More Unintended Consequences from the Auction Scheme

Some really bad things will start to happen as the auction in Poland for renewable energy support gets closer. Despite the long discussion over the new law and the guidelines from Brussels (which were relatively rushed through without full consideration of their consequences), there are some real problems looming.

First, the auctions to be competitive under EC policy should have at least as many losers as winners. This allegedly allows for competition in the bids for support. The reality is that the small auction (below 1 MW) will have much larger support offered than will be covered by bids. There will be no serious competition and the reference prices will set the limits. That, of course, could be done without an auction and would achieve a much higher rate of quality projects.

But the large auction (over 1 MW) is likely to have many more bids than awards. Thus, the EC rule of thumb of 50% losers may occur. That means that 50% of the projects ready to go in Poland will not proceed. Neutral third-parties rank Poland as one of the majority of Member States that will not meet the 2020 target for RES. Why would any rational policy-maker deliberately set out to establish a system that cuts the available new RES capacity by 50%? [Clue: the answer depends on what your objectives are and if they are not to create the necessary renewable energy capacity but to protect the status quo, the auction approach makes a lot of sense].

Second, an additional new complication arises on the grid capacity. All of the projects must have grid connection conditions. The Polish grid operator already is reporting that there is too much "fictional" grid capacity approved and that this makes planning actual online future capacities difficult. See Gramwzielone, May 3, 2015. Auction bidders must have approved grid connection conditions, so that 50% of the large projects will effectively be reserving grid space for projects that will not win in the auction.

This nonsense started in Brussels at the urging of Eurolectric, the cabal of big utilities in Europe. I, for one, do not think that the objectives are either transparent or salutary.



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