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26 Mar 2021

Renewables auctions alone ‘insufficient to meet EU net-zero goals’

Power Engineering International
Renewables auctions alone ‘insufficient to meet EU net-zero goals’
Although renewable energy auctions are playing a key role in the expansion of Europe’s clean energy portfolio, they will not be enough to help the region meet its 2050 net-zero goals, according to a new report released by Wood Mackenzie.

This decade is the most critical in regard to Europe setting its foundation for meeting its 2050 net-zero goals, according to the study. Renewables are expected to take center stage as the bloc also aligns itself to deliver the ambition of a 55% emissions reduction target by 2030.

At the same time, renewables auctions are expected to account for 70% of wind and solar development activities.

However, data from across the region highlights that market-level dynamics are shaping the approach of would-be developers. As such, auctions alone will not be enough to deliver much-needed capacity.

Peter Osbaldstone, Wood Mackenzie research director, said: “The assumption that every auction mechanism will deliver its full quota of capacity, promoting high levels of competition between bidders and resulting in more attractive prices than previous rounds must be challenged.

“Our analysis of onshore wind auctions across Europe shows that after initial sharp falls, price outcomes have remained relatively flat over the last three years. Dynamics vary from market to market, but we now see undersubscription in German, French and Italian auctions due to formidable planning bottlenecks, keeping average prices flat.

“Introducing policies to streamline the permitting process and de-risking project delivery can reverse this trend, bolster competition and push prices downwards, as we have seen recently in Greece.”

Rory McCarthy, Wood Mackenzie principal analyst, adds: “These are the realities of Europe’s increasingly mature renewable power sector. This is an expected change and our analysis continues to identify other notable trends in the sector’s transition, such as the material impact on power prices of moving to systems based largely on variable renewables.

“As production from wind and solar continues to represent an increasing proportion of overall power supply, those sources face a growing risk of cannibalising their own value in markets. As a result, the discount between market average prices and the capture prices of renewable power will expand.

“The extent of cannibalisation suffered by wind and solar generators in decarbonising markets will be shaped by various factors, including technology type and concentration, network capability, and power demand conditions. Portfolio diversity, considering both renewable technologies and other flexibility options such as battery storage, can mitigate the threat of cannibalisation. Power systems must adapt as the carbon-intensity of electricity falls.”

The original article was written on Power Engineering International

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