Multi gigawatt wind and solar tender flops, undermined by “secret” price cap

Plans for a multi-gigawatt tender of wind and solar capacity in Spain have flipped dramatically, apparently undermined b a “secret” price cap that failed to take into account recent spikes in supply chain costs.

A total of 3.3GW worth of renewable capacity was on offer through Spain’s most recent renewables tender, including 1.8GW for solar PV and 1.5GW for onshore wind.

But due to the failure to take into account the increased cost of projects due to recent inflationary pressures, as well as a “secret” price cap of around €47/MWh, only 46MW worth of projects were awarded.

According to WindEurope, the region’s trade body for the wind industry, the Spanish government had failed to take into account the increased costs of new wind energy projects. The auction also ran with a “secret” price cap, with wind farm developers having to guess at what the cap was.

The handful of successful bids had an average price of €42.78/MWh, much higher than the prices in previous Spanish onshore wind auctions, which recorded bids in January 2021 as low as €20/MWh.

Worth noting, though, is that despite the recent increase in costs, wind energy nevertheless remains a cheaper option than any form of fossil electricity generation, according to WindEurope.

“To make up for this lost auction, Spain must now ensure they get it right in the next one”, said Giles Dickson, CEO of WindEurope.

“Crucially they need to change the flawed ‘secret’ price cap mechanism. And they must grant more permits for new wind farms. Up to 2,000 wind energy projects are stuck in permitting in Spain.

“Especially worrying: 19 GW of new onshore wind projects urgently need to get their Environmental Impact Assessments (EIAs) approved. If they are not approved, these projects have to start the EIA process again. That’ll delay them by 2-3 years.”

Dickson also said all future auctions should also be indexed to reflect possible increases in commodity prices. That does not only apply to Spanish auctions. Other Governments in Europe should take note of the higher costs for new wind projects as well.”

He said that unless Spain addresses the self-imposed flaws in their auction mechanisms, the country will struggle to reach its own target of reaching 40GW of wind energy capacity by 2025 and 50GW by 2030.