Germany drives down onshore wind power costs at first competitive auction

19 May 2017 16:42 Source:ICIS

Germany’s first competitive tender for onshore wind resulted in an average subsidy award of €57.10/MWh, regulator Bundesnetzagentur said in a statement on Friday.

Germany employs a contract-for-difference (CfD) model, so the successful 807MW of capacity will sell electricity at the wholesale market price with a top-up subsidy payment bringing total income to €57.10/MWh.

Due to long-standing congestion on Germany’s north-south electricity transmission lines, there were restrictions on awarding projects located in northern Germany where wind speeds are better.

In the “grid expansion area”, subsidy could only be granted for up to 258MW, and this limit was reached. “Some bids could not be considered due to this limit,” regulator Bundesnetzagentur said in a statement.

As a result four surcharges in this area had to be decided by drawing lots.

The highest successful bid outside the grid expansion area was €57.80/MWh, with the highest successful bid within it at €55.80/MWh.

The regulator said 96% of the awarded volume was to citizen energy companies, also known as community projects. These are allowed a four-and-a-half year build period, up from the usual two years for established energy companies.

ICIS assesses German power as far out as Year 2021. On Thursday, this was priced over-the-counter at €29.05/MWh. Against this, total subsidy for the successful capacity would average just above €28.00/MWh.

The furthest forward trade ICIS has recorded is for 2022 delivery, which dealt as recently as Thursday at €30.05/MWh. This would give subsidy of just over €27.00/MWh.

Cost reductions

This was Germany’s first competitive onshore wind auction, in line with the EU’s push for market-based subsidy models (see ICIS Briefing here on market-based renewables subsidies)

The award marks a further driving down of renewable energy generation costs, which will further pave the way for more capacity to be installed over the coming years.

It comes just two days after Spain awarded grid connections to almost 3GW of onshore wind at zero subsidy, meaning the projects must be built backed by wholesale electricity market income alone ( see EDEM 18 May 2017 ).

While this was not achieved in Germany, the country did recently award subsidy-free connections to three offshore wind projects at auction that are likely to come online in the middle of next decade ( see EDEEM 13 April 2017 ).

The premium on Spanish wholesale power prices is also an important factor. On Wednesday, Spain’s Year 2019 product was assessed almost €16.00/MWh above Germany, cutting the additional subsidy in Germany relative to Spain down to just €11.00/MWh at 2019 delivery prices.

With Germany’s installed wind capacity at around 50GW, compared to Spain’s 23GW, Germany will be well ahead of Spain in terms of developing its most efficient sites, hence the need for a degree of continued subsidy.

In total, 256 bids with a volume of 2,137MW were submitted. Bundesnetzagentur called this a “pleasingly high level of competition”. This also demonstrates further appetite for more capacity to be built in coming years. jamie.stewart@icis.com

By Jamie Stewart