Auctions for renewable energy projects have helped to drive down prices but the process runs the risk of delays from over-aggressive bidding, according to a report by the Abu Dhabi-based International Renewable Energy Agency (Irena) released today.
At least 67 countries have opted to tender renewable energy projects under such auction system at the end of last year from only six in 2005, the report said.
Maged Mahmoud, the technical director for the Cairo-based Regional Centre for Renewable Energy and Energy Efficiency, compared auctions to another system that was widely applied for renewables previously, known as a feed-in tariff.
This sort of subsidy has a government-set low price to encourage companies to invest.
“Feed-in tariff prices in the region have been done in an encouraging way to investors, but sometimes at a burden to the government,” said Mr Mahmoud.
“The auction system is the best option for the Mena region because it fits the existing legal system and brings an added value to lower prices.”
But the latest project bid trend could face several risks starting with delays or cancellations “attributed to the potential for over-aggressive bidding”, according to Irena.
As a result of this type of process, the UAE has recorded some of the lowest prices for solar power. For example, in 2015 the lowest price for Dubai’s 200 megawatt second phase of the Mohammed bin Rashid Al Maktoum solar complex was 5.84 US cents per kilowatt hour. Last year, bids submitted to Abu Dhabi’s Sweihan project were as low as 2.42 cents per kWh.
For companies to even throw their hat in the ring for an auction-type project, upfront fees spanning from feasibility studies to bid bonds may block small or new companies from participating, the report said.
Adnan Amin, Irena’s director general, said that the while sector was predominantly geared towards large businesses, there were still opportunities for smaller firms. “We’re going to see more decentralised solutions and policies come on-stream, including solar rooftop and heating, and we’ll see smaller companies that are able to participate in that,” he said.
Despite the risks that come with an auction system, it remains the best option to get a real feel for the market. Mr Amin said: “It’s a market-orientated device and the auction process has helped deliver much lower cost of projects for renewables.”
lgraves@thenational.ae
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