Germany’s Network Agency has announced the results of the second round of onshore wind auctions. The new price is 4.29 cents/kWh, a quarter lower than the 5.71 cents from the first round. So why all the criticism? Craig Morris explains.
In recent years, Germany paid between 5-9 cents for a kilowatt-hour of onshore wind power under feed-in tariffs. The new price is easily below that range, and a whopping 90% of the capacity – 1.013 GW – went to projects that fit the auction’s definition of “citizen projects.” What’s there not to like?
The second auction was a repeat of the rules from the first, and the complaints are similar. According to the Network Agency’s press release (in German), projects were awarded to 67 bidders, but a total of 281 bids were submitted with a volume of 2.927 GW. In other words, there were three losers for every winner, and two thirds of the proposed volume was rejected. The Network Agency’s president Jochen Homann again put a positive spin on this outcome when he spoke of “great competition” for the tendered volume.
There has been the great criticism of the auction’s definition of “citizen projects.” The government has already stated that this category will be done away with for future auctions; there was simply not enough time to get rid of it in the second round based on the results from the first round (report in German), in which a company called Enertrag organized citizen groups in order to become eligible for preferential treatment.
“Citizen projects” have 54 months to be built instead of 30 months – though that shorter timeframe is already quite generous. In addition, citizen wind projects do not have to already have an environmental impact assessment, which under German law is essentially also a construction permit, to take part in the auctions.
In the second round, a completely different firm swept up: the UKA Group of Saxony. In their press release (in German), the firm says it placed five winning bids worth a total of 29.55 MW but was also part of 37 winning “citizen projects” covering 659.7 MW. This firm thus won roughly two thirds of the entire second round.
As in the first round, it is not certain that all of these winning projects will actually pass the environmental impact assessment, which they nonetheless need in order to start building. The result could be a very low volume of new builds starting in 2019 because “citizen projects” from 2017 have until 2021/2022 to be completed. This downturn may not yet be felt fully in 2018 because of the current backlog of projects under construction.
The sector is therefore worried that the domestic market might dry up in 2019 and 2020. VDMA Power Systems put it this way (in German):
“The large number of winning bids for (citizen) projects that do not yet have permits… greatly increases the risk that projects might not be completed on time or at all, which causes considerable problems for the order books at turbine manufacturers and component suppliers.”
Green Party energy spokesperson Julia Verlinden is also concerned (in German): “The volumes auctions have to be increased, and all of the bids submitted must have permits. Wind farms that are not built must be immediately auctioned off again.” Reader comments below that post also show concern about the impact on “quality manufacturers like Enercon,” by far the largest turbine manufacturer in the German onshore wind market; Enercon has historically supplied more than a third of all turbines built in the country. For years, the firm has also consistently beat all competitors by a wide margin in surveys of service satisfaction. But their turbines are not the cheapest.
The German government can be praised for at least attempting to take account of the perceived risk to citizen projects in the transition from feed-in tariffs to auctions. But the current design satisfies no one. The main problem with auctions for citizen cooperatives is the likelihood that a bid will be rejected; co-ops generally pursue only one project and cannot spread lost time and money across multiple bids. In the second round, it was 75% likely that a bid would be rejected. And German onshore wind auctions do not require “citizen projects” to be proper cooperatives. Critics argue that wind developers set up a small group of “stooges” in order to be eligible for privileged terms.
The easiest solution would be to allow real energy cooperatives to build as non-competitive bidders, simply accepting the price from the latest round of bids. It remains to be seen whether that will happen. But for international onlookers, Germany shows that low prices do not solve all problems. Ownership matters.