Analysis: Spain's wind industry 'gobsmacked' at €25/MWh tender average

With projects awarded at prices below the national wholesale electricity market, there is concern the entire value chain could be hit, even though the government declared the oversubscribed tender a success

Many of Spain's big developers stayed away from the tender (pic: Enel Green Power)
Many of Spain's big developers stayed away from the tender (pic: Enel Green Power)

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Wind power was awarded 998MW in Spain’s 3,034MW renewables power auction this week, achieving an average power price of €25.31/MWh—well below the €33.96/MWh national wholesale electricity market price for the full year 2020.

The details of Spain’s first renewable energy tender under a new auction system were released by the energy ministry earlier this week.

All allocated wind projects—a total of 37—must be online by the end of February 2024, although state energy secretary Sara Aagesen said she expects deployment to be even faster.

The remaining 2,036MW were allocated entirely to solar PV projects, which averaged a price of €24.47/MWh. This includes all the capacity on offer in the technology neutral pot, as well as the dedicated solar allocation.

Sector reactions are mixed. Officially, national wind energy association AEE welcomed the roughly €1 billion investment to be generated by the auction, creating 30,000 jobs.

However, AEE argues the wind sector requires 2GW annually to meet government targets and, therefore, requires a wind-specific quota close to that amount. 

Pricing pressures

Regarding the auction prices, “I am gobsmacked,” said sector veteran Alberto Ceña, a founder of AEE and now CEO of renewables consultancy Bepte.

He believes the “unprecedentedly low prices” will force a restructuring of financing agreements for new Spanish projects and place “onward pricing pressures on the entire value chain”.

Ceña also fears the doors may open to cheaper turbine technology from China and other countries, less tailored to local condition.

Turbine manufacturer Siemens Gamesa’s performance on the Madrid stock exchange seems to reflect such concerns, with share prices dropping from €36.60 on Monday to €33.70 on Thursday.

Ceña concedes, nonetheless, that the auction lends state approval to projects, easing both financing and processing with regional administrations. “Market action will undoubtedly ensue, but the going will be tough,” he said.

Policy objectives

Meanwhile, Aegesen highlighted the savings for consumers, as the auction prices are nearly 30% below the €33.96/MWh average wholesale market price throughout 2020, which itself was down from €47.40/MWh in 2019.

Reasonable consumer prices form part of the Spanish government’s so-called just energy transition and its related national integrated energy plan, known as PNIEC, for 2021-2030.

The PNIEC targets include just over 50GW of cumulative wind capacity – 23GW more than the roughly 27GW online at the end of 2020.

No safeguard

Spain’s three previous power auctions, in 2016-2018, allow operators to receive the wholesale or “pool” price. As a safeguard against plummeting pool prices, those auctions set a minimum price for wind power energy sales, at €24-28/MWh.

No such safeguards exist under this latest auction, however. Each of the 37 wind projects instead established a fixed price per megawatt hour.

The contracts are for an amount of energy calculated over 12 years and will be terminated when either the set period is over or the amount is met, whichever comes first.

Ceña highlights the disparity between the prices in the Spanish auction and the €68/MWh achieved in Italy’s joint wind-solar tender, the results of which were also announced this week.

However, while the Italian auction was undersubscribed, Spain’s was oversubscribed by more than 300%, with offers totalling 9.7GW. Aegesen takes that as a clear sign of “success”.

Yet, many of Spain’s traditional big players, such as Acciona, Iberdrola, and Enel-owned Endesa, did not pitch wind power offers.

In fact, the lion’s share of the wind allocation went to a smaller local player, Capital Energy, landing 620MW. The remaining 378MW was distributed among six other developers.

Meanwhile, Aegesen confirmed that 19GW of further renewable capacity will be auctioned under the PNIEC to 2026, with a second one likely before the end of this year.  

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