latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/in-europe-covid-19-brings-government-renewable-energy-auctions-into-sharp-focus-58809337 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

In Europe, COVID-19 brings government renewable energy auctions into sharp focus

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


In Europe, COVID-19 brings government renewable energy auctions into sharp focus

While there remains appetite from investors to build unsubsidized renewable energy projects in Europe, the current economic downturn and power price slump could drive more developers towards revenue stabilization mechanisms via government auction programs, industry participants said.

"In times of volatility anything that gives security of pricing will have added attractiveness," Peter Dickson, partner and technical director at fund manager Glennmont Partners, said in an email. At the same time, "There remains a large amount of capital already committed to funds for renewable energy investment that is seeking [investable] projects," he said.

To ensure that price security mechanisms remain accessible, EU member states should avoid cutting renewable energy auction volumes in light of the current economic downturn, according to the EU-backed Auctions for Renewable Energy Support II, or AURES II, research project.

"The COVID-19 pandemic, its consequential lock-down of economic activity, the increased risks for investors and fears about an economic recession, have had profound immediate effects on the energy sector," AURES II said in a May policy brief. "Industry associations worry that a reduced power demand and tighter budgets could reduce new auction volumes of [renewable energy] projects."

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Instead, authorities should consider extending deadlines, both for projects already successful in auctions and for those seeking to participate in upcoming rounds, at least for the duration of lockdowns in respective countries.

Several jurisdictions have already pushed back auctions in light of the current volatility. Portugal has delayed a 700-MW solar auction; France has moved back the tendering of two-thirds of the capacities for a wind and solar auction, scheduled for July to November; and Ireland postponed the application deadline for its renewable electricity support scheme in April.

Others have pressed ahead. The Netherlands, for instance, did not divert from the timetable of its most recent offshore wind auction, which closed April 30. Previous winner Vattenfall AB withdrew its entry, however, deterred by the volatility.

"The delay of any auctions will reduce the flow of assets in the short term which will make the market more hungry and hence competitive," said Dickson.

That said, delaying auctions can also be an effective short-term measure to avoid immediate adverse consequences for auction outcomes, AURES II said, adding that "Unnecessary delays and cancellation of auctions might however not only impact the reaching of [renewable energy] targets, but also cause interruptions in the supply and project development chains and adversely impact auction outcomes in the medium to long-term."

'Noticeable drop' of PPAs

In light of the pandemic, some developers pursuing merchant projects or corporate power purchase agreements, or PPAs, may have seen their business case weakened or counterparty risk increase.

In a market such as the U.K., this could make government auctions, which are set to reopen for onshore wind and solar, more appealing, said Ian McCarlie, partner at law firm Pinsent Masons. "The [U.K.'s contract for difference, or CfD] auction process next year will be highly competitive. You may find some very aggressive pricing," he added.

But not all governments offer viable routes to market for renewable energy projects. Auctions in some jurisdictions only offer low floor-price contracts, while some countries do not run renewables subsidy programs at all.

In many markets, PPA deal flow is continuing, driven by sustainability targets and low power prices, which sweeten the deal for off-takers. But while activity is not down to zero, "we're doing fewer [PPAs] than we were, and that's a noticeable drop," said Munir Hassan, partner at law firm CMS.

Developers with merchant projects are joining the fray, too. "In terms of corporate PPAs, we're seeing a lot of projects that were considering going merchant. Your routes to market are only so few," Hassan said.

Lisa McDermott, executive director in the project finance team at Dutch bank ABN Amro, said that while deals are still coming to market and there is continued lending appetite, "banks are being a bit more selective."

Auctions still needed

Market enthusiasm around corporate renewable energy deals and merchant development is expected to remain strong, but these segments alone will not deliver Europe's ambitious 2050 climate neutrality target, industry observers said. At some point, corporate demand will dry up and auctions will have to pick up the slack, said Gerard Pieters, head of origination in Europe for German bank Norddeutsche Landesbank Girozentrale's energy division.

Alessandro Boschi, head of renewables at the European Investment Bank, agreed. "Given the scale of the capacity that we need to deploy and the amount of investments that will need to be financed, I still see a role for public support, at least in terms of what I would call revenue stabilization," Boschi told S&P Global Market Intelligence in an April interview.

Pieters, like many others in the market, said that a symmetrical risk-sharing approach — like that pursued in the U.K. — works best. "Auction-based CfDs are state of the art systems because they protect consumers from paying over the odds and gives the stability you need to do a project financing," he said.

Industry groups, looking for best-practice approaches across Europe, seem to agree. In Germany, where an offshore wind auction model is currently being designed to underpin a 20 GW of capacity by 2030 and 40 GW by 2040, trade groups have called for policymakers to adopt a CfD approach. German offshore wind association BWO said the technology now provides power at a cost lower than most other sources and that a CfD could push down prices even further, to levels about 30% below PPAs.