Debut renewable electricity supply tender attracts plenty of interest

Solar panels at a renewables power plant in Estonia.
Solar panels at a renewables power plant in Estonia. Source: Kairit Leibold/ERR

The first tender in Estonia for renewable electricity supply, aimed at testing the water for future renewables tenders and claimed as pointing the way to lower prices for consumers, ended last week, with the purchase of 5 GWh of renewable electricity per year. The auction was attended by 17 bidders, whose total offers exceeded the auctioned volume more than threefold. The economics of the tender were such that it suited those running solar power plants more than wind farms.

A total of 17 tenders were submitted, for a total volume of 16.28 Gwh; as noted the original volume up at auction was 5 Gwh.

"It is noteworthy that the auctioned volume tripled - indicating that the market is interested in offering these solutions," an energy expert who asked to remain anonymous told ERR.

Eligibility and rationale for those bidding

Only new generation units, with an electric capacity of 50 kW to 1 MW, were eligible to take part in the auction. As its next step, electricity grid distributor Elering AS is to check the compliance of the tenders of all bidders against the procurement requirements. The winners of the tender will be submitted to the Ministry no later than 20 June.

Owners of solar plants were primarily expected to participate in bidding. The aim of the tender was to bring an additional 5 GWh per year of renewable energy from a generating unit with an electric output of at least 50 kW, but less than 1 MW, in line with the tender's announcement on 18 November, ERR's online news in Estonian reports.

This level of generating capacity is essentially suitable for solar plants, as wind turbines are more powerful and would not be ready to be built by the deadline set, the bidders told ERR. 

A 50 kW solar plant is slightly larger than "just one lighthouse", they noted; a 1 MW solar plant is already quite a large plant in Estonia, a specialist told ERR. 

The single-wattage (1 MW) capacity limit means that one bidder alone would not win the tender, as an installation of that capacity cannot realistically generate 5 GWh of electricity per year, they added.

Economics of bidders breakdown

The weighted average bid price was €75.55 per MWh, which would be required to provide a supplier with a stable monthly cash flow and includes both expected stock price and recommended levels of support, a spokesperson for the Ministry of Economic Affairs and Communications said on Monday. 

Support received varies from month to month and covers price differences between the offer and the monthly stock exchange price, but monthly support cannot exceed €53.7 per Mwh as the maximum amount allowed by law.

Given that the current average market price for electricity is around €30 per MWh, plus a subsidy of €53.7 for renewable energy, the price will come out in excess of €80 per MWh. 

The average price of the recently completed bid, I.e. €75.55 per Mwh, is significantly lower than that.

The most favorable offers, together with the stock price included, remained below the level of €60 - significantly cheaper than the renewable energy support scheme in force today - provided a producer is guaranteed the subsidy of €53.7 per MWh in addition to the market price, as noted above.

Price and support have gone down since last year

By comparison, last year's power exchange price was €45.86 per MWh, with support for renewable electricity totaling €99.56 per MWh, the economic affairs ministry spokesperson said.

This also heralds lower prices to consumers, the ministry said.

"As with other renewable electricity bids in other countries, the production of renewable electricity is becoming increasingly cheaper. Replacing the guaranteed support scheme with lower bids will provide people and businesses with a better price," said Taavi Aas (Center), Minister of Economic Affairs and Infrastructure. 

"The first round will primarily test the market's capacity and will be followed by larger tenders of green electricity in the future," he added.

The next bid will be announced by the state in early 2021, where the state wants to at least 450 GWh of renewable electricity per year, from early 2023.

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Editor: Andrew Whyte

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