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Renewable Energy Auction Prices: Near Subsidy-Free?

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  • Helena Martín

    (Electrical Engineering Department, Escola d′Enginyeria de Barcelona Est, Polytechnic University of Catalonia, 08930 Sant Adrià de Besòs, Barcelona, Spain)

  • Sergio Coronas

    (Electrical Engineering Department, Escola d′Enginyeria de Barcelona Est, Polytechnic University of Catalonia, 08930 Sant Adrià de Besòs, Barcelona, Spain)

  • Àlex Alonso

    (Electrical Engineering Department, Escola d′Enginyeria de Barcelona Est, Polytechnic University of Catalonia, 08930 Sant Adrià de Besòs, Barcelona, Spain)

  • Jordi de la Hoz

    (Electrical Engineering Department, Escola d′Enginyeria de Barcelona Est, Polytechnic University of Catalonia, 08930 Sant Adrià de Besòs, Barcelona, Spain)

  • José Matas

    (Electrical Engineering Department, Escola d′Enginyeria de Barcelona Est, Polytechnic University of Catalonia, 08930 Sant Adrià de Besòs, Barcelona, Spain)

Abstract

The latest trend of low record bid prices in renewable energy auctions has raised concerns on the effective deployment of the winning projects. A survey of recent auction data from several countries, technologies and remuneration designs is analysed and compared with the corresponding levelised costs of energy (LCOEs) to draw first insights on their viability. A critical assessment of the ability of the LCOE for determining the adequate bid level is then performed and the preliminary unviable results of selected mature technologies are further investigated using improved profitability metrics as the project and equity net present value (NPV) and internal rate of return (IRR). As representative examples, the analysed Danish 2019 onshore wind and photovoltaics (PV) auctions require very specific scenarios to become viable, which cast doubts on their effective implementation. Under the assumptions of a realistic base case, the sensitivity analysis revealed that either 59% of decrease in the weighted average cost of capital (WACC), or 37% of discount on the investment cost or a 3.6% annual increment in the mean market price is needed for achieving the NPV break-even in the onshore wind case. Likewise, the PV case is unprofitable whatever the WACC may be, and either a 60% discount on the investment cost or a 6.8% annual increment in the mean market price is needed for the NPV to break-even. Although some projects could be relying on indirect revenues or additional sources of incomes beyond the auction support, it remains to see if they are finally materialised.

Suggested Citation

  • Helena Martín & Sergio Coronas & Àlex Alonso & Jordi de la Hoz & José Matas, 2020. "Renewable Energy Auction Prices: Near Subsidy-Free?," Energies, MDPI, vol. 13(13), pages 1-21, July.
    • Handle: RePEc:gam:jeners:v:13:y:2020:i:13:p:3383-:d:379151
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    References listed on IDEAS

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    Cited by:

    1. Izabela Godyń & Anna Dubel, 2021. "Evolution of Hydropower Support Schemes in Poland and Their Assessment Using the LCOE Method," Energies, MDPI, vol. 14(24), pages 1-23, December.
    2. Chun-Nan Chen & Chun-Ting Yang, 2021. "The Investability of PV Systems under Descending Feed-In Tariffs: Taiwan Case," Energies, MDPI, vol. 14(9), pages 1-13, May.
    3. del Río, Pablo & Kiefer, Christoph P., 2023. "Academic research on renewable electricity auctions: Taking stock and looking forward," Energy Policy, Elsevier, vol. 173(C).
    4. Vassilis Stavrakas & Nikos Kleanthis & Alexandros Flamos, 2020. "An Ex-Post Assessment of RES-E Support in Greece by Investigating the Monetary Flows and the Causal Relationships in the Electricity Market," Energies, MDPI, vol. 13(17), pages 1-29, September.
    5. Ludwik Wicki & Robert Pietrzykowski & Dariusz Kusz, 2022. "Factors Determining the Development of Prosumer Photovoltaic Installations in Poland," Energies, MDPI, vol. 15(16), pages 1-19, August.
    6. Kandpal, Divik & Dhingra, Tarun, 2021. "Migrating to reverse Auction mechanisms in wind energy sector: Status and challenges," Energy Policy, Elsevier, vol. 156(C).
    7. Javier Linkolk López-Gonzales & Reinaldo Castro Souza & Felipe Leite Coelho da Silva & Natalí Carbo-Bustinza & Germán Ibacache-Pulgar & Rodrigo Flora Calili, 2020. "Simulation of the Energy Efficiency Auction Prices via the Markov Chain Monte Carlo Method," Energies, MDPI, vol. 13(17), pages 1-19, September.
    8. Antonio C. C. Perrelli & Eduardo A. Sodré & André V. R. N. Silva & Caarem D. S. Studzinski & Vinícius F. Silva & Dalton F. G. Filho & Armando T. Neto & Alex A. B. Santos, 2024. "Optimizing Price Markup: The Impact of Power Purchase Agreements and Energy Production Uncertainty on the Economic Performance of Onshore and Offshore Wind Farms," International Journal of Energy Economics and Policy, Econjournals, vol. 14(5), pages 211-219, September.

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