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Germany to change tack on renewables policy with cost-cutting auctions

Germany to change tack on renewables policy with cost-cutting auctions


The tides are set to turn for solar and wind power in Germany, as its government prepares to adopt a bill to introduce a new tender-based model for the technologies. Chancellor Angela Merkel agreed with state prime ministers last week to set the annual scope of onshore wind auctions to 2.8GW and utility-scale solar auctions to 600MW. In total, auctions would cover around 80 percent of electricity generated in new clean energy installations.

The bill will come before Germany’s Cabinet on 8 June and is expected to come into force in January 2017, if adopted and passed by Parliament. It would stay faithful to the country’s Energiewende targets to reach 40-45% of renewables in the energy mix by 2025 and as much as 60% by 2035.

The auction system, which will replace Germany’s existing feed-in tariffs, is intended to make for the more effective management of renewable energy coming onto the grid, and to promote competition between developers to drive down costs and ultimately reduce the impact on consumers’ pockets. Test auctions for solar power have so far proven this to be the case – with the 9.2 euro cents/kWh bid in the first auction dropping to 7.41 cents by the fourth sale. The final solar tender was launched yesterday for a total 125MW of capacity with an upper price limit of EUR 0.11 ($0.13)/kWh.

Onshore wind in Germany “will not see fundamental changes to its subsidy scheme [although] the sliding market premium… will now be allocated in competitive pay-as-you-bid auctions,” wrote BNEF policy analyst Janis Hoberg in an Analyst Reaction. Meanwhile, the government’s plan to tender only for specific offshore wind locations will take responsibility for site sourcing and pre-development off developers’ hands, the note says.

Northern European nations, including Denmark, France and Germany, led a concerted effort on Monday to reduce the cost of wind energy produced at sea. At a quarterly gathering, EU energy ministers from nine countries signed a cooperation agreement to work together on issues such as streamlining interconnection cables between wind farms.

This year has seen 3.1GW worth of offshore wind projects reach financial close so far, according to the H1 2016 Offshore Wind Developer Market Share report by BNEF. Vattenfall moved from fourth to third place in the developer ranking, largely due to its Horns Rev III offshore wind farm in Denmark, which reached financial close at $1.1bn last week. Built on a model of 50 huge 8MW turbines from MHI Vestas Offshore Wind, the project could become the first to beat the industry’s EUR 100/MWh target when commissioned in late 2018.

Nevertheless, Denmark’s safe haven for offshore wind could soon be set to change as the Danish government considers scrapping an electricity tax that helps subsidize wind turbines. The country’s Wind Energy Association has warned that new wind capacity additions could be reduced to less than one-fourth its current level, if the decision were to be enforced.

Over in Russia, state nuclear company Rosatom announced its intention to invest in wind power generation, after applying for rights to build 610MW of wind power in 2018-20 under a government subsidy programme to promote clean energy.

Elsewhere, Brazil’s wind industry could see setbacks as the country’s interim government looks to scale back financial support from the nation’s development bank, BNDES, and to reduce wind subsidies. Waning power demand and growing debt are concerns for the nation’s power sector, which the government asserts should rely more on market forces and less on public funding.

In other news, India is seeking more than $2bn of low-cost financing from multilateral institutions, including Germany’s KfW, to install some 40GW of rooftop solar. And in Afghanistan, Indian Prime Minister Narendra Modi helped inaugurate the country’s largest hydroelectric plant. The 42MW Salma dam cost $290m to build and was completed with equipment and engineering expertise from India, in a sign of the two country’s warming relations. The 107 metre-high structure will increase Afghanistan’s installed power capacity by 10%.

Across the Persian Gulf, Saudi Arabian energy minister Khalid Al-Falih announced the country will scale back its renewable energy target from 50% to 10%, as the impact of low oil prices makes natural gas production more prosperous and energy from the sun less in demand.

Meanwhile, in Zambia a World Bank auction programme to facilitate smooth and efficient solar project build produced debatably the lowest bid in sub-Saharan Africa to date, with winning bids in two 50MW tenders at $60.2/MWh and $78.4/MWh, according to a BNEF Analyst Reaction. “The aim of the Scaling Solar programme is to help countries learn from the mistakes that others have made and run a smooth process”, with support on risk management and competitive financing available to all bidders, the note says.

Anand Gupta Editor - EQ Int'l Media Network


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