Spain's Renewable-energy Tender Ended Badly
Dec 27, 2022
Spain's Ministry of Ecological Transformation and Demographic Challenges has announced the end of a tender for the country's 2022 renewable energy generation project, but the results have been dismal.
It is understood that the total scale of the tender is 3.3 million kW, including onshore wind power plan for 1.5 million kW and photovoltaic power plan for 1.8 million kW. In the end, none of the photovoltaic power projects won the bidding, while the onshore wind power project only won 46,000kW of capacity. Spain's Ministry of Ecological Transformation and Demographic Challenges said the winning bid involved two energy companies at a weighted average price of around 0.043 euros per kilowatt hour, with the highest price of around 0.045 euros and the lowest price of around 0.04 euros per kilowatt hour.
This is the fourth time that the Spanish government has organized a large-scale renewable energy project tender. The success rate of the first three bids has been 100 per cent, making it the first time in Spanish history that a renewable power project has been "unsold". Spain's renewable energy association and local media called it "the most unsuccessful tender ever".
However, it is worth noting that renewable energy generation projects are still favored by the Spanish capital market, and a large number of energy companies participated in the bidding, according to sources quoted by foreign media. The ideal bidding price set by the Spanish government is too low, which is the main reason for the failure of this tender.
It is an "open secret" in Spain that the government will set a price cap on tenders for renewable power projects as the ideal price for renewable power projects, but the industry does not know the exact figure. Bidding energy companies guess price ceilings based on market trends and supply and demand for raw materials and products, and bid accordingly.
According to the Spanish Wind Energy Association, the price ceiling for renewable energy projects should be set at 0.047 euros per kilowatt hour (KWH), which is higher than most wind developers currently pay.
The association further stated that in January 2021, winning bids for renewable energy generation projects in Spain were as low as 0.02 euros per KWH. Since the beginning of this year, renewable energy companies have not only faced severe inflation, high transportation costs, but also a sharp increase in the cost of renewable energy products amid the imbalance between raw material prices and supply.
Alejandro Zelin and Alexandre Dantin, heads of research at Aurora Energy, a consultancy, put the price ceiling set by the Spanish government at around 0.045 euros per kilowatt hour. In the context of the supply imbalance in the PV industry, the price of PV modules for Spanish PV project developers has increased and the delivery cycle of orders has been prolonged, leading to resistance to project progress.
Giles Dixon, head of the European Wind Energy Association, said: "Not only does the current price cap not reflect where the market is actually going, it also becomes a flaw in the tendering of renewable energy generation projects in Spain. The price mechanism does not apply to the Spanish tender and does not take into account the high cost of renewable energy generation projects today, nor does it take into account the development prospects of renewable energy power."
In fact, electricity prices in Spain have been rising this year. Earlier this year, Jose Donoso, head of the Spanish Photovoltaic association, predicted that tenders for renewable power projects would be blocked. "With spot prices in the Spanish electricity market remaining high, large renewable power stations are no longer as attractive to companies and bidding prices are likely to change significantly."
Current plans call for 40 gigawatts of wind power installed in Spain by 2025 and 50 gigawatts by 2030. At the same time, the Spanish government hopes to increase the country's photovoltaic capacity to 10 gigawatts by 2025 through tenders for renewable power generation projects. Foreign media believe that the dismal end of this year's bidding has dealt a serious blow to Spain's achievement of the above targets.
"In order to compensate for the loss of this tender, the Spanish government must ensure success in the next one, which requires a change in the current pricing mechanism. In addition, the dismal results are a warning for other European countries. High electricity prices and rising renewables costs are not unique to Spain. Countries like Germany are also likely to face this problem." "Said Giles Dixon.
