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Are Reverse Auctions the Key to Reforming Solar Energy Subsidies?

Jesse Jenkins's picture

Jesse is a researcher, consultant, and writer with ten years of experience in the energy sector and expertise in electric power systems, electricity regulation, energy and climate change policy...

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Full Spectrum: Energy Analysis and Commentary with Jesse JenkinsSummary: Reverse auctions can be used to avoid paying too much for solar PV and reduce the costs of renewable energy subsidy programs

The Australian Capital Territory (ACT) has implemented a novel way to support renewable energy: a reverse feed-in tariff auction. The first reverse auction ran from January 2012 to August 2013 and attracted a highly competitive pool of 49 proposals from 27 different participants, each competing to secure a 20 year feed-in tariff (FiT) contract to supply the territory with a total of 40 megawatts from solar photovoltaic projects. Three winning projects were selected based on both the FiT price requested and a rigorous evaluation of the candidate’s ability to complete the project on time and on budget. 

Projects were evaluated in a two-stage process. An initial “prequalification” process screened out projects to mitigate the risk that an applicant might be selected on the basis of price, but might not be able to deliver on its bid—a problem that has plagued other reverse auction programs in the UK, China and elsewhere. Only 45 percent of initial proposals secured prequalification in the ACT’s auction process. This rigorous screening discourages speculators and financially insolvent companies from participating in a second, final bidding stage and allows program reviewers to focus greater diligence on the remaining proposals.

This reverse auction may be a model for reforming FiT programs elsewhere. FiTs, which offer long-term price guarantees for renewable energy projects, are effective at reducing risk for project developers. However, setting the correct price guarantee has proven difficult. If governments set the price too low, developers will not build projects. Yet if prices are too generous, developers flood the market. The boom in renewable energy projects can make the cost to government budgets or electricity consumers balloon. Reverse auctions offer a solution: the auction discovers the right price to procure the desired amount of renewable energy at the lowest cost, while spurring competition between project developers. In the ACT’s case, the price paid to the three winning proposals ended up more than 40 percent below the government’s expected cost.

Publication: “The large-scale solar feed-in tariff reverse auction in the Australian Capital Territory, Australia,” Energy Policy 72 (September 2014): 14-22.

Authors: Greg Buckman is a PhD Scholar at the Australian National University’s College of Medicine, Biology, and Environment and formerly with the Australian Capital Territory’s Environment and Planning Directorate.  Jon Sibley is a Senior Manager with the Australian Capital Territory’s Environment and Planning Directorate. Richard Bourne is a Policy Officer with the Australian Capital Territory’s Environment and Planning Directorate.


Note: This is article is part of an ongoing series of concise summaries of interesting and important conclusions from new research and peer-reviewed journal articles. This series at Full Spectrum is written in partnership with Observatorio de las Ideasa Spanish-language publication which finds and summarizes important, cutting-edge ideas for policy makers, business leaders, and others on key topics like energy, health care, economics, and more.

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Bas Gresnigt's picture
Bas Gresnigt on Aug 22, 2014

“… question remains as to whether there is anything intrinsically meritorious about so called “renewable energy” that makes it a desirable form of energy. Regrettably … this question is never asked…”

That question was heavily debated in Germany during the eighties and nineties.
That debate resulted in the Energiewende law accepted in 2000.

All visible and unvisible subsidies played a role in that debate. Big money (~€100mln) was spent to numerous studies such e.g. as the optimal (least costs) methods to generate highly reliable electricity with high shares wind and solar. It delivered the conclusion that 80% renewable in 2050 was reachable without high costs.

Now the Germans see that Denmark will easily reach 100% renewable electricity in 2040 already, so there is discussion to raise the 2050 target of 80% renewable towards 90% or 95%.

Bob Meinetz's picture
Bob Meinetz on Aug 22, 2014

Jesse, reverse auctions offer little assurance to ratepayers of the future they’ll have invested wisely in a viable product, and saved money doing so:

1)  Market prices could move significantly lower after deals have been struck so far in advance

2) Technology will likely improve significantly in the interim, leaving investors with a tab for antiquated science and equipment

3) Alternative technologies may make solar irrelevant or grossly cost-inefficient by comparison.

That solar is seeking to lay claim to a special investment environment not afforded other technologies does not bode well for its prospects on the world’s energy stage, and policymakers should be examining whether the true goal is to to advance the cause of clean energy or enrich those with significant existing holdings in solar technology.

 

Bas Gresnigt's picture
Bas Gresnigt on Aug 22, 2014

Reverse auctions imply a shift towards big companies as those are impossible for rooftop solar households and small companies.
They combat the democratization of electricity generation, put it (back) in the hands of the wealthy boardrooms.

Hence not strange that they are promoted by Brussels where the lobbyists of big companies have major influence.

 

 

Jesse Jenkins's picture
Jesse Jenkins on Aug 22, 2014

That is not the question at hand here. Please stay on topic and focused. I have no interest in yet another debate over the merits of renewables or nuclear or fossil or whatever. There are plenty of other articles on this site that raise those questions legitimately. This is not one of them, so please keep the comments on topic: are reverse auctions an improvement for solar energy support policies or not? Discuss…

Bob Meinetz's picture
Bob Meinetz on Aug 22, 2014

Brian, as a factor of the energy it actually generates solar gets ten times as much federal money as nuclear:

http://mercatus.org/publication/renewable-energy-subsidies-and-electrici...

Yes, that’s “special help” – help which is not warranted, and help which has the unintended effect of furthering our reliance on fossil fuels and exacerbating climate change.

I realize solar has a quasi-holistic appeal for some; it’s a criteria which is invalid for decisions of significant influence on the future health of our planet.

Nathan Wilson's picture
Nathan Wilson on Aug 25, 2014

The reverse auction itself generates a FIT price in addition to procuring electricity.  There is no reason that the programs could not be designed to offer the same FIT price to home owners and small businesses (except that the home solar installation industry would no doubt lobby vigorously against this, as it would be a dramatic price reduction compared the lucrative retail rates fetched by today’s net-metering prosumers).

Bas Gresnigt's picture
Bas Gresnigt on Aug 25, 2014

Nathan,
As you can imagine the cost price of installing rooftop solar is higher than that of big installations (rooftop = more labor).
German FiT are designed to generate ~6% return on investment, whether small or big installation. 
So you can see the cost price differences in the FiT’s. Those for small rooftop are ~12.8cnt/Kwh, those for big (<10MW) installations are ~8.9cnt/Kwh (both still decreasing with 1%/Month).

Math Geurts's picture
Math Geurts on Aug 25, 2014

That is a good reason to limit all FiT’s to the those for big installations.

It would be fair that people with a personal preference for their own small plant pay the additional costs for their personal preference.

Paul O's picture
Paul O on Aug 28, 2014

Brian,

The whole point is to eliminate CO2, considering our Climate and weather from The Arctic Circle to the Antarctic. Come Winter,Spring, Summer or Fall.

Question, Does Nuclear Power eliminate Fossil fuels and CO2 as stipulated, answer YES!

Question, Does solar power eliminate Fossil fuels and CO2 as stipulated, answer NO!


Are we even serious about Climate Change, Answer NO…Not while we are hating on nuclear.

 

Math Geurts's picture
Math Geurts on Aug 28, 2014

“Reverse auctions offer a solution: the auction discovers the right price to procure the desired amount of renewable energy at the lowest cost, while spurring competition between project developers. In the ACT’s case, the price paid to the three winning proposals ended up more than 40 percent below the government’s expected cost”

Propably the basic problem is that the government expected the cost too low. Generally proponents of renewable energy always underestimate the costs.



Math Geurts's picture
Math Geurts on Aug 28, 2014

Why should it be impossible to promote rooftop solar by a kind of “reverse auctions”?

Why should there be such a “democratization” of electricity generation as there is even not such a  “democratization “of food production? Everybody is free to grow his own (organic) wheat and to bake his own (organic) bread but has to bear the additional costs himself.

Proponents of own generation of electricty want society to bear their additional costs. 

 

 

 

 

Paul O's picture
Paul O on Aug 30, 2014

No Brian,

1) I have never seen any example of where Solar Power with Wind and Waste to fuel has ever eliminated a Coal Fired Plant.

2) Saying Nuclear power causes cancer is a Fraud, and it is not worthy of TEC discussion.

3) We are never, ever going to deploy enough Wind, Solar and Waste to fuel planet Earth, not if we really wanna stop CO2.

4) Why would a sane, serious, anti-climate change  person advocate burning waste, when such waste is already trapped Carbon. We should bury all of it, and reluctantly burn whatever methane come from that.

5) The only reason to oppose Nuclear power, especially Gen. 4 Molten Salt reactors, is Ideological Hatred of Nuclear. In Other words, It’s a Religion.

Joris van Dorp's picture
Joris van Dorp on Sep 3, 2014

Agreed.

I find it amusing that Bas has an opposite opinion.

I think I understand the cause of this difference of opinion.

It appears that Bas is a supporter of solar-power-at-any-cost, while I think you are a supporter of environmental protection at least-cost. These are entirely different goals. I think this explains why you and Bas have opposite opinions about the benefit of subsidies for household rooftop solar.

Nathan Wilson's picture
Nathan Wilson on Sep 4, 2014

There may be a few isolated cases where solar delays the need for grid upgrades, but in general this is not a major savings.  Solar certainly does not save society money, since rooftop solar costs double what utility scale solar costs (see industry data from SEIA), and only saves about 10% in distribution losses.

Furthermore, even utility scale solar in most US locations does not save society money, since even the lowest cost US solar power purchase agreements have been around 5 ¢/kWh (such as this yet to be built plant near sunny Austin TX), including generous tax-payer funded subsidies, and this power is used to avoid purchase of natural gas fired power at around ¢/kWh (the much higher super-peak electricity prices which occur for a few hours per year are not relevant to the 25% capacity factor non-dispatchable output of solar plants).

Joris van Dorp's picture
Joris van Dorp on Sep 5, 2014

I agree with you Nadir,

This article is good, but it will ultimately simply feed the fire of ignorance and deception which continues to drive public discourse on energy matters. Such articles could be improved at least by containing a disclaimer in which it is stated that public investment in solar power is a waste of scarce resources which could and should be spent in ways that actually benefit society and protect the environment.

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