Competitive auctions for renewable energy capacity are changing the face of European electricity supply. Moving from regulated feed-in tariffs to capacity-limited tenders has seen a mammoth reduction in costs, allowing governments to raise their sights and accelerate the transition to a decarbonized generation system much faster than expected. S&P Global Platts Henry Edwardes-Evans, associate editorial director, generating fuels news, also looks at offshore wind and wind turbine implementation in the region.
Related factbox: German election implications on energy sectors
Welcome to The Snapshot – our series which examines the forces shaping and driving global commodity markets today.
Competitive auctions for renewable energy capacity are changing the face of European electricity supply.
Moving from regulated feed-in tariffs to these capacity-limited tenders has seen an astonishing reduction in costs.
This is allowing governments to raise their sights and accelerate the transition to a decarbonized generation system much faster than expected.
In the latest UK auctions, offshore wind costs fell by 50% compared with auctions two years ago.
As projects get bigger, hours of operation improve and economies of scale kick in, so developers are increasingly comfortable with strike prices close to baseload market prices.
This trend reached its logical conclusion last year with zero subsidy bids into Germany’s offshore wind auction for 2025 delivery. It’s a merchant plant gamble, the like of which we’ve not seen for decades.
What’s going on? Even close market watchers have been astonished by these events.
First, this is a big utility story. Saddled with ageing, dirty power stations and blind-sided by onshore wind and solar, Europe’s dominant utilities have been desperately seeking a new reason to exist. Offshore wind is that reason, and the competition for contracts is fierce.
Ditto the world’s equipment vendors. The dynamic engineering excellence that saw gas turbine efficiency leap higher in the 1980s and 90s is now being channeled into renewables.
Look at the gains: from 2 MW machines with 80 meter rotor diameters in 2004 to 9.5 MW machines with 164 meter rotor diameters today.
The next generation is now seen as the grid parity generation, with 200 meter rotors powering 13 MW machines.
Meanwhile the collapse in costs has given governments an unexpected dividend.
In Spain, zero subsidy bids in May’s onshore wind and solar auction saw the government spring a second auction in July, netting 8 GW of potential capacity and boosting the country’s renewables capacity by 29% to 2019.
Now all eyes are on the UK to see if it will react in a similar way.
Because as costs fall, so the subsidies go further, with 56% more capacity allocated in the UK’s latest round, using 44% less budget than in 2015.
It’s left the government holding surplus budget – and every incentive to tap the offshore market for more.
Where that leaves other technologies is a moot point. Will the UK find budget to encourage emerging tidal? And what about politically sensitive onshore wind? The temptation may be to max out on offshore wind at the expense of diversity.
Until next time on the Snapshot—we’ll be keeping an eye on the markets.