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03/09/2018

Electricity auctions

The cost of renewable energies installation has decreased in auctions for buying renewable electricity that are organized in different countries around the world

Electricity auctions

The cost of renewable technologies, particularly wind and photovoltaic, have evolved greatly since the early days. Their greater introduction and technological development have allowed installation cost levels to fall considerably. Between 2010 and 2017, for example, according to IRENA [1], the levelized cost of electricity (LCOE) of photovoltaic projects decreased by an average 73% and those of wind by 22%. This cost reduction implies that new investments, in the form of the installation of new renewable generation, can now prove more economic than those for fossil fuel.

Costs have become very competitive In recent years, as is evident in the auctions for buying  renewable electricity, which are becoming increasingly widespread. Long-term renewable electricity sales contracts are assigned at the auctions for periods of time usually over 10 years. Indeed, the auctions aspire to promote the installation of new renewable capacity, assuring producers a revenue flow that permits them to invest in new generating plants.

This kind of auction is being organized in more and more countries. In Latin America, countries such as Mexico, Chile and Argentina are driving these markets through public tender processes, whereas in Europe it is being done by countries such as Germany and France. In the rest of the world, South Africa, Dubai, China and Morocco also hold auctions.

 

The cost of renewable energies in electricity auctions

Auctions differ in each country, depending on the market conditions. Often, the generator sells its renewable electricity directly to the system utility, the company that distributes and supplies the electricity to end users. But there are also models in which renewable electricity is sold to intermediaries and even end users directly. In some cases, there are also auctions which are not restricted to renewable energies.

In any case, auctions have demonstrated the competitiveness of renewable energies, resulting in low prices that reflect in lower costs to the final consumer.

 

[1] IRENA: Renewable Power Generation Costs in 2017. Key Findings and Executive Summary

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