Second renewable energy auction in Spain to be held in July. Understanding the changes in the Auction rules.

Following the announcement by the Government that a new auction will be held before the summer, it was published the Royal Decree 650/2017 by which is approved a 3,000 MW auction for new renewable energy capacity. Although it has still not been officially published, according to the draft published by the CNMC, it is expected that the auction will take place on July 18. and the deadline for submitting the prequalification will be on July 13.
There are some changes in the auction terms but the selection criteria and pricing rules remain mostly unchanged when compared to the one held on May 17. offered. The legislation defines the retributive parameters for reference installations. Based on these values, the bidders have to offer a discount over the retribution to the initial investment of their applicable reference installation that will translate to a certain retribution to the investment (Ri) on a concrete project. If discounting the initial investment at a maximum level, the Ri received would be originally zero, unless the spot price falls below a certain implicit level on the basis of the government estimated price in which the project would actually receive some Ri towards the end of the life of the project.

The most significant changes published so far are:

  • The auction will be again technologically neutral but this time only solar PV and wind projects can participate.
  • Increase in the maximum discount values from 63.46% to 81.91% for Wind and from 51.22% to 65.80% for Solar PV. Based on the mechanisms of the government and Vector Cuatro`s own financial model, the increase in the maximum discount results in a decrease of circa 20% on this implicit spot price when compared to the previous auction, considering constant the reasonable profitability and the reference price provided by the Government.
  • Confidential Clause of the Government: The 3,000 MW quota can be surpassed in case the cost for the system is lower than the cost established by the Government in the confidential clause. That is, all those who bid with an extra cost that is between the maximum discount and the confidential clause, are expected to be awarded.

There are still some aspects to be confirmed such as the maximum COD for the awarded installations and the financial guarantees (€/kW) to be deposited by the participants.

The government has justified the launch of this new auction given the great interest attracted by the latest auction. The applications submitted exceeded by more than three times the power awarded and the winners offered the maximum discount allowed. From the 3,000 MW awarded 2,979 MW went to wind1 MW to photovoltaic and 20MW to other technologies.

Vector Cuatro advised some of the awarded bidders in the auction held in May by providing different financial advisory services that included the review or preparation of the financial model, the assessment on the auction rules and revenues scheme and the support in the preparation and submission of the bid offers. Vector Cuatro also provided technical and legal advisory services including feasibility study and review of the administrative and land property documentation.

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