Portuguese Auction 2020 Review - A note from AFRY Management Consulting October 2020
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Portuguese Auction 2020 Review A note from AFRY Management Consulting October 2020
Contacts
Name Email Telephone
Ignacio Cobo ignacio.cobo@afry.com +34 611 481 021
Beatriz Herraiz beatriz.herraiz@afry.com +34 646 748 050
Antonio de Juan Fernández antonio.dejuanfernandez@afry.com +34 615 457 290
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Because of the subjective judgements and inherent uncertainties of projections, and because events frequently
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Copyright © 2020 AFRY Management Consulting Limited
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2 Portuguese Auction 2020 Review | AFRY
Table of contents
PORTUGUESE SOLAR AUCTION 2020
1 Introduction
2 Auction 2020 mechanism
3 Auction 2020 results
4 Stories of success
5 Conclusions
6 How can AFRY help?
Portuguese Auction 2020 Review | AFRY 3
4 Portuguese Auction 2020 Review | AFRY
Portuguese Solar Auction 2020
Portugal has been consistently reward flexibility. The following — CfD: solar standalone solution in
appearing in the news headlines sections provide insights on the which the developer receives a
worldwide over recent weeks as a corresponding outcomes. fixed tariff for a 15-year period.
result of the successful renewable — Fixed compensation to the
auction celebrated during 24th system: solar standalone solution
and 25th of August. So, what is 2 Auction 2020 mechanism in which the developer pays the
all the fuss about? What is the system for the interconnection
The auction recently celebrated point for a 15-year period, being
meaning of the results? How could
in 2020 auctioned 700MVA of the project subject to merchant
Contract-for-Differences (CfDs)
injection capacity in interconnection prices.
have gone as low as €1.2/MWh for a
points, both at distribution and — Flexibility option: storage
15-year period? This note prepared
transmission level, distributed in the solution in which: 1) the developer
by AFRY Management Consulting
regions of Alentejo and Algarve; the receives a fixed payment for a
(‘AFRY’) aims to answer all of these 15-year period; 2) the project is
injection capacity was auctioned
questions by doing an independent subject to merchant prices; and
through 12 different lots, with
analysis of the auction and the 3) the project remunerates the
injection capacity ranging from
official published results. system for the hours in which the
10MVA up to 109MVA. Figure 1
shows the indicative location of wholesale price is higher than a
pre-defined strike price for a
the capacity auctioned as well as
1 Introduction 15-year period.
some indicative lifetime average
At the end of April 2019, the load factors for solar PV projects Following the success of the auction
Portuguese State Secretary for according to AFRY’s assessment. celebrated in August 2019, the
Energy announced that Portugal remuneration scheme adopted for the
The 2020 auction offered three
would tender grid injection capacity 2020 auction is pay-as-bid, in which
different routes-to-market in
for solar photovoltaic (PV) projects. the auction is celebrated under the
order to compete for the auctioned
The aim of the introduction of such format of an ascending clock.
injection capacity:
auctions is twofold:
— foster the capacity increase that
the Government foresees in its FIGURE 1 – LOCATION, CAPACITY AND INDICATIVE LOAD FACTOR PER LOT
National Energy Climate Plan
(NECP) by providing regulatory
(and potentially remuneration)
certainty; and
— put some order in the application
process for grid injection
capacity, given the high amount
of grid requests experienced in
Portugal, of which many could be
considered speculative.
The introduction of these auctions
through Decree Law 76/2019
provided developers two routes for
deploying projects: 1) pay for the
grid reinforcements and connections
required to inject energy into the
network; or 2) be awarded through a
competitive auction process.
The 2019 auction resulted in the
award of 1.3GW for solar PV projects
with expected commissioning date
over the next few years. The recent
2020 auction came in to modify the Sources: Portuguese Government and AFRY
previous year auction by introducing
a third route to market aiming at
Portuguese Auction 2020 Review | AFRY 5
In order to compare the three Government ahead of the auction. However, from a state-aid guideline
routes-to-market and assess which This way, fairness of the process perspective, fixed payments should
is the most beneficial for the system, was also guaranteed, as all players not be implemented and supports
the bids of the different participants had in advance all of the information should be provided in terms of a
are compared through a Net Present by which the government would premium to market prices. Although
Value (NPV) calculation. The NPV value their bids. AFRY supported the in terms of average revenues in €/
calculation included in the auction Portuguese Government throughout MWh there is not any difference, the
is based on an assessment of the the process. level of engagement with market
projected benefits that each route procedures is higher if the generator
The 2020 auction is evaluated in €/
could provide to the system: has more commercial obligations.
MVA; when necessary, payments
— CfD: difference between a solar are converted into MWh terms using As a result, for the 2020 auction,
capture price projection and the a pre-defined expected lifetime instead of a fixed tariff, the
CfD awarded. average load factor for solar projects, second remuneration regime
— Fixed compensation to the set at 1,957 and 1,958 equivalent will encompass a fixed price
system: payment offered from hours depending on the lot. contract for differences that will
the developer to the system. be settled on a monthly basis with
The following subsections explain
— Flexibility option: projected the market operator. This means
in detail the three different
contribution from storage that generators will have to sell
routes-to-market offered in the
solutions to the system for the their electricity in the day-ahead
2020 auction, emphasizing the
activation of the strike price market or enter into an agreement
minus the capacity payment benefits and obligations under
with a market agent who does the
required by the developer. each of the options.
trading on their behalf. In terms of
the bid evaluation in this auction,
The discount rate applied in the effective fixed payment in €/
the calculation for the fixed 2.1 CfD
MWh will be compared against a
compensation to the system is forecasted captured price for the
set at 2.5%. For the two routes- specific injection point, which will
to-market that involve market lead to forecasted yearly surpluses
projections in the assessment of the or deficits as follows:
benefits for the system (i.e. CfD and
flexibility option), a higher discount 2020 AUCTION DESIGN
rate (i.e. 3.61%) is used to calculate xxx
the NPV; this reflects the higher
risk perceived from the inherent risk FIGURE 2 – EXAMPLE OF POSSIBLE BID
existing in projecting future savings. GENERAL REMUNERATION | FIXED AND RESPECTIVE
GENERAL CONTRIBUTION
REMUNERATION TO
| FIXED PRICE G
COMPENSATION TO SEN THE SYSTEM IN THE FIXED PRICE O
In addition, in order to guarantee After the 2019 auction was
celebrated, concerns were raised OPTION (NOMINAL MONEY)
transparency of the process, the
market price forecast used to regarding
[€/MVA]
the limited exposure to €/MVA [€/MWh] €/
project the price spreads to be market
10,000
procedures that generators 10,000 52 10
factored in the NPV calculation could have under the fixed tariff
48
was made public by the Portuguese regime. According to the 2019 -2%
5,000 5,000 5
auction, a successful generator
44
would sell 100% of its output to
a regulated off-taker and energy 40
0 0
management-wise, would have to
4
nominate its generation volumes
and be liable for imbalances. Bearing
-5,000 -5,000 0 -5
in mind that the contract with
2021
2023
2025
2027
2029
2031
2033
2035
2021
2023
2025
2027
2029
2031
2033
2035
the regulated entity has not been
disclosed, it is unclear what the full
Contribution Ref. fixed price (right axis)
Effec. fixed price (right axis)
extent of obligations of the 2019 Capture curve (right axis)
fixed tariff auction winners will be. Contribution/payment (left axis)
Note: all figures are nominal
September
4 2020 SOLAR AUCTION WITH STORAGE | 2ND PUBLIC PRESENTATION
20
6 Portuguese Auction 2020 Review | AFRY
2. Auction 2020 mechanism
2020 AUCTION DESIGN
— in the years that the fixed — The bids are ranked by xxx
FIGURE 3 – EXAMPLE OF POSSIBLE BID
payment is forecasted to be node according to the NPV AND RESPECTIVE CONTRIBUTION TO
above the captured price, a contribution to the system in
THE SYSTEM IN THE FIXED
system deficit occurs, and the order to be able to award the GENERAL REMUNERATION | FIXED GENE
COMPENSATION TO THE SYSTEM
generator is entitled to collect capacity. COMPENSATION TO SEN
the balance; and OPTION (NOMINAL MONEY)
— If successful the bidder receives
— in the years that the fixed grid injection capacity, accesses [€/MVA] €/MVA
payment is forecasted to be wholesale markets, including 10,000 10,000
below the captured price, a ancillary services markets,
system surplus occurs, and the and will be entitled to a fixed
generator would be liable for the payment in €/MWh during 5,000 5,000
cash balance. 15 years.
Figure 2 presents a CfD bid example 0 0
2.2 Fixed compensation to the
in which the offered bid is set at
system
a 2% discount over the reference
auction parameter. Illustrative -5,000 -5,000
2021
2023
2025
2027
2029
2031
2033
2035
fixed payments (effective and
received) and capture prices are
Contribution
shown in the right axis, while
contribution/payments to the
system are shown in the left axis;
the resulting differences in €/MWh Note: all figures are nominal
As a result, for the 2020 auction
will be converted in €/MVA using
September
4 2020 SOLAR AUCTION WITH STORAGE | 2ND PUBLIC PRESENTATION
20
the Government implemented a
an estimate for the number of
contribution to the system in €/
equivalent hours of operation for
MVA as shown in Figure 3.
the zone in question, as previously After the 2019 auction was
commented. These contribution/ celebrated, concerns were raised The following aspects affect
payments figures in €/MVA will regarding the possibility that a the fixed compensation to the
then be used in the calculation payment in €/MWh could distort system route:
of the NPV in order to assess the the market supply curve. The
competitiveness of the bid and an consideration of the resultant — Bidder offers a yearly
contribution to the system to be
offer ranking is produced. payment in the bidding as a variable
paid for a period of 15 years in
cost could: 1) increase wholesale €/MVA nominal.
The following aspects affect the
prices artificially at an amount
CfD route: — The NPV of this option will be
not corresponding to pure variable
the contribution during the 15
— Bidder offers a discount, in costs at moments of high renewable years awarded in the auction
percentage, to the reference resource when the projects awarded discounted at a fixed rate of
fixed payment. under this option are setting the 2.5%, lower than the other
— The bid (i.e. discount over the marginal prices; and 2) reduce the alternatives.
reference payment) is compared revenues collected by the system — The bid is ranked according to
against forecasted captured from these projects as they could the NPV estimated in order to
price in €/MVA nominal, resulting experience higher curtailment than allocate the capacity.
in contributions/payments to the other renewables due to higher
system. — If a successful bidder receives
variable costs. grid injection capacity, it
— Surplus and/or deficits in receives access to the wholesale
€/MWh per year are converted and ancillary services markets
to €/MVA using estimated and pays annual contribution to
number of generation hours in the system in €/MVA (during the
particular injection point. first 15 years of operation).
— The bid value will be the NPV of
the surplus/deficits discounted
at a fixed rate increased by a
risk factor.
Portuguese Auction 2020 Review | AFRY 7
Auction Flexibility
Summary
design option
2020 AUCTION DESIGN
xxx
2.3 Flexibility option As a numerical example for a FIGURE 4 – EXAMPLE OF POSSIBLE BID
specific hour: AND RESPECTIVE CONTRIBUTION TO
GENERAL REMUNERATION | FIXED GENERAL REMUNERATION | FIXED PRICE GENERAL REMUNERATION
THE SYSTEM | FLEXIBILITY
IN THE FLEXIBILITY
COMPENSATION TO SEN — Wholesale price: €90/MWh. OPTION
OPTION (NOMINAL MONEY)
— Strike price: €60/MWh.
[€/MVA] —
€/MVA Injection capacity: 100MW.
[€/MWh] €/MVA €/MVA
10,000 —
10,000 Amount to be returned to52the 10,000 33,000
system: -5% 30,000
48
5,000 5,000
(€90/MWh-€60/MWh)
-2%
5,000
27,000
×100MW×90% 44 24,000
21,000
Although this seems a purely40
0 0 0
For the third revenue scheme, the financial contract, the generator will 6,000
4
one that values storage, generators have to comply with some technical 3,000
will establish a 15-year contract
-5,000
requirements: 1) the storage 0
-5,000 -5,000 0
capacity must be minimum 20% of
2021
2023
2025
2027
2029
2031
2033
2035
2021
2023
2025
2027
2029
2031
2033
2035
2021
2023
2025
2027
2029
2031
2033
2035
with the system operator (i.e. REN)
in which every time the wholesale the injection capacity requested by
Contribution
electricity price goes above a the bidder and must have minimum
Ref. fixed price (right axis) Ref. annual payment (right axis)
Effec. fixed price (right axis) Effec. annual payment (right axis)
certain threshold (i.e. strike price), 1h of storage;
Capture curve and
(right2) the storage
axis) Benefit from option activation (right axis)
generators have to return to the facility will be submitted
Contribution/payment to periodic
(left axis) Contribution/payment (left axis)
Note: system
all figures arethe difference between
nominal availability tests performed by
4
electricity price and strike price
September
20
the system operator.
2020 SOLAR AUCTION WITH STORAGE | 2ND PUBLIC PRESENTATION As long as In the years that the fixed payment
multiplied by 90%. This strike they comply with the minimum is forecasted to be above the benefit
activation cost is then multiplied by requirements, interested parties from the contract activation, a
the total injection capacity awarded are free to choose the technical system deficit occurs. In the years
in the auction. parameters of the storage facility, that the fixed payment is forecasted
such as capacity and hours of to be below the captured price, a
The strike price is predefined in the storage. system surplus occurs – blue bars
auction conditions and is to remain charted in left axis of Figure 4.
unchanged for the projects awarded Figure 4 exemplifies the analysis of
in the 2020 auction. The strike a storage bid in the 2020 auction.
price will vary quarterly according From the system perspective, the
In summary, the following aspects
to the forecasted evolution of the sum of the forecasted activation of
affect the flexibility option:
marginal cost of a Combined Cycle the strike prices (i.e. sum of positive
Gas Turbine (CCGT). The entire differences between wholesale — Bidder offers a discount, in
curve was made publicly available price and strike price during 15 percentage, to the reference
to grant transparency and equity to years multiplied by 90%) will be a payment, being the effective
benefit or a surplus (red line charted payment it will collect.
all players.
in the right axis of Figure 4). The — The fixed payment (i.e.
In return, generators are entitled to fixed payment that generators will reference minus discount) is
a fixed payment defined in €/MVA require from the system will be a compared against forecasted
of injection capacity for a 15-year cost (dashed black line charted benefit from option activation
period. This option is only available in the right axis of Figure 4). This (in €/MVA-year nominal).
for generators with some sort of payment will be set depending on — The bid value will be the
storage capacity. the offered discount per generator NPV of the surplus/deficits
(illustratively set at 5% in Figure discounted at a fixed rate
This contract settlement will increased by risk factor.
be made on a monthly basis 4) versus a stipulated reference
payment defined by the government — The bid is integrated in the
and occurs regardless of the
ranking so it can be valued in
generation patterns of the facility. (solid black line charted in the right
equal terms with the other bids.
In other words, it is a capacity- axis of Figure 4).
based contract.
8 Portuguese Auction 2020 Review | AFRY2. Auction 2020 mechanism
REVENUE AND COST STRUCTURE OF A STORAGE PROJECT AWARDED IN THE AUCTION
— If successful the bidder
The auction provides hybridAND
FIGURE 5 – REVENUE projects to access
COST STRUCTURE the Iberian
OF A STORAGE PROJECTmarkets
AWARDED in
receives grid injection capacity,
accesses wholesale andexchange of a
IN payment
THE AUCTION to the system and a one-way CfD payment
ancillary services markets,
REVENUES COSTS
receives a fixed annual
Energy Consumption costs
payment in €/MVA and pays Day-ahead market Day-ahead and intraday markets
the settlement of the contract Intraday market Ancillary services
activation.
Variable fees
Ancillary services Generation tax
In order to enhance the reader’s Technical constraints Transmission and market operator
understanding on the revenue Secondary band
variable fees
and cost structure of a project Secondary regulation O&M costs
Tertiary regulation O&M cost
under the modality of flexibility
Payment to the system
option, AFRY has summarised the 15-year payments as awarded in
most important components of the auction
a simplified cash flow analysis in Strike price activation
Figure 5; the boxes in white are Difference between the pool price
and a pre-defined strike price for a
the ones directly affected by the 15-year period
auction, while the rest will depend Fixed capital cost
on the costs and performance of Investment and capital costs
each project in the market.
Note: The boxes in white reflect the components affected by the auction
11 2020-09-16 | COPYRIGHT ÅF PÖYRY AB | PORTUGUESE AUCTION 2020 - REVIEW
Portuguese Auction 2020 Review | AFRY 910 Portuguese Auction 2020 Review | AFRY
3 Auction 2020 results
The 2020 auction was celebrated The detailed auction results per — Hanwha Q Cells GmbH, Endesa
during 24th and 25th August 2020. auctioned lot are summarised in Generación Portugal, S.A. and
Although it was expected that Table 1 for the modality of CfD, Iberdrola Renewables Portugal,
the auction would be competitive, Table 2 for the fixed compensation S.A. were winners under the
given the 10 times oversubscription to the system modality and Table 3 flexibility option modality with
a capacity awarded of 315MVA,
announced by the Government for the flexibility option.
99MVA and 69MVA respectively.
during the weeks before the
Six different companies from The bids were cleared at a
celebration of the auction, it discount of more than 100% of
all around the world have been
surpassed all expectations. Of the reference capacity payment,
awarded with bids under the
particular interest was the success showing that the winners were
different modalities:
of projects under the flexibility willing to contribute to the
option modality, showing the — Solarengoradar – Unipessoal, system instead of receiving a
maturity of storage solutions and Lda. was the only winner under payment. The bids resulted in
possibly the beginning of a new era the CfD modality, establishing capacity weighted-average
for renewable developments. an average fixed tariff of €11.14/ payments of €44,065.4/MVA,
MWh, which corresponds to a €29,491.0/MVA and €16,159.2/
The following sections will depict discount of 73.30% over the MVA respectively. These
in detail the official auction results reference tariff established in the payments would be equivalent to
available at the moment of writing auction. a payment from the developers
this note, comparing the results with — Green Show Lda. and to the system of €22.51/MWh,
the Portuguese auction celebrated in TAGENERGY, S.A. were the €15.07/MWh and €8.26/MWh
2019 as well as with other auctions two winners under the fixed respectively, considering the
celebrated worldwide, and including compensation to the system production parameters published
modality, with a capacity in the auction.
an assessment of the benefits that
the 2020 auction is expected to awarded of 157MVA and 20MVA,
provide to the Portuguese system. respectively. For this, they offered
a capacity weighted-average
payment of €75,128.7/MVA and
€64,229.3/MVA respectively.
3.1 Specific results
These payments would be
According to official results, out equivalent to a payment from
of the total 700MVA of capacity the developers to the system of
auctioned, 670MVA were finally €38.37/MWh and €32.82/MWh
awarded. The split of injection respectively, considering the
production parameters published
capacity for the different modalities
in the auction.
is illustrated in Figure 6.
FIGURE 6 – CAPACITY AWARDED PER REMUNERATION SCHEME
MVA %
600 72% 80%
70%
500
60%
400
50%
300 40%
26% 483 30%
200
20%
100 1%
177 10%
10
0 0%
CfD Fixed compensation Flexibility
Portuguese Auction 2020 Review | AFRY 11TABLE 1 – RESULTS FOR THE SOLAR STANDALONE – CFD MODALITY (NOMINAL MONEY)
ID Lot Company Capacity NPV Discount, in %, Awarded CfD
awarded (€/MVA) to the reference (€/MWh)
(MVA) fixed payment
Solarengoradar –
1 7 10 685,441.36 73.30 11.14
Unipessoal, Lda.
Source: Gabinete do Ministro do Ambiente e da Ação Climática, ADENE
TABLE 2 – RESULTS FOR THE FIXED COMPENSATION TO THE SYSTEM MODALITY (NOMINAL MONEY)
ID Lot Company Capacity NPV Fixed Equivalent
awarded (€/MVA) compensation compensation
(MVA) to the system to the system
(€/MVA) (€/MWh)
1 1 Green Show – Lda 99 903,616.00 72,976.50 -37.27
2 4 Green Show – Lda 54 978,437.30 79,019.10 -40.36
3 4 Green Show – Lda 4 939,492.53 75,873.90 -38.75
4 8 TAGENERGY, S.A. 10 795,305.73 64,229.30 -32.82
5 9 TAGENERGY, S.A. 10 795,305.73 64,229.30 -32.82
Source: Gabinete do Ministro do Ambiente e da Ação Climática, ADENE
TABLE 3 – RESULTS FOR THE FLEXIBILITY OPTION MODALITY (NOMINAL MONEY)
ID Lot Company Capacity NPV Fixed Equivalent
awarded (€/MVA) compensation compensation
(MVA) to the system to the system
(€/MVA) (€/MWh)
Hanwha Q Cells
1 2 109 795,306.11 207.33 -18.38
GmbH
Endesa Generación
2 3 99 721,004.67 187.93 -15.06
Portugal, S.A.
Hanwha Q Cells
3 4 50 978,437.30 255.02 -26.55
GmbH
Iberdrola
4 5 Renewables 69 568,763.32 148.18 -8.25
Portugal, S.A.
Hanwha Q Cells
5 6 99 939,493.34 244.86 -24.81
GmbH
Hanwha Q Cells
6 10 19 721,004.67 187.93 -15.06
GmbH
Hanwha Q Cells
7 11 19 903,615.84 235.50 -23.21
GmbH
Hanwha Q Cells
8 12 19 1,060,043.28 276.31 -30.20
GmbH
Source: Gabinete do Ministro do Ambiente e da Ação Climática, ADENE
12 Portuguese Auction 2020 Review | AFRY3 Auction 2020 results
Figure 7 shows AFRY’s independent FIGURE 7 – PROJECTED AVERAGE REVENUES1 IN AFRY’S Q3 2020 CENTRAL
assessment of the overall SCENARIO PER WINNER (NOMINAL MONEY)
revenues that would be collected
by each of the awarded projects Weighted average price, €/MWh nominal money
according to the information
40
previously introduced. For the fixed 4. Iberdrola Renewables Portugal
compensation to the system and the 35
flexibility option modalities, revenues 6. Hanwha Q Cells 2. Endesa Generación Portugal
have been computed as AFRY’s Q3 30
2020 Central solar capture price 1. Hanwha Q Cells
projections minus the payments 25
resultant from the auction.
7. Hanwha Q Cells 3. Hanwha Q Cells
20
The projects awarded under the 5. Hanwha Q Cells
8. Hanwha Q Cells
modality flexibility option show
15
higher revenues than the solar 1. Solarengoradar
standalone awarded projects; 10
however, the reader is reminded that 4/5. TAGENERGY
the projects awarded under this 5
3. Green Show
modality have an extra cost with 1. Green Show
2. Green Show
the system correspondent to the 0
strike price activation; the adjusted 0 20 40 60 80 100 120
revenues discounting AFRY’s Q3 Capacity awarded (MVA)
Fixed compensation to the SEN
2020 Central projections for the
Fixed tariff
activation costs are shown in a Flexibility option
dashed circle in the figure 7. Flexibility option minus strike price activation
3.2 Benefits for the system
6
FIGURE 8 – PROJECTED SAVINGS FOR THE SYSTEM FOR THE 2020 AUCTION, AFRY’S
2019-12-10 | COPYRIGHT ÅF PÖYRY AB | GO TO HEADER/FOOTER TO CHANGE TEXT
The 2020 auction results imply an Q3 2020 CENTRAL SCENARIO (NOMINAL MONEY)
estimated benefit for the system
around €427m based on AFRY’s Savings for the system (m€, nominal money)
Q3 2020 Central hypothesis. This 45
assessment has been done calculating 40
the NPV for the each of the awarded 35
bids (as previously explained in 30
Sections 2.1, 2.2 and 2.3), although 25
using AFRY’s independent price
20
projections on solar capture prices and
15
strike price activation.
10
The flexibility option modality 5
represents the largest share of 0
savings for the system, accounting
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
for approximately 61% of the total
savings. The fixed compensation to
the system follows, with an estimated Flexibility option Fixed tariff
Fixed compensation to the SEN Total NPV per year
share of 37% of the total savings.
The remaining 2% of the savings is
represented by the CfD modality.
Figure 8 shows the projected savings
for the system annually2 under
7 2019-12-10 | COPYRIGHT ÅF PÖYRY AB | GO TO HEADER/FOOTER TO CHANGE TEXT
1 Not considering revenues for the provision of ancillary services or for price arbitration opportunities for storage, due to
the lack of the storage specifications of the winning bids.
AFRY’s Central Q3 2020 projections. 2 Assuming that all projects are commissioned in July 2024.
Portuguese Auction 2020 Review | AFRY 13The savings for the system TABLE 4 – COMPARISON OF PROJECTED SAVINGS BETWEEN AFRY’S Q3 2020
experience an increasing trend CENTRAL SCENARIO AND THE GOVERNMENT PROJECTIONS (NOMINAL MONEY)
throughout the observed period as
a result of the higher contribution Total Savings Savings CfD Savings fixed
savings flexibility option (m€) compensation to
from the strike price activation from (m€) (m€) the system (m€)
projects awarded under the category AFRY's Q3 2020 Central
427.1 257.8 7.3 162.0
flexibility option. scenario
AFRY’s projections of savings are Government's scenario 559.2 390.3 6.9 162.0
slightly different than the savings
that can be computed using the
Government’s projections included
TABLE 5 – COMPARISON OF RESULTS BETWEEN THE 2020 AND THE 2019 AUCTION
in the auction documents; the
(€/MWH, NOMINAL MONEY)
comparison in savings is shown
in detail in Table 4. There is a 2020 2019
difference in the savings assumed
Fixed compensation to the SEN 37.74 21.39
from the flexibility option modality,
as the Government’s projections
Fixed tariff 11.14 20.43
on the strike price activation are
considerably higher than AFRY’s Source: Gabinete do Ministro do Ambiente e da Ação Climática, ADENE
Q3 2020 Central projections in
the short and medium term, being MVA and m€0.52/MVA respectively, results, according to the AFRY’s Q3
aligned at the end of the 15-year reflecting higher savings for the 2020 Central projections. The yearly
period awarded in the auction. 2020 auction. savings are stable throughout the
observed period, being the highest
Figure 9 shows the annual savings
savings the ones correspondent to
3.3 Comparison with 2019 for the system for 2019 auction
the former fixed tariff modality.
auction results
The 2020 auction results, previously FIGURE 9 – PROJECTED SAVINGS FOR THE SYSTEM FOR THE 2019 AUCTION, AFRY’S
summarized in Table 5, show a Q3 2020 CENTRAL SCENARIO (NOMINAL MONEY)
relevant decrease in the equivalent
tariffs received by the companies Savings for the system (m€, nominal money)
compared to the results of the 70
2019 auction, summarised in
Table 5. The contribution to the
60
system for projects under the
fixed compensation to the system
modality almost doubled from the 50
quantities resultant in 2019, while the
CfD tariffs almost halved from 2019. 40
Regarding the savings for the
system estimated for the 2019 30
auction results based on AFRY’s
Q3 2020 Central hypothesis, they
20
amount to €669m, whilst the 2020
were estimated around €427m as
exposed in Section 1.3.2, amounting 10
in total to more than €1bn. This
decrease in the overall savings for 0
the system in the 2020 auction is
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
as a result of the lower capacity
auctioned; savings per MVA in the Fixed tariff Fixed compensation to the SEN Total NPV per year
2020 and 2019 auction are m€0.63/
14 Portuguese Auction 2020 Review | AFRY3.4 Comparison with other
auctions worldwide
Figure 10 presents an evolution of
the clearing prices of the different
solar PV auctions celebrated
worldwide since 2014. The results of
the Portuguese auctions celebrated
in 2019 and 2020 are highlighted
in orange. For the auctions that
have some merchant component in
exchange of a fixed payment, such
as the ones celebrated in Portugal,
the equivalent cleared price of the
auction has been calculated as our
latest projections for solar capture
prices minus the awarded payment. in the United Arab Emirates (UAE). — The overall record corresponds
The 2020 Portuguese auction has to the prices set by Green
In general, prices have been
continued the decreasing trend of Show – Lda under the fixed
decreasing steadily as a result of compensation to the system.
solar PV auctions, setting a new
decreasing investment costs, gains
low-record price: — The first hybrid projects with
in efficiency and an increasing storage auctioned in the world
competitiveness and aggressiveness — The overall record for a CfD have been auctioned in the 2020
worldwide from renewable or similar regime (e.g. Feed- Portuguese auction, resulting in
developers. The 2019 Portuguese in-Tariff) has been set by some of the projects as low as
auction set a low-record price, which Solarengoradar – the previous low record of UAE
was not met until some months ago Unipessoal, Lda. set earlier in the year.
FIGURE 10 – EVOLUTION OF THE CLEARING PRICES IN THE SOLAR PV AUCTIONS CELEBRATED WORLDWIDE3
(USD/MWH, NOMINAL MONEY)
1 2019-12-10 | COPYRIGHT ÅF PÖYRY AB | GO TO HEADER/FOOTER TO CHANGE TEXT
3 Portugal* reflects the average price for storage in the 2020 Portuguese auction.
Portuguese Auction 2020 Review | AFRY 1516 Portuguese Auction 2020 Review | AFRY
4 Stories of success
Enel Green Power
Antonio García Gallego, ”We believe that valuing the between tender announcement and
Head of Business Development Portugal flexibility granted by hybrid projects bid submission, as it gave bidders
including storage when compared to more time to study and optimize
”At Enel Green Power, we are very
stand-alone solar plants is the right their projects, resulting not only in
satisfied with the auction results,
move for the government, as it will more competitive bids but also in
which will allow us to keep promoting
facilitate the entry of a higher share more solid proposals, with a higher
the energy transition towards our
of renewable sources into its energy probability of realization. We hope
global decarbonization objectives
mix, moving it one step forward this trend will continue in future
and to grow in one of our core
towards its objective of carbon tenders and that other dimensions,
markets, Iberia.
neutrality by 2050, while maximizing such as project maturity or social
”The new tender design, introducing value for final consumers. We impact, will be added into the mix
the possibility of proposing hope other EU countries will follow when it comes to awarding criteria.”
integrated PV solar + storage this example, giving bidders the
solutions, allowed us to leverage opportunity to integrate the storage
on our expertise in hybrid solutions option into RES auctions.
in order to differentiate our value
”Another change in tender design
proposition and be able to present a
(when compared to the 2019
winning bid with an attractive return
auction) that we believe was very
for our shareholders in an extremely
positive is the longer period allowed
competitive environment.
Portuguese Government
”This years’ solar auction was again of 100 MW (minimum), giving more possibilities meaning floating solar
a resounding success setting a needed flexibility to the system PV, particularly in the dam reservoirs,
new world record for the lowest by contributing to absorb surplus among other possible locations.
solar tariff price. The remuneration renewable electricity in the grid and
”This will be an important challenge
option that had more lots allocated, releasing it when it will be needed
on the technical side, once again we
flexibility/storage option, was the most.
will count on AFRY’s expertise, but
launched only in this 2020 auction
”AFRY’s role in the success story at the same time the promoters will
and its results were a very welcome
of the 2019 and 2020 auctions gain an important risk mitigation, on
surprise, since winners renounced
was invaluable for the precious the land availability and the costs
receiving the annual capacity
insights given and the work put that come with it.”
payment, ending up paying the SEN1
in the tender’s construction.
an annual capacity payment. Adding
Going forward, the Government
to this fixed annual payment, the
plans to expand the frontiers of
winners will have to insure the SEN
solar PV deployment in the next
against wholesale electricity price
solar auctions, which are already
spikes, hence given the Portuguese
being planned, considering all the
electricity consumers a potential
suggestions and lessons learned
additional revenue. Simultaneously,
from the first two. The next tenders
the transport and distribution grids
will have new implementation
will count with new storage capacity
1 Sistema Elétrico Nacional.
Portuguese Auction 2020 Review | AFRY 175 Conclusions 6 How can AFRY
help?
The Portuguese 2020 auction has shown a successful AFRY Management Consulting is the leading advisor
way to go in order to reach long-term energy objectives to the world’s energy, forest and bio-based industries.
in a competitive manner, maximizing the benefits for Our dedicated team of over 450 consultants, across
the system and the end-users. The auction has proven 17 offices on 3 continents, provides strategic and
to tackle three different objectives simultaneously, while operational advice across the value chain, underpinned
providing benefits for the system: by deep expertise and market insights.
1. increase the renewable penetration; As part of AFRY, our management consultants are
2. increase the flexibility of the system in order to backed by 17,000 engineers, designers and advisors
better integrate renewables into the system; and within infrastructure, industry and energy who are at
3. provide firm capacity that contributes to the security the cutting-edge of technology and have collective
of supply of the system. expertise that spans industries and geographies.
AFRY has over 20 years’ experience in energy markets
The results published were even more surprising than the and, since 2010, our consulting team has valued around
ones from the 2019 auction. The 2020 auction resulted 310GW of electricity generation capacity across Europe,
in 670MVA of injection capacity awarded in 12 different the Middle-East North African region and the Americas
injection points in Portugal. This year, the auction with a combined value above USD390bn. In addition to
offered an additional opportunity for storage pioneers to transactions we provide our AFRY Independent Market
participate, and the debut has been spectacular. It seems Report with annual baseload price projections for 58
that storage has arrived to stay with us for a long time. countries, which is relied and trusted by utilities, banks
and independent players for use in numerous strategic
As commented by ENEL Green Power and the and commercial valuations.
Portuguese Government, hybrid solutions are the right
move to increase flexibility of the system, supporting in We additionally add value to our clients through a range
the integration of renewables. This new tender design of other services:
also leverages the potential of the players to integrate — strategic advisory services on market positioning
storage and renewables, moving towards a pathway of within the supply chain, by technology and across
innovation and costs optimization. geographies;
The auction has broken all the records of any other — transaction support services spanning:
competitive solar PV auction celebrated worldwide, — M&A advisory (including commercial, market and
resulting in both the most competitive solar standalone technical due diligence);
— sell-side support for attracting investment in or
projects and projects with storage. The commissioning
disposal of, assets; and
of these awarded projects would translate in savings for
— Lenders’ Market Advisor services to support the
the Portuguese system and thus the end-consumer of c. project financing of generation assets.
€28m/year in AFRY’s analysis.
— asset-specific revenue assessments providing price
The two auctions celebrated in 2019 and 2020, providing projections tailored to a specific project and/or
a platform to reach long-term goals while bringing portfolio; and
benefits to the system. The Portuguese experience can — expert determination and expert witness services for
represent a new international benchmark and it certainly contract disputes.
is a success case from which other countries and
regulators could learn from.
The future outlook for the Portuguese system brings
AFRY would like to congratulate the Government, the many uncertainties and many challenges in which
Secretary of State and all the organizers and parties AFRY’s analytical tools and industry knowledge can help
that made the auction possible in such difficult times. our clients understanding the upsides and risks of their
We are looking forward for the new opportunities future investments or developments.
coming in the following years, which will indeed involve
some technical implementation challenges, as the
Government has already revealed.
18 Portuguese Auction 2020 Review | AFRYPortuguese Auction 2020 Review | AFRY 19
AFRY is an international
engineering, design and
advisory company.
We support our clients to
progress in sustainability
and digitalisation.
We are 17,000 devoted
experts within the fields of
infrastructure, industry and
energy, operating across the
world to create sustainable
solutions for future generations.
Making Future
AFRY Management Consulting
King Charles House, Park End Street, Oxford, OX1 1JD, UK
ignacio.cobo@afry.com
beatriz.herraiz@afry.com
antonio.dejuanfernandez@afry.comYou can also read
