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Results of the second Portugal auction: the price of the photovoltaic energy is not €11.14/MWh either

AleaSoft, August 27, 2020. The second solar energy auction in Portugal produced a new world record of €11.14/MWh. For AleaSoft, the photovoltaic energy price is much higher. This minimum price is the product of the combination of several factors: companies that planned to make the project profitable in a longer horizon than the 15 years of the auction, the need to achieve a connection point that allows the photovoltaic project to materialise and an image of solvency for the winning companies.

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On August 24 and 25, the second solar energy auction was held in Portugal. According to the results published by the Portuguese Government, of the 700 MW that were auctioned, 670 MW were awarded, of which 483 MW correspond to the storage modality, 177 MW to the system compensation modality and 10 MW to the contract for differences modality. In this last modality, a price of €11.14/MWh was reached, which represents a new world record by lowering the €11.60/MWh that was previously reached in a solar auction in Abu Dhabi and which in turn was also lower than the previous world record of €14.76/MWh from the previous auction held in Portugal in 2019.

The 12 lots that were auctioned were distributed among six companies, with Hanwha Q-Cells being the winner both in number of lots, with the six acquired, and in capacity awarded, with a total of 315 MW. Eight lots were awarded in the storage modality, four in the system compensation and one in the contract for differences.

Other winners of the auction were the Spanish companies Audax, with 157 MW, Endesa, with 99 MW, Iberdrola, with 89 MW, and Enerland (Grupo Jorge), with 10 MW. The latter is the one with the new record of €11.14/MWh.

Thanks to this auction, the Portuguese electricity system ensures a storage capacity of at least 100 MW, which will allow it to absorb the excesses of renewable energy generation, giving greater flexibility to the system.

According to the Portuguese Government, this auction will make profits for consumers in the order of 559 million Euros in 15 years, which is equivalent to about 37.2 million Euros per year.

At AleaSoft it is considered that the cost of photovoltaic energy is much higher than the minimum value of €11.14/MWh reached in this auction. But, why is this price so low? Why was there so much competition to obtain each lot?

The time horizon of the contract established is 15 years. The large companies that participated planned to make the project profitable at a very long term. The surface of Portugal is less than 20% of that of Spain and the two countries share the electricity market. Finding space for photovoltaic parks and connection access is more complicated than in Spain. That is why the auctions give a materialisation guarantee to the photovoltaic energy projects.

A fundamental aspect of these auctions is the image of solvency that the winners give. It’s great publicity. For example, the absolute winner of the auction, Hanwha Q-Cells, which belongs to Hanwha Group, one of the largest business groups in South Korea, is sending a message: that it has come to the Iberian Peninsula to stay and to invest with great financial strength. This name, unknown to many just a few days ago, after this auction will be recognised throughout the world.

The world record that was set is good news for the development of the photovoltaic energy sector and especially for the Portuguese consumers who will save on their bills. There are many companies willing to invest with a long-term horizon, which means that they are complying with the CO2 reduction plans in the electricity sector.

However, the low prices of this Portuguese auction will not influence the price of the peninsular electricity market or the prices of the long-term bilateral contracts and the PPAs. Following the line of what AleaSoft commented last year: the photovoltaic price is not €11.14/MWh.

Source: AleaSoft Energy Forecasting.

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