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BEST PRACTICES FOR THE TRANSITION TRANSITION TOWARDS TOWARDS AUCTIONS

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FABIAN WIGAND, ASSOCIATE ASSOCIATE DIRECTOR

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BEST PRACTICES FOR THE TRANSITION TRANSITION TOWARDS TOWARDS AUCTIONS

  1. 1. / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED1 CONFERENCE AUCTION SUPPORT SCHEME IN UKRAINE FOR RENEWABLE ENERGY DEPLOYMENT KIEV, 21.02.2019 FABIAN WIGAND ASSOCIATE DIRECTOR, NAVIGANT BEST PRACTICES FOR THE TRANSITION TOWARDS AUCTIONS Part of
  2. 2. / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED2 Consultancy services on auctions performed Analysis of auction schemes Navigant/Ecofys >600 energy experts >60 offices wordlwide >20 years experience designing & implementing competitive procurement/auctions Part of the EUH2020 research project on renewables auctions RECOMMENDATIONS BASED ON 20 YEARS OF EXPERIENCE IN AUCTION ANALYSIS & DESIGN
  3. 3. / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED3/ ©2019 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED3 UNDERSTANDING THE TRANSITION TOWARDS AUCTIONS Transition from feed-in tariffs to acutioned tariffs • Increases volume control, increases price competition • Increases new risks for bidders (pre-development costs and risk of sunk costs) • Quickly reflects market price developments but require competition • More difficult for some smaller bidders Administratively-set feed-in tariff Auctioned tariff • Government sets volume • Market sets price • Government sets price • Market sets volume
  4. 4. / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED4 Policy goals • Price competition • Volume control • Other goals such as grid & system integration, local value creation etc. • Be aware of trade-offs Market readiness • Market size & concentration, competition with other renumeration (e.. feed.in tariffs) • Risk & duration of project development phases, ease of permitting • Available funding (domestic/international, debt/equity), preparedness, risk perception Institutional readiness • Depend on type of auction, implementation timeline, desire for scalability of the auction. • Alignment of relevant ministries, grid operators, permitting authorities, energy regulator • Trust, transparency, independence • Use international best-practices but tailor auction to individual case PREPARE FOR AUCTIONS: TAILOR THEM TO POLITICAL, MARKET & INSTITUTIONAL READINESS OF THE COUNTRY
  5. 5. / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED5 THE AUCTION DESIGN PROCESS 5 Target definition Market & regulatory analysis Auction design Imple- mentation Evaluation Institutional set-up General design elements Procurement procedure Conditions for participation Deadlines and penalties Policy goals Market size Pre-developed project Market players Technology cost Project development & operation Existing regulations & incentives Drafting of required documents Market building Procurement conduction • RfQ • RfP and awarding of bids Contracting Monitoring of realization Lessons learned Adjustment of procurement design
  6. 6. / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED6 • Build capabilities: Working groups, trainings (bidder simulation also for auctioning authority) • Align on political goals, be aware of trade-offs • Study the market, prepare bidders THE AUCTION IMPLEMENTATION PROCESS REQUIRES BUILDING OF CAPACITIES & ALIGNMENT OF GOALS Formal regulation Participation documents RfQ/RfP Bid evaluation Results Auction Auction platform Schedule Key parameters Clarifications Qualification Ranking Publication of awards Publication of reasons for exclusion Timely contract award and signature Provision for legal disputs Market building Pre-bid conference Market feedback Auction simulation Auction conduction Announce- ment Drafting of required documents Contract- ing Example of auction process
  7. 7. / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED7 Understand bidders • Risk for bidders: – Bid risks with sunk costs – Penalty risks if not realizing projects – Revenue risks, such as ▪ Off-taker risk, i.e. curtailment or off-taker default ▪ Political risks, i.e. expropriation, contract breach, changes in law/tax ▪ Currency risk, i.e.. currency fluctuations & exchange controls • Avoiding collusion – Collusion more likely if small, concentrated market – Limit collusion through simple auction design and no post-auction negotiations Prepare bidders • Sufficient preparation time • Pre-bidder conferences • Trainings & auction simulations Address concerns: • Receive bidder feedback on design • Guarantees • Pot. exempt some sizes/technologies from auction CREATE FAVORABLE CONDITIONS FOR INVESTMENT THROUGH UNDERSTANDING, PREPARING AND ADRESSING BIDDERS
  8. 8. / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED8 EXAMPLE OF DESIGN CONSIDERATIONS DESIGN ELEMENTS: SELECTION OF PROJECT-SITE Government-site auction Bidder-site auction Bidder 1 Bidder 2 Bidder 3 Bidder 4 Auctioneer Project site Selected & pre- developed Pre-development by the auctioneer might include: • Grid connection • Land lease • Environmental assessments • Resource measurements 15 MW 30 MW Auction volume (e.g. 100 MW) 30 MW 25 MW Bidder 1Bidder 2 Bidder 3 Bidder 4 Auctioneer Project-site is selected by bidders Bidders compete with their projects Bidders pre-develop their projects, e.g: • Defining site boundaries • Measuring resource availability • Procuring land lease
  9. 9. / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED9 Government-site auction SELECTION OF PROJECT-SITE: COUNTRY EXAMPLES Bidder-site auction Bidder 1 Bidder 2 Bidder 3 Bidder 4 Auctioneer Project site Selected & pre- developed 15 MW 30 MW Procured volume (e.g. 100 MW) 30 MW 25 MW Bidder 1Bidder 2 Bidder 3 Bidder 4 Auctioneer Country examples: • Denmark/Germany/Netherlands wind offshore • Dubai/Abu Dhabi (UAE) • Morocco Country examples: • Germany PV & wind onshore • South Africa (with easier project development in Renewable Energy Development Zones - REDZ) • Mexico, Chile
  10. 10. / ©2018 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED10 FABIAN WIGAND Associate Director Energy Phone: +49 (0) 30 29 77 35 79 – 23 Mobile: +49 (0) 172 5833 265 E-Mail: fabian.wigand@navigant.com CONTACTS

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