RENEWABLE ENERGY AUCTIONS STATUS AND TRENDS BEYOND PRICE © IRENA 2019 Unless otherwise stated, material in this publication may be freely used, shared, copied, reproduced, printed and/or stored, provided that appropriate acknowledgement is given to IRENA as the source and copyright holder. Material in this publication Citation: IRENA (2019) that is attributed to third parties may be subject Renewable energy auctions: to separate terms of use and restrictions, and Status and trends beyond appropriate permissions from these third parties may price, International need to be secured before any use of such material. Renewable Energy Agency, Abu Dhabi ISBN 978-92-9260-190-4 About IRENA The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that supports countries in their transition to a sustainable energy future and serves as the principal platform for international co-operation, a centre of excellence, and a repository of policy, technology, resource and financial knowledge on renewable energy. IRENA promotes the widespread adoption and sustainable use of all forms of renewable energy, including bioenergy, geothermal, hydropower, ocean, solar and wind energy, in the pursuit of sustainable development, energy access, energy security and low-carbon economic growth and prosperity. www.irena.org Acknowledgements This report is dedicated to the late Steve Sawyer, a major contributor to IRENA’s work on policy, including renewable energy auctions. This study was conducted under the guidance of Rabia Ferroukhi and developed by Diala Hawila, Carlos Guadarrama, Emanuele Bianco and Abdullah Abou Ali (IRENA). Valuable contributions were also received from Luiz Augusto Barroso, Gabriel Cunha, João Pedro, Ana Beatriz Carvalho Werlang, Juliana Xavier and Bernardo Vieira (PSR); Hugo Lucas Porta (Spanish Institute for Diversification and Energy Saving); Mats Marquardt (Factor) and Pablo del Río (CSIC). Expert reviewers also included Christian Redl (Agora Energiewende), Jesus Avila Camarena (CENACE); Lena Kitzing (DTU), Adil Hanif and Tiago Oliveira (EBRD); Moïra Jimeno (Eclareon); Wikus Kruger (EEG); Vasilios Anatolitis (Fraunhofer ISI); Federico Mandolini, Michele Panella and Andros Racchetti (GSE); Lisa Viscidi (Inter-American Dialogue); Rina Bohle Zeller (IRENA Coalition for Action – Vestas); Deepak Krishnan (IRENA Coalition for Action – WRI); Álvaro López-Peña (KPMG); Houssam Abou-Otmane, Abderrahim Jamrani and Khadija Hassani (MASEN); Silvana Tiedemann, Felix von Blücher and Fabian Wigand (Navigant – part of the AURES II consortium); Laszlo Szabo (REKK); Simeon Agada and Mike Luker (UK Department for Business, Energy and Industrial Strategy); Sarah Lawson (USAID); Johanna Koolemans-Beynen (US Energy Association); and Gabriela Elizondo Azuela and Zuzana Dobrotkova (World Bank) along with Luiz Maurer and Sandra Chavez (World Bank consultants). IRENA colleagues Emma Aberg, Serkan Ata, Rafael De Sá Ferreira, Sufyan Diab, Gerardo Escamilla, Jinlei Feng, Febin Kachirayil, Michael Renner, Naida Taso, and Badariah Yosiyana, and Divyam Nagpal (IRENA consultant) also provided valuable review and feedback. The editor of this report was Steven Kennedy. IRENA is grateful for the generous support of the Government of Germany and of the Government of Japan, which made the publication of this report a reality. Available for download: www.irena.org/publications For further information or to provide feedback: [email protected] Disclaimer The designations employed and the presentation of materials featured herein are provided on an “as is” basis, for informational purposes only, without any conditions, warranties or undertakings, either express or implied, from IRENA, its officials and agents, including but not limited to warranties of accuracy, completeness and fitness for a particular purpose or use of such content. The information contained herein does not necessarily represent the views of all Members of IRENA, nor is it an endorsement of any project, product or service provider. The designations employed and the presentation of material herein do not imply the expression of any opinion on the part of IRENA concerning 22 the legal status of any region, country, territory, city or area or of its authorities, or concerning the delimitation of frontiers or boundaries. Contents INTRODUCTION 06 1. RECENT TRENDS IN RENEWABLE ENERGY AUCTIONS 08 1.1 Global overview and price trends 09 1.2 Regional trends 11 1.3 Price trends 13 1.4 Identifying trends in auction design elements: an updated framework 16 1.5 Conclusions on recent trends 29 2. ENSURING TIMELY PROJECT COMPLETION 30 2.1 Bidding stage 31 2.2 Awarding and contracting stage 34 2.3 Construction stage 37 2.4 Operational stage 45 2.5 Conclusions on ensuring timely project completion 49 3. SUPPORTING THE INTEGRATION OF VARIABLE RENEWABLE ENERGY 50 3. 1 VRE characteristics relevant to auction design 51 3.2 Project-based strategy 52 3.3 Quantity-based strategy 54 3.4 Adjustment-based strategies 56 3.5 Price-based strategies 58 3.6 Product-based strategies 59 3.7 Blended strategies 60 3.8 Conclusions on variable renewable energy support 62 In focus: Curtailment of variable renewable energy 62 4. SUPPORTING A JUST AND INCLUSIVE ENERGY TRANSITION 64 4.1 Inclusion of small/new players 66 4.2 Development of local industries 72 4.3 Local job creation 75 4.4 Subnational development and community benefits 80 4.5 Conclusions on ensuring a just transition 84 THE WAY FORWARD 85 REFERENCES 87 ANNEX: HIGHLIGHTS OF RENEWABLE ENERGY AUCTIONS, 2017-2019 95 ANNEX REFERENCES 100 FIGURES, TABLES, BOXES & PHOTO CREDITS FIGURES Figure 4.3 Materials required for a 1 MW solar PV plant, a 50 MW onshore wind Figure 1.1 Share of the total volume of renewable plant and a 500 MW offshore wind plant 76 energy auctioned in 2017-2018, by technology 09 Figure 4.4 Distribution of human resources along the Figure 1.2 Global weighted average prices resulting from value chain for 50 MW PV project, 50 MW onshore auctions, 2010-2018, and capacity awarded each year 10 wind and 500 MW offshore wind 77 Figure 1.3 Volume auctioned between January 2017 Figure 4.5 Distribution of total labour and December 2018, by technology and region (GW) 11 requirements for a 50 MW solar and wind project 78 Figure 1.4 Volume auctioned between January 2017 and December 2018, by region and technology (GW) 12 Figure 1.5 Factors that impact the price resulting TABLES from auctions 13 Table 1.1 Criteria to qualify for the first round of Figure 1.6 Auctioned capacities and resulting prices Colombia’s 2019 renewable energy auctions 21 from solar auctions in India, 2015-2019 14 Table 2.1 Commitment bonds for solar and wind Figure 1.7 Updated framework of auction design 18 auctions in selected countries 35 Figure 2.1 Risks of underperformance at each stage Table 2.2 Share of local content commitments in of the auction process 31 Noor-Ouarzazate, Morocco 46 Figure 2.2 Undersubscription in German onshore Table 2.3 Employment at Morocco’s Nour wind auctions leading to increased prices, Ouarzazate facility 47 May 2017-May 2019 32 Table 2.4 The performance of projects awarded in Figure 2.3 Underbidding in South Africa in terms of socio-economic development, Japan’s solar PV auctions 33 as of March 2019 48 Figure 2.4 Status of projects Table 4.1 Community ownership legal models 67 resulting from wind auctions in Italy 40 Figure 2.5 Status of projects awarded in South African auctions as of March 2019 41 BOXES Figure 2.6 Status and technology BOX 1.1 Prices from India’s 2017-2018 of awarded plants in Mexican auctions 42 solar auctions 14 Figure 2.7 Underdelivery from Box 1.2 Enabling environment driving solar Brazilian wind auctions: delivering less than PV prices down in China’s auctions 15 the committed capacity 45 Box 1.3 Uncertainties surrounding Mexico’s Figure 3.1 Implementation strategies for auction electricity market 17 design to support increasing shares of VRE 51 Box 1.4 Drivers and results of renewable energy Figure 3.2 Adjustment factors auctions in Colombia 19 in Mexico’s first auction 61 Box 1.5 Zone-specific auctions in Kazakhstan 20 Figure 4.1 Enabling policy components Germany’s network expansion areas of the just transition framework 65 Box 1.6 for the distribution and transmission grids 22 Figure 4.2 Project size and bid price of awarded Colombia’s February 2019 projects in the fourth solar auction in Japan 68 Box 1.7 post-qualification phase: ensuring sufficient competition 23 4 Box 1.8 The Open Solar Contracts initiative 24 Box 4.2 Increased participation of small Box 1.9 Afghanistan engineering, procurement players in the 2019 solar auction in Japan 68 and construction contracts 25 Box 4.3 Challenges in designing incentives Box 1.10 Support scheme for renewables for community engagement in Germany’s in Finland 27 wind auctions 69 Box 2.1 The cross-border solar auction held Box 4.4 Community engagement in Victoria, by Germany and Denmark 34 Australia 70 Box 2.2 Commitment bonds in Box 4.5 Reorienting economies dependent upon Japanese solar PV auctions 36 fossil fuels 72 Box 2.3 Lead times and currency Box 4.6 Local content requirements in selected exchange risks in Brazil 37 countries 74 Box 2.4 Performance of early solar auctions in Box 4.7 IRENA’s Leveraging Germany 39 Local Capacity report series 76 Box 2.5 Performance of wind projects awarded Box 4.8 Distribution of human resources along through the 2012 and 2016 auctions in Italy 40 the value chain for solar photovoltaic, Box 2.6 Performance of auctions onshore and offshore