitnahmeeffekte aufgrund langer Realisierungsfrist? Auction date (Extended) deadline May 17 Aug 17 Dez 17 Apr 18 Aug 18 Dez 18 Feb 19 Ceiling price Average auction result Lowest / highest awarded bids Source: BNetzA