This is a translation of an article by Tommaso Barbetti, published on May 29th, 2020 on Quotidiano Energia
GSE published the results of last February DM Fer second Auction provided by the so-called RES Decree.
Only those who did not pay attention in the last months were surprised by a fact that, although not unexpected, is still striking: the volume of available support (788 MW) was only partially assigned (587 MW), due to the low level of participation by the operators – registers (small plants) on the other hand were competitive, except for the asbestos PV procedure whose support volume was, once again, disproportionate compared with the dimension of the market.
The most sensational case, of course, if only because of the volumes at stake, is the one of the Auction for wind and non-agricultural PV. The subscribed capacity was only 425 MW, with respect to the available 500 MW – the extra 75 MW will be added to the June 2020 Auction, now with a quota of 775 MW: it’s not hard to guess the first feeling about the result to come…
In the past we wrote that such ending appeared inevitable for the auctions program provided by the RES Decree, due to the pathologic rhythm at which authorizations for new projects are released. For what concerns wind, for example, Elemens counts only 300 MW of new permits in the last 24 months. It is true that a new era of development massively started only in 2018 – 6000 MW have been authorized since then: considering the average lenght of permitting for wind (historically, more than 5 years) it is clear that the greater part of projects will see the light only after the end of the RES Decree (November 2021). On the other hand, PV has quicker procedures on average (18 months): however – thanks to the powerful storytelling on market parity, whose relevant results are more on paper than in the field, so far – over 85% of development concentrated on agricultural areas, which are not eligible for the procedures.
In addition, differently from the expectations, the queue of already authorized wind projects could only partially “drag” the movement. Being for the greater part 10ish years old projects, most of them are dealing with prorogations or refreshments aimed at updating layouts and including new generation turbines. Well, the procedures are grueling also in this segment, putting the Regions on the blaming list, once again.
How’s the Government going to react to such an outcome? (We guess) not in a satisfied way: short auctions bring a modest contribution to the Energy Climate Plan and reduce competition among operators (the average reduction for the first auction was 19,1%, 7,7% for the second), with additional costs for the system – it is still worth to point out that the average annual cost for the second auction will be limited, around 20 million euros (the first one cost less than 15).
What now? Our diagnosis (lack of projects) brings the therapy along (speedup of authorizations, even more than simplification): vaste programme which, even if in line with the post-Covid Italian mantra of de-bureaucratization, will hardly give results by the end of 2021, when the Auction programme will end.It is necessary to think of quicker, more effective solutions.
We can think of two: “reallocative” solutions, in which quotas are reallocated over time, giving more breath to the DM Fer, or “extensive” solutions, in which the participation to auctions is open also to project typologies which are not included today, like wind repowering and agricultural PV.
“Reallocative” solutions would have the benefit of giving a longer prospective for operators and adding competition for auctions, reducing costs – on the other hand, the contribution to 2030 targets would be limited.
“Extensive” solutions, instead, beside balancing the mechanism, would offer a perspective of long-term remuneration to projects that lack of it today: an even more present issue during the post Covid-19 crisis. Obviously, this last solution is not problem-free either. Not to mention the changes to necessary adjustments to the competitive procedures (and the resulting issues of “legitimate expectations”) that the different wind and PV economics could necessitate, the alternative of auctions would wrong-foot – even if only temporarily, until 2021 – the PPA and the merchant world.
Recalling that – in our opinion – market solutions must be prioritized (when possible), it is nevertheless clear that the merchant path – already troubled in the beginning – is even harder with Covid-19 crisis. Thinking of an intervention on regulation that avoids a risky and foreseeable stop&go on that side, auctions still look like the more effective solution compared to some bizarre forms of public socializations of PPA risks. Quoting the words of the Energy Regulation Authority (ARERA) in a recent intervention in the Senate: “The possible use of PPA with public counterpart represents a tool with potential and characteristics similar to auctions mechanisms, but less transparent both in relation to selection criteria and cost and consumers’ risks allocation criteria”.