Fallen wholesale power prices in the wake of Covid-19 are challenging renewables projects that won in zero subsidy auctions or receive support from fixed premium systems lacking a significant floor price, the Aures II group of EU researchers said in a policy brief on the impact of the pandemic on renewable energy tenders.
The virus outbreak and its economic and political disruption are having severe repercussions on green energy auctions, affecting renewables procurement, delaying projects’ developments and auctions execution, increasing projects’ financing risks and causing a drop in wholesale market prices, the researchers said.
The brief points out that falling costs and the expectation of increasing mid-term power prices (driven by less coal and the electrification of transport and heating) has sparked a debate of whether revenues from wholesale markets only might be sufficient and whether renewables auctions awarding guaranteed minimum prices for power will still be needed.
“While the mid-term price-impact of Covid-19 still needs to be further assessed, fallen wholesale market prices, with power now trading below €25/MWh ($27/MWh) in most parts of Europe, and potentially strong fluctuations, are challenging merchant plants that do not receive a market premium,” the policy brief states.
“Similarly, fixed premium schemes that do not provide a significant floor price are more challenging than floating premiums that provide such a floor.”
The findings come as Norwegian renewable energy giant Statkraft last week acknowledged a massive impairment of close to $250m due to the expectation of lower future income from giant wind farms in Norway and Sweden, triggered by a toxic mixture of a drop in energy demand due to the Covid-19 pandemic and plunging power prices.
Statkraft’s Nordic wind projects (the Fosen complex in Norway and the Norrland portfolio in Sweden) depend on current rock-bottom Nordic power prices coupled with relatively low revenue from a joint Norwegian-Swedish green certificate scheme.
The market developments may press EU member states to continue renewables support schemes that guarantee floor prices for renewables to ensure that they comply with their green energy target, the Aures II policy brief said.
The researchers also reported that lower power demand due to the novel coronavirus is resulting in potentially lower short-term demand for renewables, and could help more EU member states to meet their 2020 renewables targets without additional policy action.
Also, project and auction delays due to disruptions in global supply chains might endanger project realisation and increase penalties. Reacting to that, several EU member states, such as Germany or France, have extended realisation deadlines while others have postponed or cancelled auctions.
Aures II stands for 'AUctions for Renewable Energy Suppor't and aims at ensuring the effective implementation of auctions for renewables in EU Member States. The policy brief on the impacts of Covid-19 included the participation of researchers from Guidehouse/Navigant, Eclareon, Fraunhofer ISI, DTU, CSIC, the University of Exeter, REKK, and Factor.