Portugal’s latest solar auction was one for the record books, resulting in the world’s lowest cost photovoltaic power contract.
Akuo Energy, a French renewable independent power producer and developer was responsible for the record-low bid of $16.48 per megawatt-hour, which was for one of three projects it won in the auction. The country’s first-ever solar PV auction saw a total of 1,150 megawatts awarded across 24 winning bidders.
“The auction is another example of the falling cost of solar PV technology,” Tom Heggarty, senior analyst at Wood Mackenzie Power & Renewables, told Karma. He said the Akuo Energy contract “is the cheapest we’ve seen anywhere in the world.
The winners will look “to recover a lot of their costs after the 15-year contract expires, when they can sell into the wholesale power market,” he said.
Portugal is holding the auctions to manage the large number of solar developers who wanted to build in licensed sites. The auctions award both grid connection capacity, and either guaranteed or general remuneration support to the winning bidders.
A second solar auction for 700 megawatts, is scheduled to occur in January 2020. Portugal has ambitious targets for solar, aiming for 8,100 to 9,900 megawatts of installed solar PV capacity by 2030, a more than ten-fold increase from current levels. The goals have to be ambitious if the country is going to meet its target of using renewables for 100% of its electricity by 2040.
“The Portuguese auctions were slightly different than those we’ve seen in most other places elsewhere — the auctions awarded grid-connection capacity and in most cases long-term contracts,” Heggarty said. “If you want to build a large-scale PV plant in Portugal now, you have to go through the auctions to get your grid-connection agreement. This meant there was huge competition for contracts, which was one of the key reasons bid prices were so low.”
Portugal is already a leader in renewable energy, with most of it coming from hydro and wind sources. Portugal produced more than enough renewable energy to meet the country’s power demand in March, according to the Portuguese Renewable Energy Association. The group said renewable power that month was equal to 103.6% of electrical demand in mainland Portugal. Last year renewables meet more than 50% of the country’s electricity needs.
Many countries are making strides when it comes to renewables, especially in Europe. Denmark already produces about 100% of its own power needs at times from renewable sources , as does Norway and Iceland, thanks to hydropower and geothermal heat. Sweden plans to generate 100% of its electricity with renewables by 2040, when Germany aims for more than two-thirds of its power to be from renewable sources.,
The U.S. is also making progress, but at a slower rate than has been seen in much of Europe. Renewables were responsible for 22% of the country’s electricity generation in April, beating coal, with 20%, for the first time, Energy Information Administration data show. Growth has been helped by the Investment Tax Credit that allows individuals and businesses to deduct 30% of the cost of installing a solar energy system from their federal taxes. The ITC is scheduled to decline starting next year.
“Many of the same things we’re seeing in Portugal are happening in the U.S. — aggressive bids for contracts when investors think they can recover more of their costs from the wholesale market after those contracts expire,” Heggarty said. The “key growth driver in the U.S. is the investment tax credit, which is stepping down from 30% over the next couple of years. Investors are looking to deliver projects while the more generous ITC is still in place.”
Karma’s Takeaway: The record-low Portuguese solar contract is an example of what can happen when there’s concentrated government action to help with the transition to renewable power.