In Spain, the promotion of renewable energies has taken on an essential role in the energy transition. One of the most prominent mechanisms to promote these technologies is the renewable energy auctions. Auctions allow companies developing renewable energy projects to access the resources needed to finance their installations. In this way, these companies offer green energy on the market at very competitive prices, helping to meet Spain's commitments to the European Union's climate objectives.
In this article we will delve into how renewable auctions work, their importance and the recent changes that have been made to ensure their effectiveness.
What are renewable auctions
The renewable auctions These are events organised by the government to award a specific remuneration regime to new renewable electricity production facilities. This regime is awarded through a competitive system where bidders offer the minimum amount they are willing to receive for generating green energy.
Historically, auctions in Spain have had their ups and downs. At the beginning of the last decade, the legislation presented certain barriers, such as the well-known “tax on the sun”This tax, established during the PP government's mandate, levied solar self-consumption installations, limiting the advancement of renewable energies. However, auctions have now been reformed to encourage the use of clean sources in the country.
Operation of renewable auctions
Auctions typically award a set number of megawatts (MW) of power. For example, in the latest auctions, up to 3.000 MW were offered, distributed among various technologies such as solar photovoltaic and wind energy, although they may also include others such as solar thermal and biomassInterested companies must submit a price offer for which they would be willing to generate renewable energy for a given period.
There are several requirements that these companies must meet to participate in the auctions. One of the most important is the need to deposit a guarantee of 60.000 euros per MW to be auctioned. This guarantee is a guarantee that companies will meet the milestones and deadlines imposed by the Ministry. In addition, once the capacity has been awarded, if the company does not comply with the established conditions, it may lose part or all of this guarantee.
An essential feature of auctions is that they reward not only the cheapest technology, but also the one that offers the greatest reliability. In cases of tie in bids, technologies with the greatest generation capacity, such as wind power, are usually awarded.
Recent changes in auctions
In response to difficulties encountered in previous auctions, the government has implemented important changes to ensure that auctions are more effective and attract a greater number of participants.
One of the most significant changes in the 2022 auctions The first change was the inclusion of a maximum limit called the “reserve price”, a price at which bids can be awarded. If a bid exceeds this price, it is automatically excluded from the auction. This change was necessary to prevent the costs of renewable energy generation from becoming excessive for consumers.
Furthermore, the Royal Decree 960 / 2020 introduced the figure of Economic Regime for Renewable Energy (REER). Under this regime, the successful bidders will receive a fixed price for the energy generated over a maximum period of 12 years. This scheme guarantees stability and profitability for the promoters of clean energy projects.
Another aspect that has been modified is the inclusion of non-economic criteria for awarding capacity in auctions. Now, up to a 30% of the valuation of the offers may depend on criteria such as environmental sustainability or geographical location. This encourages a more balanced and sustainable development of renewables in Spain.
Marginal auctions
The auction system in Spain is based on a scheme called marginalist auctionIn this system, the bids of the companies are ordered from the cheapest to the most expensive, and as many megawatts as necessary to cover the demand of the auction are awarded. The price that all the winning companies will receive for the energy generated will be the one proposed in the last awarded bid.
Although this system should theoretically benefit companies offering low prices, some critics suggest that it has even been awarded at zero prices in recent auctions, which discourages companies from participating. If megawatts are awarded at 'market cost' prices, developers are unlikely to venture into building the facilities unless the market offers optimal conditions.
What Happens After Renewable Auctions?
Once the auctions have been completed and the capacities awarded, the winning companies must begin developing their renewable energy projects as soon as possible. The deadlines for building the facilities are quite tight, and the government is actively monitoring them to ensure that they are met.
Many of these facilities have construction times ranging from 12 and 36 months from the date of award, depending on the type of energy. After this time, companies must be operating and generating the promised amount of energy.
In cases where a company is unable to complete the project on time, it risks losing the initial deposit. This ensures that only companies that are seriously committed to developing renewable energy participate in the auctions.
On the other hand, some projects include energy storage, such as batteries, that allow for greater flexibility in delivering energy to the market. These facilities often receive additional incentives from the government, as they help stabilize the grid at times when traditional renewables, such as solar or wind, are not viable.
In short, renewable energy auctions have proven to be a crucial mechanism for the development of green technologies in Spain. With recent adjustments to the regulations, it is expected that the upcoming auctions will continue to promote sustained growth in clean energy generation capacity.