Portugal continues to attract investor interest with second round of solar PV auction in Q1 2020

Portugal will hold the second round of its solar photovoltaics (PV) auction in Q1 this year where around 700 megawatt (MW) of solar PV capacity will undergo a tendering process. This is one of a number of initiatives the country is adopting in order to meet its 2030 and 2050 climate objectives.

Pavan Vyakaranam, Project Manager at GlobalData, comments: “There is no doubt that this second round of solar PV auction will generate tremendous investor interest as this is coming immediately after the record breaking solar PV auction held last year. The auction mechanism has introduced transparency and competitiveness to the electric system in Portugal. The price bids for projects allocated in the last tender were low reflecting the reduced risk this process brings for power generators.”

In order to combat climate change, Portugal has pledged to become carbon neutral by 2050 and has framed its objectives and actions to do so within the national Integrated National Energy and Climate Plan (NECP). Promotion of renewables and ensuring supply security is among the eight broad objectives listed under this national plan. In order to promote renewable energy development and increase the share of renewable generation capacity, Portugal implemented this auction mechanism.

An auction mechanism is a good way forward when the demand is high for procuring generation licenses and offered network capacity is less.

The capacity under round 1 auction conducted last year was awarded under two modalities of fixed remuneration and variable tariff system. Under a fixed system, the project owner will receive a fixed price for 15 years and under the variable system, generator will sign a power purchase agreement (PPA) with a buyer and pay a contribution to the system.The previous auction was highly competitive as only 64 projects were selected in bids for 300 projects and finally 25 projects were allotted a capacity of 1,150 MW.

The tendered capacity for the first round of auction was 1.4 gigawatt (GW) in response to which bids worth 10 GW were received from the developers. The auction put Portugal in the record books as a country with the lowest cost solar PV contracts in the world. A contract for the record bid of €14.7/MWh (fixed rate) was awarded to Akuo Renovaveis Portugal, Lda., a unit of French independent power producer Akuo Energy for a project capacity of 150 MW. The highest bid for which a contract under the fixed tariff bid was awarded to Aura Power Developments Portugal, a unit of UK based Aura Power for a project size of 18 MW at €031.16/MWh.

Vyakaranam continues: “The new auction scheduled in Q1 this year will have an auction capacity of 700 MW and the auction modalities, rules and conditions will be the same as the previous auction. The country plans to conduct two auctions starting this year and is expected to auction around 8 GW of solar PV capacity until 2027 to meet its climate objectives till 2030.

“The strike price under the fixed tariff auction is expected to be around €35-36/MWh based on the number of bids that were received in the previous auction and the interest it generated. The auction mechanism had created a sustainable environment for the development of renewable energy because the system is competitive, transparent and reduced investment risk leading to reduced cost of capital and subsequently lowering of the tariffs. Against the backdrop of planned auctions in a phased manner, it is expected that solar PV capacity in Portugal will reach around 8.8 GW by 2030.”

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