May 24, 2016
Germany

German wind auction savings won’t match solar, Commerzbank says

Brian Parkin and Nicholas Brautlecht | Bloomberg | May 23, 2016 | bloomberg.com

Auctions of German wind power starting in 2017 won’t generate the same potential savings for customers as the tests of reformatted solar power sales that have dropped winning bids by about a fifth in the last year, according to Commerzbank AG.

Germany’s government is introducing auctions for clean power next year and has hailed test sales for solar power as proof that renewable energy prices are plummeting. Yet bid prices for wind power may show resilience compared with solar, said Commerzbank. While auctions will boost competition, wind projects have less flexible cost structures than solar technology, said Ingrid Spletter-Weiss, the bank’s renewable energy head.

“Solar utility-scale plants’ cost structures are more predictable than wind projects,” said Spletter-Weiss in a May 20 interview in Hamburg where her unit is based. The scope for pushing down winning bids in successive wind auctions will be less marked than with solar – moving perhaps as little as 10 percent cumulatively over time, she said. “Wind technology is machine technology with a more rigid pricing structure.”

For the government, clean energy prices can’t come down quick enough after it’s taken criticism over retail power prices. Compulsory fees paid for wind, solar and biomass power added about 23 billion euros ($26 billion) to power bills last year, helping make retail electricity in Germany the second most expensive in the European Union after Denmark.

Global onshore wind investments costs are set to drop by about 2 percent to $81.2 per megawatt-hour in the first half of this year compared with a year ago, according to an April estimate by Bloomberg New Energy Finance. Offshore projects fell 8 percent with the help of cost-cutting technology innovation, said BNEF, which bases estimates on the “levelized cost of electricity,” or LCOE, which calculates the lifetime costs of energy projects. Global solar LCOE fell 19 percent in the last year.

Germany’s final test auction of utility-scale solar capacity in April drew a winning bid of 7.45 euro cents per kilowatt-hour, a drop from 9.17 cents in the first auction of 150 megawatts early last year. Energy and Economy Minister Sigmar Gabriel called the auctions a “complete success” and “good news for electricity customers.”

Concern that the switch to auctions could strangle investment are too pessimistic, said Spletter-Weiss, whose bank seeks to invest about 750 million euros ($842 million) net in renewable projects this year, mainly in wind farms in the U.S. and Europe. The bank, Germany’s second-biggest by assets, held some 4.4 billion euros in clean power investments at the end of 2015, Spletter-Weiss said.

Auctions will require developers and investors to cooperate at an early stage in project planning to devise bidding strategies, building costs and profit models, said Spletter-Weiss. Investors and banks have gained useful insights in auction procedure from their networks of international clients, she said.