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
Portuguese Auction
2020 Review
A note from AFRY Management Consulting

October 2020
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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2            Portuguese Auction 2020 Review | AFRY
Portuguese Auction 2020 Review - A note from AFRY Management Consulting October 2020
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
Portuguese Auction 2020 Review - A note from AFRY Management Consulting October 2020
4   Portuguese Auction 2020 Review | AFRY
Portuguese Auction 2020 Review - A note from AFRY Management Consulting October 2020
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
Portuguese Auction 2020 Review - A note from AFRY Management Consulting October 2020
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

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                                                                                                                                                   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
Portuguese Auction 2020 Review - A note from AFRY Management Consulting October 2020
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
Portuguese Auction 2020 Review - A note from AFRY Management Consulting October 2020
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
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                                                                                                                                                               2021

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                                                                                                                                                                             2025

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      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 | AFRY
2. 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         9
10   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   11
TABLE 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 | AFRY
3 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                          13
The 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 | AFRY
3.4    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   15
16   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   17
5 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 | AFRY
Portuguese 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.com
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