Renewable energy auctions

EU and Serbia

Prepared by:
Miodrag Mitrovic & Zarko Djurdjevic
07 October 2019 Strictly Private and Confidential
 FIT Model – still most common
(60 countries)

• A Feed-In Tariff (FIT) provides renewable energy generators with a fixed price for the energy which
they produce.

• The FIT is set for each technology individually and is paid for a fixed number of years. This increases
the stability and allows for long-term planning, which encourages investment in to renewable energy
projects.

• In some countries the FIT is funded through the electricity utility bills, which means that the costs are
passed down to the consumers. However, in other countries, where an increase in consumer bills was
deemed unacceptable, government budgets have been set aside for the FIT. (Passey, et al., 2014)[1]

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 FIT Model – still most common
(60 countries)

Advantages Disadvantages
•Simple policy model, however, can be customized to •While the policy structure is simple, finding the best
target specific technologies. FIT level and digression mechanism for each country
is difficult.
•Limits the risk for investors.
•Due to long term security FITs drives technological •With
a fixed FIT, project do not need to respond to
price signals from the market, resulting in bad market
development.
integration.
•Facilitates the entry of new players in the market.
•The FIT only supports grid connected generation.
•Because the FIT is output based it provides an
incentive to maximize productions. •FIT can be very costly for a country.

•When funded by the consumers, the FIT imposes no •Badly

designed FIT can result in high utility costs
for the consumers.
burden on the public budget.
•When funded through a budget the stability of the
•Tariff structure can be adapted to impact on
FIT is linked to the budget reliability.
customer load patterns.
•There is less control over the installed quantity.
•Tariffs are linked to a fixed timeframe.
•Well established and successful policy method.

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 Auction model

• Renewable energy auctions, sometimes also called ‘demand auctions’ or ‘procurement auctions’ are a
type of support mechanism for renewable energy technologies.

• In most cases renewable energy auctions are opened by the government of a country. They will specify
the capacity (kW) or the electricity generation (kWh) which is up for auction, as well as the generation
technology and sometimes the generation location.

• Project developers can than submit a bid to the auction, outlining their project proposal and stating the
price per unit of electricity at which they will be able to realize their project. The government then
evaluates the different offers, ranking them based on their price and other criteria.

• The best candidates are then selected and the government signs a power purchasing agreement with the
successful bidders. (Lucas, et al., 2013)[4]

• Auctions are very flexible and can be organized in many different ways. In order for an auction to
succeed it is important that it is adapted to the countries specific circumstances. These depend on the
goals which the country wants to achieve through the auction.

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 IRENA research, June 2019:

•Renewable energy auctions continue to reveal competitive prices for renewable power in markets around
the world.
•Solar PV and wind are the most widely auctioned technologies.
•Global prices for solar PV power continued their downward trend, albeit at a slower rate, while onshore
wind power showed a slightly higher average global auction price in 2018 compared to the year before.
•RES auctions are increasingly used to achieve objectives beyond price, including timely project
completion, solar and wind integration, and supporting a just and inclusive energy transition.
•Auctions can strengthen solar and wind integration by ensuring procurement of the system-friendliest
power plants.
•Auctions design, in combination with, financial, industrial, labour and education policies, can contribute to
fulfilling broader socio-economic aims.

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 Auctions
Advantages
•Guaranteed purchase at fixed price.
•Guaranteed access to the grid.
•Long term guarantee leads to better financing
options and potentially lower prices.
•High competition results in cost efficiency and
reveals the true market price of different
technologies.
•Limits can be set by the government for the capacity
and the budget.
•Due to the fixed schedule, electricity generation
from renewable energy technologies becomes more bidders.
predictable. This makes future power planning easier.
•Bids can be selected according to specific criteria. too high.
This allows for multiple country policies (ex:
environment, employment) to be considered.
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Disadvantages
•When not scheduled regularly auctions can lead to
discontinues (stop start) market development.
•Difficult for small/medium sized bidding companies
due to the high transaction costs (project proposals
need planning, feasibility study, risk assessments) and
the risk of not getting a return on these investments in
case they are not chosen.
•High administrative costs.
•High competition can lead to underbidding which
results in low financial returns, contract failure or
attempted post-auction price raises by successful
•If there is not enough competition offers might be
•In open auctions there is a risk of collusive behavior
between bidders to drive up prices.
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 Overview of Different Auction Models

• Sealed Bid Auction: All bidders submit their proposal, containing the price and quantity of generation.
The individual bidders are not able to see each other’s proposals. All of the submissions are then screened
to confirm that they meet the outlined requirements. The bids are ranked from lowest to highest,
according to their price and possibly other additional criterial. Then the best ranking projects are selected
one by one, until the number of selected projects covers the volume of renewable energy generation
which is being auctioned. (Lucas, et al., 2013)[4]

• Iterative Process/Descending Clock Auction: In this type of auction the auctioneer (in most cases the
government) declares a price for a new renewable energy generation project. The bidders then come
forward and announce what quantity of generation they are able to offer for this price. The price is then
progressively lowered by the auctioneer, which results in lower generation quantities offered by the
bidders. This process is continued until the generation quantity offered matches the volume of new
renewable energy which the government wants to invest in. In this auction the bidders know each other’s
offers and are therefore able to adapt their own offers based on the competition. (Lucas, et al., 2013)[4]

• Hybrid Type Auction: These auctions consist of a combination of different models to select the bidders.
As an example, Brazil uses an auction which is divided into two phases. The first phase is a descending
clock auction used to discover the price. The second phase consists of a sealed bid auctions which
ensures that the bidders cannot collude on the price. (Lucas, et al., 2013)[4]

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 RES auctions in EU:

• Projects AURES I and AURES II: Ensuring the effective implementation of auctions for Renewable
Energy Sources (RES) in EU Member States. (http://aures2project.eu)
• The EU Audit Agency: At least half the EU member states will be unable to reach their 2020 renewable
energy targets, therefore more auctions are needed:
(https://www.eca.europa.eu/Lists/ECADocuments/BRP_ENERGY/BRP_ENERGY_EN.pdf)

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 Onshore wind power energy auctions in EU

• By the end of 2016, 3 MS (Germany, Italy, Lithuania) had introduced tendering procedures for onshore
wind projects. In the second half of 2017, France organized the first round of a pluriannual tendering
procedure for onshore wind projects.
• Category of auctions: No differentiation by onshore wind technologies or size can be identified.
Germany has differentiated by the nature of the bidder, i.e. defined different prequalification's for
professional bidders and local community (citizen) projects.
• Determined value through auction: The outcome of the tendering procedure was to determine a
reference price level per kWh, either as a basis for a FIT (Lithuania) or for FIP (Germany, Italy, and
France).
• Pricing rule: There is no standard pricing rule to be observed for the tendering of onshore wind projects:
Lithuania determines the level of payment by a uniform pricing rule while Italy and France use a pay-as-
bid system. Germany follows a hybrid approach, combining pay-as-bid (standard projects with building
permit) and uniform pricing (local community projects without building permit) in accordance to the
nature of the project submitted. 4.
• Participation size: A minimum participation size has been defined for all tenders so far. In Germany
onshore wind projects must display a capacity of at least 750 KW. In Lithuania all projects over 10 kW
must participate in auctions. In France, only projects with at least 7 wind turbines or with at least 1 wind
turbine with an installed capacity larger than 3 MW could participate.

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 Onshore WPE auctions in EU
• Key selection criteria: The majority of tenders were conceived as single criteria price-based schemes.
Only in case of bid price equality, offered capacity (largest in LT and smallest in DE) is selected as a
second criterion.
• Material prequalifications: Besides Lithuania, material prequalification's were requested in all tenders,
usually under the form of a building permit (DE), a wind location analysis (DE), an environmental
authorization (FR) or a plant authorization and connection quote, redacted by the grid operator and
accepted by bidder.
• Financial prequalifications: These are mostly expressed in relation to the capacity offered or the
investment volume and are defined as a fix value in EUR/KW or as a percentage of the investment. In
France, the financial guarantee is only due if the bid is selected.
• Setting of minimum/ maximum bid prices: Italy has defined a minimum bid price (60% of the base
tariff) while the remaining MS with onshore wind auctions rather defined a ceiling price for participation
in order to avoid the risk of overcompensation.
• Administrative participation fees: Germany (522 EUR) and Italy (2,200 EUR) opted for charging a fee
for participating in the tendering procedures. Unsuccessful bidders in the German tenders are reimbursed
25% of their participation fee.
• Realization time: The realization time is between 2.5 and 3 years. Delays lead to the full loss of a
support entitlement. In France, the duration of the FIP will be reduced by the duration of the delay. Local
Energy Community wind projects in Germany benefit from an additional 24 months for realization,
which is foremost necessary for the issuance of a building permit.
• Duration of support: In Germany, France and Italy support is guaranteed for 20 years starting from the
date of installation.

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 EBRD, EnCS and IRENA Auction Guidelines
for SEE

• EBRD, EnCS with support of IRENA issue Guidelines for RE auctions in southeastern Europe in March
2018(https://www.ebrd.com/cs/Satellite?c=Content&cid=1395272817389&d=&pagename=EBRD%2FC
ontent%2FDownloadDocument)
• The Energy Community Secretariat (EnCS), an international organization run by the EU and the
governments of Albania, Bosnia and Herzegovina, Georgia, the former Yugoslav Republic of Macedonia,
Kosovo Moldova, Montenegro, Serbia, and Ukraine.
• governments of the aforementioned southeastern European countries are called on to create an overall
strategy
• process for dispute resolution must be established at all stages of the auctions.
• recommends applying a cap on the amount of capacity to be allocated, in order to prevents increasing
costs for the power systems and consumers, and to use a ceiling price, which is also a helpful tool in
reducing budgetary risk.
• setting size limits for individual projects, to start with technology specific auctions, and to provide
available land for the projects. The new guidelines also suggest that auctions should have a number of
bidders that exceed the available capacity, but that unqualified bidders, which may bid unrealistically and
be unable to deliver the required capacity, should be excluded.
• governments should ensure that bidders have the technical capacity to deliver projects

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 Neighboring countries of Serbia - legislation for
tender/auction models in the area of RES:

• In place or about to be adopted: Croatia, Hungary.

• No concrete plans for introducing tenders in the short term: Austria, Bulgaria, Romania, Slovenia.

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 RES Auctions in Serbia

• Development of auction model for sale of resources in RES is foreseen for Serbia in “Guidelines for RE
auctions in southeastern Europe”
• No legal framework for RES auctions implemented yet, current Decree on RES maintained until further
• Contradictory statements of government officials in 2018 and 2019 (against and pro- auction model)
• Inclination towards combination of FIT and auction models
• First RES auctions unofficially announced for 2020

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