The world won’t decarbonize fast enough if investment in renewables is diminished, noted The Economist on February 16, 20231.
The publication alarmed that many recent government policies affecting renewable energy projects, further decreased their attractiveness to potential investors. Price caps and various taxes, together with rising costs, are among the obstacles the investors must cope with.
The Economist observed that the prices of solar modules and turbines have risen from January 2021. Such increases in costs would be manageable if they could be passed on to energy consumers. But many governments are increasingly micromanaging power markets to keep energy prices low, or to raise taxes or duties.
It further noted that “around the world, auctions for renewables contracts are being designed to keep electricity cheap—so cheap that generators will struggle to make money. That leads them to sell electricity on the spot market instead, which is riskier and less appealing to investors. Some tenders entice developers to compete over how much they are willing to pay to run projects, a system known as ‘negative bidding’. This may bloat costs yet more.” According to The Economist some RE projects are declared as “uninvestible”.
A research paper2 analyzing the impact of e-reverse auctions on the development of the renewable energy sector in India concludes that their impact on price, deployment and financing of projects was negative. The auctions resulted in historical low bids, due to the expectation of low price of capital goods like solar modules. The highest winning bids in solar auctions were, on an average, 36.49% less than the ongoing solar feed-in-tariffs in the states that held the e-reverse auctions. Deployment of projects got affected as the electricity distribution companies attempted to force winners of earlier auctions to match tariff with lowest bids in subsequent auctions, thus adding to financial misery of the already contracted projects.
A ray of hope emerged recently as the Central Government of India began contemplating ending the reverse auction method of project bidding for wind and solar energy contracts3. Finally, the government has come up with another bidding model for wind projects4, which has raised some limited hopes5 however, much more stability and predictability in RE market conditions in India is necessary.
To conclude, if nonturbulent development of the RE projects should continue and green power cannot be sold at higher prices than governments would like, then carbon credit revenues are the only option for many projects to save them from a race to the bottom.
1 https://www.economist.com/leaders/2023/02/16/the-world-wont-decarbonise-fast-enough-unless-renewables-make-real-money
2 https://doi.org/10.1016/j.rser.2019.06.025
3 https://www.business-standard.com/article/economy-policy/government-weighs-cancelling-reverse-auction-for-renewable-power-offers-122101100287_
4https://www.business-standard.com/article/economy-policy/wind-energy-charts-new-course-with-policy-clarity-new-bidding-model-122072500947_1.html
5 http://mercomindia.com:8080/government-junks-reverse-auction-for-wind-projects/
