L R AS Published on Saturday 5 September 2020 - n° 330 - Categories:auctions
The winners of the Portuguese auction will lose money on their proposals.
For the British council Everoze, the Portuguese auction was so competitive that the main winner was the Portuguese state. The winners cut their profit margins on the construction part of the solar power plants for the first fifteen years. They will recover
some profit by using storage to sell energy when prices are at their highest. They could also combine solar with other technologies, changing the financial model of the project. Extreme competition for access to limited grid capacity led the participants to accept conditions that, prior to this auction and the previous year's auction, seemed unsustainable for the majority of investors.
The winning developers in the first category, with 483 MW of storage-related PV, agreed not to take an annual capacity premium set at €33,500/MW per year. Instead, they offered to pay a capacity premium to the system of around €37,100/MW per year, on average. The winners of this option probably bet that this cost will be very low or that it will be covered by the revenues they will be able to generate from the operation of the electricity storage system.
In the second category of tenders, called "fixed contributions to the system", the Portuguese government awarded 177 MW of photovoltaic capacity. The selected promoters agreed to pay a fixed annual amount of 73,700 euros over 15 years for each megawatt of grid capacity allocated to them. This means 35 € / MWh for 15 years. The bidder will be able to sell the electricity from the PV plant on the open market, i.e. either at the spot market price on the electricity market or through a power purchase agreement with a buyer. The bidder implicitly expects the market price to remain sufficiently high over the next 15 years to ensure that, with the income from the PV plant's production, it will be able to both pay back the fixed compensation to the system and have sufficient cash flow for its financial model.
PV Magazine of 2 September
Editor's note Access to a small market with little network access has shown that developers are willing to pay a lot to participate in this market. If these developers are willing to pay for their own power plant construction and compensate the Portuguese state, some other countries will have learned this message.