How is Innovation Shaped by Renewables Auction design?

Continuing a series on Wind Power from my previous articles talking about the benchmarking of wind projects, LCOE and how this goes to help the average person compare the value represented by two wind projects, and how this compares to traditional fossil fuel power generation. Now I'll cover the kinds of mechanisms that auctioning authorities can leverage to maximise the value of their wind assets.

Computational Fluid Dynamic Simulation rendering from the European Wind Association - Considering the wake effects of wind turbines is crucial in the design and layout of a wind farm asset. Grouping, orientation, spacing are all impacted by wake effects. Too close: and turbines downwind of the 'lead' turbine deposed because of the 'dirty air' disturbed from laminar flow by the action of the 'lead' turbine. Contrary to this, a recent Springer study on Vertical Axis Wind Turbines has found that quite the opposite: clusters of turbines can enhance the performance of each other.

Impact of Auction Specifications on Renewables Infrastructure

As discussed in the previous article - due to similar labor costs, tax and incentive regimes, it can be argued that it is sensible to benchmark European wind projects against each other. However, because of different tender types, this can drive different power price offers from bidders, and it also throws subsidies into the mix.

Modern projects completed within a few years of each other can offer the clearest like for like comparison because the technology enhancements and lessons learned in construction are embedded. This might not be obvious - like the implementation of a newer project strategy which delivers on a construction cycle time shorter than previous projects. Other times it can be more obvious - i.e. using fewer, higher power turbines, thus reducing CAPEX for higher performance, larger equipment. However, in both cases, these jumps in maturity in deployments must be accounted for, otherwise this could skew comparative analyses.

Credit: Wind Europe - giving clear comparative analysis of different onshore wind deployments - offshore wind table below. 

Another critical aspect affecting the value of these projects comes in at the auction stage. Much of the wind power added in 2019 globally was done so using a variety of auction designs and support mechanisms - read subsidies.

The key kinds of auctions that have been applied in European wind projects are Technology-specific or technology-neutral. All offshore wind projects were technology specific. Some other projects including onshore wind projects in Greece, Italy, Lithuania, Poland and Netherlands were technology neutral, having beaten competing technologies to land the generation licence.

This notation relates to the specification by the licence grantor - normally the national energy board. I referenced some examples including the Crown Estate and the National Energy Bureau in my previous post. This specification relates to the kind of energy generation technology being proposed by bidders.

In technology-specific auctions, like offshore wind blocks - the bidders can only propose wind projects for example. In the 'neutral' variant, the bidders can offer other competing technologies like solar, small hydro, biomass, biogas, etc. The winning technology can be either of these, as long as they meet other tender requirements for power, reliability, and of course, on supply price criteria.

There is concern however, that as everything, the devil is in the detail when it comes to the precise wording of the tender documents for technology-neutral opportunities. In many cases, as shown below, European countries had applied derogations - read exemptions - to the neutrality aspect, citing 'diversification issues'. Here, countries have leveraged non-precise language and terms to push through projects and effectively select a specific technology, instead of permitting the open field as it would have appeared at the start.

Figure 1. Exemptions Invoked by the European Commission to Justify Derogations from the Technology-Neutrality Requirement / Source: Navigant, via EnergyPost.eu

The specificity in technology requirement is quite a European endeavour with respect to large scale renewable energy projects. Given the predominance of turbine manufacture in Europe, effectively self-delivering the plant needed for these projects, it makes sense to foster this industry. To further support this point, 'wind boom towns' have been bolstered by wind infrastructure roll out all up and down the North European coastline. 

Credit to Wind Europe - There is a hub of information with links to the corresponding contributing ports which are direct players in the build out of renewable power in Europe.

Even small towns have benefitted: Orsted Energy has a significant and increasing base in Grimsby, UK, managing the operations and construction of its investments off the Eastern UK coast. Once a bustling fishing port, hard times are turning around again with the investment from wind.

An atmospheric shot of Grimsby Fish Docks circa 1950, back when coal power was in. Credit: Grimsby Telegraph

This is echoed by the look across to China which has a somewhat dominant proportion of wind capacity globally.  As of 2019, enjoying  approx. 21% of offshore wind capacity globally. However 35% of global onshore wind capacity is located in onshore wind farms in China, comparing to 30% of global wind from EU + UK, and 16% from US. This clearly highlights how China is building up a significant wind fleet and scaling production.

With other nations and regions, the game opens up quite a bit. With Africa, there is an abundance of wind in some coastal zones around the extreme north and south of the continent, with most of the middle experiencing relatively low average wind speeds. 

However, most of the projects going relate to solar power, leveraging the prevailing equatorial sunshine. Particularly the projects in Morocco, Zambia and South Africa are major contributors in solar in Africa. It must be stressed that auctions for licences in these nations are designed for price discovery and to support policy decisions at government level. It is clear that the power is required in these nations, the means is more open to the proposers, helping spur innovation in those countries.

Other nations are learning fast on policy and tender bounds by leading the way. I think the Europeans could learn something from the benefits being demonstrated by increased flexibility in auction design shown in South America.

South American nations tend to favour a technology-agnostic approach on renewable power capacity expansion. Brazil and Peru had moved sooner on this, while more recently, Mexico, Chile and Argentina have joined to innovate auctions by moving to a technology-neutral stance. This is countered however by the wider range of significant renewable resources available locally. Consider: biomass thrives in Brazil on the back of the sugar and ethanol industries, as does an increasing network of Amazon basin hydropower dams - bankrolled by China.

A shot south of Rio Tapajós. A dam project planned for here could clear nearly 1 million hectares of forest. Credit: Guardian.

It could be seen, taking a step back, that by pushing for wind capacity, Europe is playing to its strength in consistent, high strength wind. In the same way, that South American nations leverage. Rather than dismiss these stances as missing a trick, it could reasonably be said that each nation focuses to work the resources it has more of at hand: Europe - Wind, South America - a wider basket of energy sources.

You can reach me on Twitter @Ronnie_Writes