Germany

Germany

Germany joint auctions give pause for thought

GERMANY: Germany held its first technology-neutral renewables auction in April -- onshore wind battled solar projects for support for 200MW. The results give pause for thought.

Solar power projects won the full amount available in the first joint-technology tender (pic: Parabel)
Solar power projects won the full amount available in the first joint-technology tender (pic: Parabel)

Firstly, onshore wind was left empty-handed as solar projects swept the board, a sobering outcome that even prompted the German economy ministry to comment: "Overall, we need a balanced mix of renewables."

The solar and wind associations, BSW-Solar and BWE, described the joint tender as "unsuitable" and "a failure".

"Pitting the two most important pillars of our future energy system against each other is inefficient and not effective. We need an intelligent mix of the two technologies," said BWE president Herman Albers.

Secondly, the bidding level per MWh was higher than at technology-specific auctions. The average onshore wind bid of €72.30/MWh was 53% higher than the average winning bid of €47.30/MWh at the most recent wind-only auction, in February 2018.

At €46.70/MWh, the average winning solar bid in the joint auction was nearly 8% higher than the €43.30/MWh at the previous solar-only auction also in February.

All of the wind bids were higher then the highest winning solar bid in the auction.

Germany's pilot technology-neutral auctions for 400MW a year during 2018-2020 was a condition of European Commission (EC) clearance, under the 2014 energy and environment state aid guidelines, for its renewable energy act EEG 2017.

Germany would thereby "gain experience with other tender designs."

But the higher prices seem to contradict EC's expectation in its 2014 guidelines that "all renewables generators competing on equal footing" (at the European Economic Area level) should normally ensure that subsidies "are reduced to a minimum in view of a complete phase out".

German experience so far points to technology-specific auctions leading to lower bids for support. Whether this will feed into state-aid guidelines post-2020 remains to be seen seen — the European Commission has yet to take a formal position on its plans.

Should technology-neutral auctions become the norm and apply to large amounts of capacity, "there is a danger of causing unnecessarily high costs", German energy and water federation BDEW warned, as with large volumes, the more expensive technologies will also succeed and set the price for the whole auction.

"If various technologies with different cost levels are jointly auctioned on a large scale, it's probable that due to the volume, the more expensive technologies will also be successful and become price-setting for the whole auction.

"That's not in line with trying to achieve a cost-efficient Energiewende," it said.

When compared with technology-specific auctions in February 2018, the joint auction results do not reliably mirror cost structures, noted German engineering federation VDMA's power systems division. Exactly why is not clear.

"The volume put up for joint auction was not large, and evidently competition was not so intense as in the preceding technology-specific auctions. Bidding strategies may also have played a role," suggested VDMA.

Joint auctions neglect to account for the potential contribution by each type of technology to optimal functioning of the electricity grid system, "but for efficient expansion of renewable energies, this is absolutely vital," continued the VDMA.

Germany's wind and solar energy associations both urge for continuing with separate wind and solar auctions to ensure the best balance of their complementary generation — more wind output in winter, more solar in summer, and day/ night variations — for optimising their electricity system integration.

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