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Competitive Selection and Support for Renewable Energy

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Competitive Selection and Support for Renewable Energy

  1. 1. Competitive Selection and Support for Renewable Energy Kiev, 21 February 2019
  2. 2. Extensive experience of financing RE projects EBRD Renewable projects since inception to 2017 • 146 projects in 29 countries • 6,838 MW of renewable capacity • More than EUR 4bn of EBRD investment • Approximate project value of EUR 14bn MW total is greater than totals shown on map due to regional projects not projects not included and other minor adjustments. Albania 303 MW large hydro 30 MW small hydro Armenia 25 MW large hydro 38 MW small hydro Azerbaijan 153 MW large hydro Bosnia and Herzegovina 26 MW large hydro Bulgaria 26 MW small hydro 216 MW wind Croatia 1 MW biomass Cyprus 12 MW solar Egypt 750 MW solar Estonia 20 MW biomass 293 MW wind FYR Macedonia 23 MW small hydro Georgia 395 MW large hydro 11 MW small hydro 20 MW wind Greece 48 MW wind 40 MW solar & wind Hungary 158 MW wind Jordan 265 MW solar 127 MW wind Kazakhstan 24 MW large hydro 100 MW solar 51 MW wind Latvia 27 MW large hydro Mongolia 155 MW wind Montenegro 4 MW hydro 72 MW wind Poland 130 MW biomass 875 MW wind Romania 210 MW large hydro 50 MW solar 557 MW wind Serbia 2 MW biogas 4 MW biomass 23 MW small hydro 263 MW wind Tajikistan 16 MW large hydro Turkey 190 MW geothermal 278 MW wind Ukraine 4 MW biogas 18 MW biomass 184 MW large hydro 4 MW small hydro 59 MW solar 79 MW wind Morocco 120 MW wind Russian Federation 40 MW geothermal 336 MW large hydro
  3. 3. Renewables – Operational Approach Investment Technical cooperation Policy dialogue • Promoting sustainable energy • Honest broker role • Sharing experience and best practice • Development equity • Mezzanine • Project finance • Corporate loan • Equity • RE Frameworks • Small Financing Facilities • PPA drafting • Grid absorption studies • Regulatory frameworks 3
  4. 4. EBRD has been supporting countries on the transition to renewable energy auctions Joint EBRD and Energy Community Secretariat Policy Guidelines on Competitive Selection and Support for Renewable Energy, prepared in collaboration with IRENA. These Guidelines are divided into four broad areas – namely: (1) the overall framework for the competitive process; (2) choices relating to what is being procured; (3) choices relating to the selection process; and (4) the mechanism for the delivery of RE support. Underpins EBRD technical assistance to policy makers Planned and ongoing assistance on auction design and/or implementation in: Albania, Egypt, North Macedonia, Lebanon, Moldova, Mongolia, Serbia, and Turkey. 4
  5. 5. 21 February, 2019  Good for consumers • energy at the lowest price  Good for the authorities • transparent and objective selection process and price determination • control over budget, timing and location  Good for industry • lower regulatory risk (is the price “right”?) • stable and long-term high volume business 5 Why Auctions?
  6. 6. 21 February, 2019 6 Solar PV (USDc/kWh) 18.4 14.1 10.3 8.7 8.5 16.4 10.910.9 10.2 8.8 8.2 5.9 16.9 11.1 8.5 7.5 7.0 6.5 6.4 6.1 4.8 8.5 7.6 6.5 6.0 5.9 4.9 3.6 3.0 2.9 2.4 7.2 6.4 5.3 5 4.4 2.3 4.9 4.7 4.2 2.7 2.5 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 Indonesia India-UttarPradesh BrazilPernambuco India-Karnataka(PhaseII) SouthAfricaREIPP(Round3) UgandanGetFiT Guatemalan3rdTender India-Karnataka500MW ElSalvador IndiaJNNSM(PhaseIIBatch1) Brazil6thAuction UAEDubai(PhaseII) JordanRound1FiT India-Punjab Brazil7thAuction Brazil8thAuction India-AndhraPradeshNTPC350… Chile"2015/02" SouthAfricaREIPPP(Round4) JordanRound2 Peru4thREAuction(Round1) Jamaica IndiaJharkhand1200MWIndia… IndiaRajasthanNTPC420MW Zambia Argentina Peru4thREAuction(Round2) Mexico UaeDuabi(PhaseII200MW) Chile"2015/01" UAEAbuDhabi Egypt-FiT Germany201MW Poland ElSalvador100MW Brazil574MW SaudiArabia Senegal-Kahone Senegal-Touba Armenia-Gegharkunik Egypt-KomOmbo200MW Jordan-Round3150MW 2013 2014 2015 2016 2017 2018
  7. 7. 21 February, 2019 7 Onshore Wind (USDc/kWh) 14.1 13.3 6.2 4.5 4.0 9.7 4.4 11.1 6.7 4.6 6.6 6.5 5.0 4.5 3.8 3.1 5.7 4.3 4.3 4.1 3.5 6.5 5.9 4.6 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 Italy-Onshorewind Italy-Onshorewind SouthAfrica-Round3 Brazil-17thenergyauction Brazil-5thcapacityauction Panama-2ndwindauction Brazil-19thenergyauction UK-OnshoreWind2016/17 delivery Australia-ACTWindRound1 SouthAfrica-Round4 Italy-800MW Canada Denmark-KriegersFlak600MW Mexico-394MW Peru-4thREauctionRound1 Morocco-850MW Germany-807MW Spain-3GW Germany-1GW India-SolarEnergyCorp. Turkey-YEKARound2 France-508MW Argentina-708MWRound1 Germany-709MW 2013 2014 2015 2016 2017 2018
  8. 8. 21 February, 2019 8 Four key elements Project Well-designed auctions Grid availability Overall strategy - MWh
  9. 9. 21 February, 2019 9 A supportive policy framework is needed alongside well-designed auctions Supportive policy framework • Policy commitment • Long-term and medium term RE targets • Schedule of RE auctions • Clear and credible institutional arrangements • Robust legislative and contractual framework Well-designed auctions • What is being procured (location, volume, technology)? • Who is eligible? • How will projects be selected? • How to promote project delivery? • How will support be provided?
  10. 10. 21 February, 2019 10 Lowest cost Implementation certainty Strict penalties for non implementation Prequalification conditions Auction projects at advanced stage Multiple bidders Low barriers to entry Price-only criterion Reasonable penalties for non implementation Robust Contracts What influences auction outcomes?
  11. 11. 21 February, 2019 11 Auction design – timeline Pre-bidding stage - Selection • Clearly specify auction parameters (what, where, when, how) • Ensure bidders are credible and well qualified to deliver – use qualification criteria on technical and financial capacity • Specify key support arrangements (offtaker, grid connection, contracts, etc.) • Bid bonds - avoid need for strict financial qualification Bidding stage • Streamlined and transparent process • Single sealed bid process for clarity, transparency, simplicity and lower administrative costs • Choose winning bid(s) exclusively on price for transparency and simplicity • Level of support should be pay-as- bid for simplicity Post-bidding stage - Delivery • Clear deadlines and schedule of penalties for non- compliance & monitoring of project progress – use of completion bonds higher than bid bonds to provide incentives for completion
  12. 12. 12 Supplementary slides
  13. 13. Some auction and policy framework design choices 21 February, 2019 13 1. Institutional arrangements 2. Setting volumes and timelines 3. What to procure 4. Offtake arrangements 5. How is support provided 6. Promoting project delivery 7. Qualification requirements 8. Financial evaluation 9. Balancing responsibility
  14. 14. Institutional arrangements 21 February, 2019 14 • Which entities: (1) set overall policy (targets, auction schedule); (2) organise and supervise auctions; and (3) contract with winners? Issue • Consider roles of different institutions Discussion • All institutional roles need to be clearly specified • Institutions need to be credible (transparent administrator, credit-worthy offtaker, etc.) • Choice will depend on local context Recommendation
  15. 15. Setting volumes and timelines 21 February, 2019 15 • How to set a long-term plan for auctions? Issue • Goal – what is the long-term goal: share of electricity generation, share of energy consumption, shares of technologies? • Establish annual quotas linked to long-term goals • How to capture regional constraints and ambitions? Discussion • Set a long-term target and rolling timeframe • Identify grid constraints and availability • Address grid constraints through: (1) nodal quotas; (2) locational pricing; or (3) connection costs Recommendation
  16. 16. What to procure 21 February, 2019 16 • How much is being procured and where? Issue • Capacity – how many MW? • Projects – how many projects? • Sizes – maximum or minimum size limits? • Land – developer or government chooses? • Grid connection – whose responsibility? Discussion • Set capacity, number of projects, and size restrictions to balance economies of scale, attract diverse participants, promote competition and meet legal obligations • Considering establishing caps (for example – for first round, no project larger than XX MW) • Small projects supported through administratively set FiT Recommendation
  17. 17. Offtaker arrangements 21 February, 2019 17 • Arrangements for power purchase Issue • Power purchase: what is needed for financing? Discussion • Robust PPA based on existing model with longer tenure • Clear and credible funding structure for offtaker • Visibility over future offtake arrangements in case of sector reforms Recommendation
  18. 18. How should support be provided 21 February, 2019 18 • How should support be provided to projects? Issue • Interaction with market reform • Adoption of CfDs Discussion • Support: PPA with fixed price per delivered kWh • Transition to CfDs when electricity markets are liquid and accessible to market participants • Ensure bidders have visibility over transition arrangements Recommendation
  19. 19. Promoting project delivery 21 February, 2019 19 • How to promote project delivery by winning bidders? Issue • Project requirements – permits, land, grid connection, technical characteristics. • Bidder requirements – experience, financial standing, absence of legal concerns? • Financial guarantees – bid bonds, completion bonds Discussion • Facilitate permitting, grid connection and land access to allow advanced stage projects • Specify bidder requirements to balance credibility and competition • Use financial guarantees to promote credible bids and provide incentives for delivery Recommendation
  20. 20. Financial evaluation 21 February, 2019 20 • How should the financial proposals be evaluated? Issue • Complexity – simple tender or descending auction? • Support level – pay-as-bid or marginal price? Discussion • Use a simple auction procedure in early stages of the transition to auctions • Use pay-as-bid in early stages of the transition to auctions • Use price as the sole evaluation criteria to selected between all qualifying bidders Recommendation
  21. 21. Balancing responsibility 21 February, 2019 21 • How should balancing costs for intermittent RE sources be recovered? Issue • Should intermittent RE have balancing responsibility? Discussion • Introduce balancing responsibility when intraday and balancing markets are liquid and readily accessible by RE producers • Include clear criteria for establishing liquidity of markets (including institutional responsibility) Recommendation
  22. 22. Contact 21 February 2019 21 Adil Hanif Principal Banker, Policy Energy and Natural Resources Tel: + 44 20 7338 7287 Email: hanifa@ebrd.com EBRD One Exchange Square London, EC2A 2JN UK www.ebrd.com 22

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