Designing Power System-Friendly Auctions

Speeches Shim

This webinar examines how to design auctions that support variable renewable energy integration into the power system and wholesale electricity markets.

USAID supports partner countries on their journey to self-reliance by helping design and implement auctions that can rapidly scale clean energy at low prices and advance national economic and clean energy goals. USAID provides support for auctions through bilateral and regional energy programs and a variety of programs managed out of Washington, D.C.

USAID hosted a webinar, Designing Power System–Friendly Auctions, on March 10, 2021, that explored how renewable energy auctions can support VRE integration into the power system and wholesale electricity markets. Auction experts discussed auction design elements that could help policymakers:

  • Design system-friendly auctions to procure renewable energy that is produced when and where it is needed;  
  • Increase the use of utility-scale batteries to generate larger portions of usable grid power from VRE;
  • Enable renewable energy technologies to compete with one another or with thermal technologies in auctions; and
  • Incentivize the integration of renewable energy into wholesale electricity markets through feed-in premiums.

Auctions enable countries to seek out the most cost-effective renewable energy projects on the market while enhancing dispatchability, promoting the use of utility-scale batteries, lowering emissions, and creating local jobs. By choosing an open, transparent, and competitive procurement process, USAID partner countries are accelerating the clean energy transition.

The hour-long recording will be useful to power utilities, government regulators, renewable energy project developers, academics, investors, energy experts, and international development professionals. Visit usaid.gov/energy/auctions/training for more training resources and future events.

Happy woman relaxing with wind generators turbines beautiful sunset background.
Happy woman relaxing with wind generators turbines beautiful sunset background in Khao Kho mountain, Petchabun, Thailand.
© theeraphong / Adobe Stock

Renewable energy auctions have emerged as the best practice for procuring least-cost energy. This competitive, transparent process helps countries meet their energy goals and attract private investment on their journey to self-reliance.

In today’s rapidly evolving renewable energy marketplace, it can be challenging to keep track of current best practices in renewable energy policy, innovations, and market trends. USAID developed the Renewable Energy Auction Toolkit to help international development professionals, energy ministries, utilities, policymakers, and regulators to design and successfully implement energy auctions that expand access to affordable and sustainable clean energy.

The proliferation of renewable energy resources requires comprehensive changes to power infrastructure, market design and business models. USAID, through its Scaling Up Renewable Energy (SURE) project, helps partner countries plan, procure, and integrate renewable energy. USAID’s efforts enhance global energy security; promote private sector investment through transparent, competitive procurement; and open paths to self-reliance by empowering partner countries to control their own economic and social development.

Video Transcript 
Hello! My name is Sarah Lawson and I'm a Senior Energy Analyst at U.S. Agency for International Development also known as USAID. I work with foreign government counterparts and USAID Missions globally on electricity policy issues and particularly on renewable energy auctions. I'm pleased to welcome you to today's webinar: Designing Power System-Friendly Auctions. This is the third in a series of the Scaling Up Renewable Energy program's energy auctions webinars. So the Scaling Up renewable Energy project or SURE helps partner countries to meet their international climate commitments by increasing adoption of renewable energy technologies. SURE's cadre of technical experts provide renewable energy planning, procurement, circular economy, and grid integration support services. The program develops training tools and resources to help policy-makers utilities and regulators modernize our energy sectors and create policies that enable renewable energy markets to flourish. In 2019 109 countries around the world held auctions, up from 98 in 2018. USAID has supported countries on auction design assistance in Latin America, Europe, Africa, and Asia seen in this map. As more countries integrate higher shares of variable renewable energy or VRE, power system stability and reliability become more complex. System-friendly auctions enable countries to seek out the most cost-effective projects on the market while enhancing dispatchability, lowering carbon emissions, incorporating new technologies such as battery storage, and creating local jobs. During this webinar we'll explore how system-friendly renewable energy auctions can support VRE integration to the power system and wholesale electricity markets. We will discuss auction design elements that can help policy makers to reduce system integration costs by procuring renewable energy that is produced when and where it is needed, increase the use of utility scale batteries to generate larger proportions of usable grid power from VRE, enable renewable energy technologies to compete with one another or with thermal technologies and auctions and incentivize the integration of renewable energy into wholesale electricity markets through feed-in premiums. A few housekeeping items to mention before we begin: Please write any questions you have in the chat box at the bottom of the screen. Feel free to ask questions throughout the presentations and we will address them at the end during the Q&A session. This webinar will be recorded and available on the training section of the USAID renewable energy options toolkit. You can access it through the link in the chat. The toolkit is an online resource that helps energy stakeholders design and implement successful auctions. It is also a gateway to all of USAID's energy auctions guides as well as free training materials presentations and case studies. Visit usaid.gov/energy/auctions for more information. Today's webinar will include presentations from Fabian Wigand, Ana Amazo Blanco and Bastian Lotz all from Guidehouse, SURE's Auctions Subcontractor and the Tetra Tech led consortium. Fabian Wigand is an Associate Director with more than 12 years of experience in energy sector strategy markets and regulation. Ana Amazo is a Managing Consultant and an expert in the analysis of market environments, investment conditions, and regulatory frameworks for renewables. Bastian Lotz is a senior consultant and expert in the design implementation and evaluation of renewable energy policies. All have supported USAID in are in our work on supporting auctions around the world. Without further ado I'll turn it over to Fabian. Thank you so much, Sarah. Let me start the presentation with this overview slide on different trends and renewable energy. Auction designs are evolving worldwide because country policy objectives are changing with higher renewable energy shares and because of rural energy prices are falling. Originally, we could see the first auction trend on the left that more countries in developed and the developing world transitioned from negotiated bilateral procurements to auctions. The goals there were twofold: on the one hand a goal to increase competition and to further drive down prices in the auctions and secondly to build a market with a pipeline for investors to test investor interest and to test risk allocation approaches. We now see that there is a second trend in auctions emerging the trend to address system integration issues of renewable energy but also in the environmental energy procurement auction design. This can be done through improving the value of energy to the power system that's being procured so not just looking at reducing auction prices but also looking at reducing the system costs of the renewable energy. Secondly to specify the desirable power characteristics that are to be procured instead of procuring simply only single RE by energy technologies. A third trend is the promotion of the integration of renewable energy into liberalized power markets. For example to encourage direct sales into wholesale markets with a feed-in premium, that reduce market risks. There's also a fourth trend: the promotion of market diversification. For example the enabling of commercial and industrial consumers to procure power directly from the generator. This is not being addressed in this webinar, -- this fourth trend -- but there is a paper on these different stages on our show auction toolkit website which we invite you to visit. So let's move to the first trend: system-friendly renewable energy auction design. How to procure renewable energy that is produced, when and where it is needed, including the use of utility scale batteries with higher shares of variable renewable energy. The power system supply adequacy, the balancing requirements and the grid infrastructure needs are changing. First on the left hand you can see that variable renewable energy might not always be generated when it is needed for the power system. In many countries we see a shift for example to an evening demand peak which is more difficult to provide with solar power. There's also seasonal generation of renewable energy. For example at this graph you can see how depending on winter or summer the role of energy supply changed on a given day. A second challenge is that renewable energy is facing more intermittent generation, increasing the balancing requirements. The middle graph shows you, for example how variant the output of a wind turbine in a small geographical area can be increasing the requirements for balancing. There's also a third challenge that is often a spatial mismatch of variable renewable energy generation and the demand centers of cities industrial clusters to which this power is being transmitted. These can lead to curtailment issues if the grid infrastructure extension needed for this transport is costly and slow. There are luckily a range of design solutions on how these challenges can already be tackled in the procurement design in the auction designed for renewable energy. The first application or a design instrument is the instrument of time-based incentives. These support the match between the timing of variable renewable energy generation and the power demand. They can be designed as price adjustment factors that reward generation specific times of the day or of the year. For example in the case of Mexico time of day adjustments the CAISO case of Abu Dhabi -- time of year adjustments or they can be designed as supply blocks that require producers to guarantee supply during certain periods or otherwise face penalties. This for example has been the case in Chile. Let's look at the case in Chile. At a greater detail in Chile the auction designs enable a continuous supply from different types of renewable energy. Chile had the objective to allow intermittent technologies to optimize the feed and potential and to guarantee supply to distribution utilities. The design was that distribution utilities provide demand projections the regulator then aggregates these demand projections and conducts an auction based on these requirements. The bidders then bid for one or for several blocks. That are representing the projected not the real-time but the projected demand. See for example on the left graph over different times of the day production deviations. So in case that generators later on then cannot meet the time block to which they promised to sell to would be settled at spot market prices or not in Chile but in other countries without a spot market through penalties the result. In Chile there was a continuous power supply successfully contracted all from renewable energy and at very competitive prices. Another design solution that's interesting are hybrid plants. The one type of hybrid plants are virtual hybrids. They enable a greater dispatchability of variable renewable energy generation pool, several generation potentially storage assets connected at different good connection points but dispatched by a central control center. This way they can shift variable energy supply to cover peak demand periods and they also improve flexibility through dispatchability and spatial smoothing. An example for that is the next Kraftwerke company or idea which is providing supply and demand segregation through virtual power plants and thereby including different providers such as renewable energy storage and demand site management. In contrast physical hybrids are several generation assets that are co-located and connected at one good connection point. They reduce technology-specific intermittency of variable renewable energy and combined with storage can allow for better load following. They also provide a more efficient utilization of land and of transmission capacity therefore often reducing the cost for good connection. They are increasingly being used all around the world. There are multiple examples for example wind, solar. Wind hybrids in India are renewables plus storage hybrids for example in Israel where solar plus battery storage projects are also providing support during peak hours. Let's look at some of these examples. In some further deep dives, in most geographies renewable energy storage physical hybrids are becoming more relevant particularly because battery prices have fallen so much in the last years and are projected to crawl even more. Battery energy storage can provide a range of additional services such as load leveling and reducing of variable energy containment peaking capacity or ancillary services to maintain frequency and voltage levels. They also can help to defer grid upgrades. It depends on the auction design on how these characteristics should be incentivized in the case of India. For example there are the aim was to supply energy during peak hours so therefore a peak and an off-peak tariff were being defined in Hawaii. The primary objective was to reduce variable renewable energy curtailment. This was achieved through a lump sum for the availability of renewable energy plus the energy components. In Portugal the incentive with objective was to increase system flexibility and to defer grid upgrades this has been the remuneration scheme for these kind of projects are then revenues from the wholesale market from additional carbon PPAs and from the participation of the battery services and ancillary service markets. If you're looking at India, we can see that India has been particularly innovative recently on system-friendly auctions. There have been several rounds of wind and solar hybrid projects applied with the objective to reduce intermittency of variable renewable energy to improve utilization of grid and of land capacities and last year the first renewable energy plus storage auction for peak supply occurred with the aim to provide a special power. Two prices where base two tariffs are being defined: one off-peak tariff which was determined by the regulator or by the DISCOMs and then the auction that determined in the end the peak tariff. Interestingly also in this auction in India both pumped hydro, hydro pump storage plants and battery energy storage plants have been awarded. Let's look at the final design solution: location- based incentives. These kind of location-based incentives or sometimes also restrictions aim at closing the gap between variable renewable energy and grid infrastructure development, incentivizing plans to be built were requested. This can be to incentivize certain areas which we — you know they have a lack of generation capacity or disincentivized areas where you know, they have a lack of grid connection capacity available. There is a range of location-based incentives used around the world. A lot of auction schemes are using site agnostic auctions, so any projects can be awarded in the auction as long as they fulfill the requirements that need to be defined by the pre-qualification requirements. For example good connection permits another system is to apply a bonus or penalty for building in certain areas with less less gross capacity. For example in Mexico renewable energy development zones that allow for generation in certain areas are another way to ensure that development of renewables is concentrated in these areas. This for example has been applied in South Africa. There are also maximum capacity quotas that can be applied, so ensuring that not more than this quota is being awarded in a certain region or even at a certain substation. This has been applied in Kazakhstan and finally there can be site-specific auctions still applied in many developing countries. But also in the case of offshore wind in many developing developed countries where the government selects a site according to grid and land availability and where bidders are bidding on that site. This was an overview on system-friendly auction design elements and solutions. Next, I would like to introduce Bastian who will present on the technology selection in auctions. Thank you, Fabian. In this second part of the webinar we would like to shed some light on how to design auctions that allow for fair competition between different technologies without creating, on the one side implicit disadvantages for some technologies and enabling the achievement of additional policy objectives such as ensuring an effective system integration. After current volumes the starting point for this section is the observation that many countrie around the world are moving towards stronger technology competition and auctions. And this is against the background of a global trend of increasingly converging technology costs, a trend that holds true in particular for established renewable energy technologies such as onshore wind and solar PV which is illustrated here on the left graph. Looking at the illustration on the right side we can see that beyond the simple contrast of technology neutral and technology-specific auctions countries have implemented various degrees of technology differentiation along whole spectrum of technology neutrality and differentiation in auctions. On the left side of the spectrum some countries for example Chile and Mexico have adopted fully technology neutral auctions that allow competition on among both renewable and conventional thermal technologies. At the same time designing fully technology neutral auctions is inherently complex because project development cycles and realization periods for technologies differ. For example solar PV projects can usually be commissioned much faster than onshore wind projects and as a result policymakers face a trade-off between creating a level playing field for technologies and disregarding differences between these technologies that would under normal circumstances lead to implicit disadvantages for some technologies that participate in auctions. So, many countries have therefore chosen to implement higher degrees of technology differentiation. For example Colombia and Thailand have limited competition only to renewable technologies, and the United Kingdom and California have tailored demand to procure only a certain subset of renewable energy technologies based on the assumed characteristics, such as costs or the system-friendliness of the feed-in profile. And at the end of the spectrum here you can see that, and this is still the most prominent case really worldwide technology specific auctions that limit particular participation to only one desired renewable energy technology are applied. So what object objectives that can be achieved with different technology? Generally speaking, technology neutral designs tend to promote the efficiency of auction results which means they minimize the generation costs or LCOEs of preferred energy and they allow for compliance with regulations that demand the absence of technology discrimination. This is the case for example in EU countries where eight considerations that demand technology neutrality. On the other hand if various technologies compete in an auction additional policy objectives or considerations arise that can typically not be reflected fully in technology neutral designs. For example technology neutral auctions provide few safeguards against overcompensation or windfall profits of cheaper technologies. They also do not account for the system friendliness of preferred energy including the deployment in certain regions or the pre-selection of technologies with specific generation profiles. Or in other words technologies with the lowest generation regeneration costs rather than the lowest total system costs are awarded in these types of auctions and as such they also fail to provide a potentially beneficial diversification of procured technologies. For example to achieve emission reduction targets or specific renewable energy deployment goals in case both thermal and renewable technologies participate in the auctions. So all in all auctions implementing a certain degree of technology differentiation are usually better suited to achieve additional goals such as avoiding windfall profits for cheaper technologies and accounting for system integration considerations. And therefore especially in less mature markets a certain degree of technology differentiation options is often advisable to account for these additional objectives the remainder of this section provides some indications on how to incorporate some of these additional policy objectives in auctions without formally restricting the participation to one single technology. So to have a technology specific auctions in principle countries can and have made use of specific design elements that implicitly or explicitly differentiate between technologies even in the context of auctions in which formerly all or a subset of technologies can participate. And the two main relevant design categories that you can see in this slide here are first, qualification requirements that group technologies according to certain characteristics and technology specifications or other criteria that guide the winner selection process such as multi-criteria auctions, quarters and bonuses or price ceilings by setting qualification requirements for participating projects. Projects of different technologies can be grouped according to certain technology characteristics. This can relate to the technology maturity level, meaning dedicated auction segments for established and less established technologies are implemented. Something that we will see has been applied in the UK for example, differentiating by generation profile. For example as in California and Chile and finally qualification requirements that favor the participation of renewable energy projects contributing to the reduction of co2 emissions may also be used. This has been implemented for example in Colombian auctions. In the Colombian auctions alternatively countries may also up to implicitly or explicitly favor certain technologies or balance our technology differences as part of the winner selection process and one such measure is the use of technology specific price ceilings that can limit bid prices and thereby reduce the potential for windfall profits for low-cost technologies. One example here is the Netherlands that incorporate technology-specific ceiling prices as part of the multi-technology options. On this slide we would like to spend a bit more time on the aspect of overcompensation of cheaper technologies in technology neutral designs and how to address this issue in general windfall profits. Profits can occur if projects of both significantly lower and higher cost technologies are needed to meet an auction rounds demand. In this case bidders of the lower cost technology anticipate a situation in which higher cost technologies will be awarded which reduces the price competition in that group in a pay-as-bid auction. So an auction where bidders receive exactly their bid price, bidders of the lower cost technology are then incentivized to submit bids above the true costs because there's a higher chance that they will be avoided. Nonetheless since the off taker with such an outcome needs to purchase power at the markup price consumers are subject to higher electricity prices as a result of these excess revenues to bidders. So differentiating between technologies with different costs can help reduce this potential overcompensation of lower cost technologies. For instance in a situation with a single ceiling price and the example of limited hydro projects and solar PV projects competing in an auction which is shown here on the left side. You can see that the extent of potential windfall profits depends on the cost differences between the lower cost hydro and the higher cost solar PV technology. The graph on the right side shows that in technology neutral auctions, technology specific ceiling prices can help to reduce such windfall profits of the lower cost technologies by capping maximum bid prices for each specific technology. A second option to limit overcompensation of cheaper technologies in multi-technology setups is to implement different technology bands or segments in one option so that only technologies with similar costs can compete against each other. So in this first graph you see a scenario where different technologies including solar, onshore wind, biomass, and offshore wind which have partially significant cost differences compete and as before the result is that the lower cost technologies: solar PV and onshore wind are able to bid above the true costs — which in this case would result in higher costs for the procured energy. To avoid this kind of overcompensation a country may now decide to establish a ban for less mature technologies and an auction ban for immature technology which in effect means that only technologies with similar cost differences compete and this would limit the possibility of bidders offering projects with cheaper technologies to earn windfall. One very prominent country example that I've already mentioned here is the United Kingdom which divides renewable energy technologies into an auction group for established technologies and a second group for less established technologies. An additional aspect we would like to draw your attention to here is how to address system integration considerations in technology neutral or multi-technology designs. This obviously ties back to the previous section that Fabian presented. But the key focus is on the effect such design elements have on the selection of technologies. Looking at the auctions to implement qualification requirements and auctions this could relate for example to technical qualification requirements on bidders for providing firm energy or supplying during certain times these requirements have an effect on technology selection because only projects and technologies able to deliver such firm energy or delivering during certain times would participate. For example some of India's past auctions have set annual minimum generation requirements or so-called capacity utilization factors that generators need to comply with or otherwise face penalties. An additional example is Thailand. There are technology neutral renewable energy options where participating projects of any renewable energy technology needed to guarantee the delivery of at least 98 percent of their capacity during peak times and 65 percent of contracted capacity at all other times, so off-peak times. Another option in this design category are supply commitments requiring bidders to supply a specific amount of electricity during certain times of the year or day. As already presented by Fabian one prominent example in this context are Chile's supply commitments for hourly and seasonal time blocks. In terms of winner selection criteria countries have made use of time of day or time of year price, adjustment factors of the bid price to account for the system value of specific technologies procured in the auction. For example in California's renewable auction mechanism which was implemented between 2011 and 2015, certain renewable energy generators received a fixed price per unit of production which was then adjusted by time of day factors to reward generation that is produced at times of peak demand and so technologies that could deliver at periods with higher time of day prices could therefore submit lower bids. Another example is India. India offered in one of its past auctions a constant off-peak tariff and projects could submit bids on a peak tariff which means that projects and technologies that can offer cheaper bid prices for such peak periods have a competitive advantage. And finally quotas are bonuses for system-friendly technologies or for projects located in specific geographic locations can be implemented to account for grid constraints in certain locations. Such design elements influence the selection of technologies. In case of regional resource differences for instance deployment of onshore wind plants in areas with high wind resources could be restricted in favor of solar PV projects in less constrained regions. To give you some examples, again in the technology neutral auctions in Mexico a regional adjustment of bid prices per regional zone or note was employed is implemented which affects the ranking of bids and rewards or penalizes projects located in those zones where new capacity is needed or where production over capacity exists. This again can impact the selection of technologies since solar and wind resources are not distributed equally across these nodes. Another example are the German multi-technology auctions where a technology specific malus on the bid price affects the ranking of bids for projects with sites in districts that have insufficient grid capacities and in addition until recently a maximum capacity quota, limited renewable deployment in the north of Germany where mainly onshore wind projects are located with this. I'd like to introduce the next speaker, Ana who will cover the next section of this webinar on auctions and market integration. Apologies, thank you Bastian for your contributions to the technology selection topic. I would like to give a brief overview of two ways in which auctions can support the market integration of renewable energy. One auction is to tie the auction payment to power market prices. Another auction whether a country has a wholesale electricity market or not is to see auction PPAs as an anchor contract for projects that can sell to other markets or customers. In countries with power markets, fixed tariffs awarded in auctions are often criticized for decoupling renewable generation from the needs of the system because they lack market signals that align generation with the load. Under a premium scheme a bonus is paid per unit of electricity generated in addition to the market revenue and there are different ways to determine this premium. At the top you see a fixed premium, and in a fixed premium the premium is set at a constant level and it is paid on top of fluctuating market prices. The prices bid in an auction are for the premium only and the lowest premiums required when the auction. At the bottom you see two auctions for sliding premium also known as contract for difference and in a contract for difference the premium varies depending on market prices. Prices within an auction are for the sum of the expected power prices by the producer and the premium it needs. Again the lowest prices in the auction win. The first of these auctions a one-sided premium. In this case, if the market price is higher than the auction price, the producer does not have to pay back the difference to the off taker. In a double-sided premium the producer actually has to pay back the difference to the off taker if the market price is above the auction price. Both fixed and variable feed-in premium increase market liquidity compared to a fixed tariff because producers are required to sell directly at the electricity market but the choice depends often on policy makers preferences or market price risk allocation. In sliding premiums, in general offer a higher planning certainty for investors compared to a fixed premium because the flexible premium protects producers from long-term market price risk. This hedging lowers the risk premium and in turn the cost of capital. In a one-sided premium the auction price acts as a floor price which ensures a minimal level of revenue Since the producer does not have to pay back the difference if it manages to sell electricity to the market at a higher price. In a double-sided premium the level of revenue is kept constant which offers high planning certainty for investors as well as certainty for the off-taker or electricity consumers on the costs of paying the premium to producer. A second trend on how auctions can increase market integration is to see auction PPAs as an anchor contract of sorts for a project that can also sell to other customers or to other markets. In this case the energy produced for an installation only a portion of it is paid at the PPA tariff and this can be achieved, for example by defining a minimum supply obligation to be delivered and that will be priced at the auction PPA price. An example of this is a definition of a capacity utilization factor in the auctions in India but projects still having the option to sell excess volumes of the market. And another option is for the auction volume itself to be defined in term generation where the bidders can have the option to sell this excess energy in the electricity market. And this is for example a design being considered in the Philippines. What we have is that the auction PPA as an anchor contract allows project developers to diversify their revenue stream by selling these excess volumes either at the electricity market where there are electricity markets to corporate off-takers, depending on the level of liberalization in a country's generation and supply segments or the ancillary services market. We've covered a lot of topics as to some of the trends we observe and how auction design solutions can encourage the system and market integration of variable renewable energy into a country's power system. We learned that countries are gradually incorporating system-friendly design solutions such as time-based incentives, location-based incentives, and hybrids to maintain a high reliability of the system at higher levels of renewable energy penetration. We observed that auctions recently started to include incentives for battery storage seizing on the filing technology costs but it's important to know that the right level of battery storage depends on system specific characteristics. This means we need to take a look at the demand and the feed-in profile of variable renewable energy, the inter-collection level with neighboring countries, as well as the flexibility of demand and generation sources. We've also learned that while there's convergence in costs between technology such as solar and wind, auctions implementing a certain degree of technology differentiation can help achieve goals such as preventing excess profits for producers with the cheaper technologies as well as account for system integration of renewables. And lastly auction designs such as premium schemes can also promote the market integration of renewable energy while hedging for some of these market price risk. Thank you all and back to you, Sarah. Thanks, Ana and thanks to all the speakers for their excellent presentations. So I see many of you have already posed great questions in the chat, so please feel free to keep putting questions in the chat box and we will be addressing them now. I'd like to start with a question so for Fabian, when do you think it is appropriate for a country to start integrating system friendly auctions? Is it at the beginning of their auctions, you know later on in auctions, or can you give us some thoughts on that? Thank you, Sarah, I mean for most countries to be honest as soon as possible right. I mean I think at – yeah you can't really think of system-friendly auctions and integration of renewables into the system early enough. I mean I think if you have a country with a small country which had not had auctions in the past, it could make sense to start with a very simple auction design to allow regulators and the bidders to get a bit more comfortable with the auction together, for some first experience. Maybe start with a small volume but even, I think in that stage it already makes sense to think of how to rather sooner than later extend the auction to include system-friendly elements. This way you could also leapfrog some experience that other countries had in the past and ensure that system costs are accounted for. I also think that makes sense that you want to align the auction a lot with system planning right. You want to make sure that you know how you could develop in the future, how your demand profile in the future, how the demand from other sectors outside the power system will develop in the future because all of that will basically depend on – will impact the power you want to procure. And since often you're giving out power purchase agreements for rather lengthy periods: 10, 15, 20 years, you want to make sure that you procure a turbine or a PV module already now which can also provide the power you need in the future. Yeah thanks Fabian and maybe just one more sort of general question which was how can these system-friendly options help scale solutions that also address climate change? I think I mean if you strongly want to connect your NDC commitments to renewables, right, it could make sense that you have technology specific auctions to start with because they are rather easy to scale and to control for but I would think that it is important that you rather soon also introduce system-friendly auction elements because you want to take sector coupling also into account, right. You will find out that there might be quite strong potential to reduce emissions in other sectors and that the power sector and system-friendly renewables can play a great role in that right. For example take into account demand side management solutions on the industry side, procurement design supports to procure power at times when you help the decarbonization in these other sectors. So I think it just makes sense to rather early think about that because this way you can procure power which will also help to decarbonize the other sectors. Thanks Fabian and we have a lot of questions coming in about the cost of system integration. I want to, if you pose this question from posts ago, in an auction system how are the costs of grid reinforcement caused by integration of the winning RES projects managed? Is there a preference for using a deep methodology or a shallow methodology? I think that would be for you Fabian but maybe also for others. Yeah do you want to answer that Ana maybe? Yes happy to do so. So it really, country experience shows that the approach chosen really varies. Some countries choose shallow, some other countries choose deep methodology and that also depends on the overall flexibility of the system but also immediate grid constraints. So I think for this there's no right answer but what I would say is that when you're thinking about the auction design of your renewable program to also have a parallel work stream that is dealing with grid integration issues and looking at the costs not only of expanding the grid but also which is your with what you know as connection costs but also the usage costs. And really that way optimize your quantities of renewables with your system. Thanks, Ana. I think this is another question kind of, about how do you weigh, you know, there's lots of technologies that we're talking about today so how do you address all of them? So in the recent renewable energy plus storage auctions, how are the best options of the storage and renewable hybrids treated is the best element allowed to charge from the grid or only from the associated renewables. I think that's for Fabian, unless yeah let me maybe answer that one. I think that's an interesting discussion to have right. I think there are a couple of countries right now in Europe for example which would not allow to store grey power from the grid so you would only be allowed to stay the green power from the associated hybrid plants, that I mean in this case you still have additional revenue streams but you could still be able to sell the stored power from the renewables plant to the service market, you could store power which would generate in times of negative wholesale market prices when the plans might otherwise not be compensated. So I think they're still revenue options also for these types of projects. I think in other markets I think also more in the developed world we see that they often don't differentiate between the gray power coming from the grid and the green power coming from the plant. So in that case that would also allow the battery to be charged from the grid and of course that would then enable better load shifting and using the battery to fully extend. But I think in the end it really depends a bit on the regulatory setup and the system to what extent regulation also allows to support battery storage which is not fully used by the green power plant with power plant but also by potentially grey power from the grid. Thanks Fabian I had another question sorry, but it just disappeared. So a question from the Bangladesh Energy Regulatory commission. How do you focus on a simple auction process and how do you think about auction reward characteristics – which I that I guess that could be bonuses or penalties or evaluation criteria, but I would say auction reward characteristics and that I think could be a question for Fabian. I can take that and feel free to jump in Fabian. Thank you for that question. That's one of the struggles in ensuring that your auction design is easy to implement and to transition to but also to consider the system characteristics and the menu of auctions we presented are not prescriptive. That means that perhaps in the early stages of an auction design thinking of necessarily requiring hybrid projects where the conditions, in terms of resource and and land are not there could be a little bit premature. But another option is to also think about site-specific auctions as a way to optimize grid infrastructure needs and also the resource that you want to deploy. With that I mean that already, with these site-specific auctions governments can play a key role in ensuring that this part of this project development process such as selecting an area that is environmentally suitable for. It has a sufficient renewable resource and has an available grid capacity already plays an important role in attracting competition to a country starting an auction. With this I'm not saying that the government takes over all the tasks of the developer because the developer is well positioned to do this just in terms of de-risking by taking on some of this pre-development work. Thank you, Ana. The question for Bastian, so it's about the diversity of technology. So it's a question from Charles he's saying that RE implied in our presentation are solar and wind power alone but how do you see other types of renewable energy such as biogas, biomass, and geothermal integrated into auctions? Yeah maybe first of all to say that we didn't intend to simply this only being related to onshore wind or solar PV alone but also including biogas and biomass even though we might not have mentioned them specifically. So I mean there were also other questions here saying how can you comply with for example 98 percent of your capacity during peak times that also relates to that. Of course that implies exactly that this cannot be supplied by variable renewable energies such as solar PV and onshore wind alone but might include either dispatchable plants such as biomass, biogas or some of the options that Fabian has presented like physical hybrids that include both sources or and or including storage options so it's not meant to – the presentation was not meant to limit this to solar and wind. Thailand is a great case for that. For example they do both. Thanks Bastian. This is the question about integration and markets from Jamila. In countries where there is no power market what would be the most economic and system friendly option from the point of view of the tariff impacts on the consumers. Ana, I think this this could be addressed by you, if you're comfortable. Thank you, Sarah. Yeah that's a very good point because market– because integration is a concern of countries both with and without an electricity market, and in countries without an electricity market one option to make your generation more load following as much as variable renewable energy without storage can do that is to consider time-based incentives and there were a few examples presented by Fabian. And one way to do this is to either define certain times of the day where you need a certain volume of electricity that you need your producers to ensure that you can deliver in the form of supply blocks but you can also define adjustments to your tariff and that means either asking your bidder to provide you with a peak tariff and then define the strategic hours of the day where that electricity with higher value should be delivered and then defining an off-peak tariff. I think this is a design that if you in your auction design, with your grid operator sit down and think about okay where are the hours of the day and the year that certain generation is most valuable. That could already give you important information about how high that extra peak tariff hours should be or how high your penalty in case of non-delivery should be. Thanks, Ana. We have a question from Richard. This is on how do you start thinking about auctions in Kenya. I think this would be for you Fabian. So in Kenya they're considering RE plus storage auctions and RE is obviously is sort of site constrained and best location could be easier to optimize for the overall grid. So would you recommend sort of technology specific actions? I think mean separate RE auctions and separate options for storage or combining them together. Yeah I think it depends really I think I would suggest to do some good system analysis to determine basically the price differences for further the case of Kenya and to see also to buy but what costs and by what time grids could be upgraded. I think overall I mean I think we suggest that there is a good role for renewables plus storage to play and this should usually be based on some technology and system assessments. Other alternatives would be to expand the grid maybe to ensure power trading with neighbors to and ensure dispatchable power through biomass. There could be ways to determine this ideally through through good system planning but so I would welcome you to contact us maybe and separately and I think it would be really exciting to determine which would be the best solution for you. Fabian, some of you – one more sort of overall question that addresses the system. Do you have any advice – a question from Barbara for countries who are long on capacities, they've over committed to coal contracts, and they may have experienced a COVID setback in demand. Yeah. I think it would make sense to really just to see to what extent does this COVID demand setback is there to stay right. We could probably assume that there will be some – could be some shifts of demand patterns if working from home, for example should continue or if there's a long-term economic impact on certain countries. But I think it could also be interesting to work by way to determine when demand patterns would return basically to normal and of course I think that there's usually a certain risk that if you if you know I want to achieve system-friendly procurement and you basically book your power maybe from a power plant for 15 for 20 years. And in the meantime, you have an event such as COVID which suddenly changes the demand pattern that you then are for the long term in open payment obligations to fulfill certain, to pay extra for certain peaks. For example but I think that's why we say it's important that you really connect your system friendly procurement strategy with a long-term system planning. So you see you make estimates how long-term demand patterns are changing. You are adapting it from time to time and therefore also adapting your procurement pattern, to make sure that you really procuring for the mid and long-term demand patterns and not just for the short-term ones. So thanks Fabian and thanks to all our speakers we have many more questions than we have time for, but I thank you for your active engagement and we'll try to send answers out over email as well. And we'll have more webinars from SURE coming on system planning and also on grid modernization. I would love if you all could complete a brief evaluation survey which you will find in the chat. Your responses will really help us to improve our webinars. We'll also email you the evaluation survey as well as the presentation slides and a link to the renewable energy auctions toolkit where the slides will be housed, and we'll be posting the recording in the toolkit later this month. So thanks again to all of our speakers, our wonderful participants for all your engagement and we hope to see you at the next webinar. Thanks everyone. Thank you so much.

Last updated: April 09, 2021

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