On September 12, 2018, at the Verkhovna Rada of Ukraine Committee on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety together with the representatives of the EBRD a roundtable was held on “World Experience in the Implementation of the Auction System for Purchasing Electricity” .
During the roundtable, a presentation by Harry Boyd-Carpenter, Director of the EBRD Power Department, and discussion of the EBRD’s experience in conducting auctions for renewable energy projects took place.
The business and the population in Ukraine have the false impression that the introduction of auctions, in the long run, will decrease business profits. Such a statement, according to Harry Boyd-Carpenter, is completely false. The EBRD supported countries such as Turkey and Egypt during the implementation of the auction support model for RES. In addition to the fact that the price of green electricity in these countries has decreased significantly, a business receives a stable profit. What is the secret of the auction model Mr. Carpenter told at a meeting of the Committee of the Verkhovna Rada of Fuel and Energy on September 12 in the format of question-and-answer.
The four main elements for developing an efficient auction system:
1) A general strategy for several years to come;
2) Network access;
3) Developed auction system;
How to overcome grids’ constraints?
- Granting quotas on power units; 2) regional pricing; 3) transparent connection price.
What is the role of PPA?
The availability of a detailed written purchase agreement for electricity is a key element in gaining investor’s trust in the industry and in ensuring its stability in the event of a new sectoral reform in the future.
By what criteria is it better to select an auction?
For the first auctions, there should be a very simple procedure and requirements. It is necessary to use only one selection criterion – the price of electricity. One should not pay extra attention to the candidate, more attention should be paid to the quality of the project since the main goal is the timely completion of the project. From an unscrupulous manufacturer, we are protected by the availability of a high bank guarantee.
What requirements should be put forward to the auction participants?
- Availability of land; 2) the technical conditions of the accession.
What technologies should be auctioned?
At the beginning, the auctions should be technologically neutral.
Is it necessary to conduct auctions in two stages, where the first stage is the definition of demand, and during the second, the quota is reduced by 20% of demand, in order to increase competition?
In the early stages of the auction system functioning it is not appropriate. Such auctions are efficient in countries with a dynamic competitive system, such as in the UK.
Do we need test auctions?
Yes, they will help businesses get used to an auction system.
Who should be responsible for the imbalances?
RES Electricity producers within the auction system and in the context of the reform of the electricity market will not be able to immediately take responsibility for the imbalances. In order for them to enter the market of balancing services, it is necessary for the market to be transparent, accessible and liquid.
A subject of auctions?
There is no clear answer to this question. In some countries, this role is played by the Transmission System Operator or the Distribution Market Operator, other options are possible.
Who should pay for the infrastructure development?
In any case, in the long run, the consumer pays. The electricity producer must pay only for connection to the grid.
How to avoid monopoly, which may arise as a result of auctions?
You must put limitations on the number of MWt that one participant can get from the quota. No participant should receive the entire quota amount.
What questions on auctions should be enshrined in the law, and what in the by-laws?
The law should provide for a general strategy, a division of responsibility, an institution that organizes auctions, the date of the start of the auction system and the general forecast for the development of auctions for subsequent years.
All other issues, such as the amount of MWt and the technologies that should be used are more appropriate to foresee in the by-laws.
How electricity price decrease through the auctions?
The more we reduce the risks of producers, the lower electricity prices we have. To this end, the manufacturer spends money only on the effective production process.
In conclusion, Mr. Carpenter believes that the key to the reform of the electricity market is to increase competition in electricity production.