Portugal lands world record-breaking solar price. How did it do it?

A 150 MW solar project has walked away with a new world-record, lowest-cost solar PV contract in Portugal’s first solar PV auction, with an awarded tariff of only €14.76/MWh (AU$24.41/US$16.54), narrowly beating the previous record-holder, a Brazilian contract awarded at a cost of US$16.95.

Portugal’s Directorate General for Energy and Geology announced last week the results of its first-ever solar PV auction, which saw a total of 1,150MW awarded across 24 winning bidders. The record-breaking bid was awarded to Paris-headquartered Akuo, one of three projects the company was awarded for a combined total of 370 MW.

“With the levelized cost of utility-scale PV in Southern Europe now well below current wholesale power prices, investors have flocked to the region to try and secure grid connection capacity and PPAs,” says Tom Heggarty, Wood Mackenzie Senior Research Analyst.

“This July’s auction is, by a distance, the lowest-cost contract awarded through a public auction in Europe and gives a measure of solar PV‘s increasing economic competitiveness in the region.”

How did the records occur?

Heggarty warns that these results in Portugal and recent outcomes in Brazil highlight the increasing challenge of comparing auction prices on a like-for-like basis, mostly because the price quoted reflects only a portion of the capacity offered to the market. The rest might be sold as “merchant pricing”, which the developer is hoping will be higher.

Similar experiences are occurring in Australia, where some utilities like Snowy Hydro are boasting of prices in the low $40/MWh for wind and solar, but whose winning projects are likely to find high prices sales for the balance of output. Heggarty warns that soon-to-be-announced results from the second solar PV auction in Saudi Arabia could muddy the water even further.

“What is clear, however, is that in liberalised power markets, solar PV investors are ascribing ever more value to revenue streams outside of those secured through competitive auctions,” Heggarty says.”Taking on merchant risk pre-, during or post-PPA is becoming the norm. This presents a range of new risks and opportunities.

Heggarty notes that Portugal, like Spain, has seen a project development rush and new connection licenses for 938MW of utility-scale solar PV projects were issued up until mid-2018.

“To manage the multi-gigawatt pipeline of projects queuing behind licensed sites, Portugal’s Direcção-Geral de Energia e Geologia took the decision to hold a series of auctions,” he says.

“In contrast to most other European auction programs, these would award both grid connection capacity and either guaranteed or general remuneration support to successful bidders.

“Under the latter of the two remuneration models, developers bid for grid connection rights and are then able to sell their output into the wholesale market or via bi-lateral PPAs. A total of 862 MW was awarded under guaranteed remuneration and 288 MW under the general remuneration arrangement.”

A total of 1,400 MW was available in the tender, led by Akuo Energy who secured 370 MW, British renewable developer Aura Power Developments which walked away with 168 MW, and Spanish utility Iberdrola which won 149 MW.

“Portuguese companies have often accompanied us in the construction of our projects around the world, which simply amplifies our joy and the honor the Portuguese State has bestowed upon us by awarding us in this way,” said Eric Scotto, Chairman and cofounder of Akuo.

“We will ensure that we live up to this trust by supplying our expertise as a producer of renewable energy! Through this call for tender, Portugal is showing the European Union the way and reaffirming that renewable energy can guarantee sustainable and long-term energy autonomy. We at Akuo are proud of this success, of the work undertaken by our teams and of the example shown by Portugal!”

Portugal currently sits near the top of European Union Member States transitioning to a cleaner, greener future, ranking fifth by securing 54.2% of its energy production from renewable energy sources in 2017, a figure which increased by 2.2% in 2018.

A second auction, for 0.7GW, is planned for January 2020. Longer-term, the Portuguese government has grand ambitions for solar PV, targeting 8.1 to 9.9 GW of installed solar PV capacity by 2030, a more than ten-fold increase from current levels.