Auctions Became “World Standard” While You Were Not Looking

On March 26 there was a meeting at the Japanese government discussing future trends of renewable energy policy. One of the presentations published at the occasion was rather interesting. Thanks to Hironao Matsubara for the link.

On page seven it mentions that costs for renewable energy are still at a level of twice of Europe. It also says that for a cost of 2 trillion yen a year Japan has managed to increase the renewable energy share from 10 to 15 percent. They want to get the next 9 percent increase for only half of that cost.

Unfortunately, they then say that they want to reduce costs radically by following the “international standard” and they see auctions as that international standard. Large scale solar projects have already changed to that and large scale biomass and offshore wind projects are next in line.

I am not sure if this will help reduce costs. But judging from the German experience, it will be a great way to slow down the speed of increasing the renewable percentage.

That’s because any auction system is not market based. You can win only auctions that are held in the first place, so the state gets to decide on how much new capacity is introduced, not the market.

If your agenda is to delay renewable deployment, the Japanese solar auctions are off to an excellent start. The first auctions had an anemic 500 MW volume in the first place, and only 141 MW of that was awarded. Even less, only 41 MW were projects where the developers bothered to pay the secondary deposit, while the rest withdrew their interest. It remains to be seen how much of those remaining 41 MW will be actually realized.

Also, reductions in the feed-in tariffs last year caused 27.7 GW worth of solar projects to be cancelled.

The change to an auction system was bad news for renewable policy when it started in Germany. It is much worse news if other countries copy this misguided policy. In contrast to Germany, Japan has some catching up to do. Germany’s slow down comes from a leading position.

The fastest way to bring down cost would have been to just stick with the successful feed-in tariff and make sure that you get a large volume market. That brings down cost over normal market mechanisms.

2 Comments

  1. Ben

    There is a simple distinction between feed-in tariffs and auctions. The former sets the price not the volume. The latter sets the volume not the price. Neither are true markets. I do agree that, politically, auctions are attractive to politicians who want to control RE uptake. FiTs would have done better if there were more frequent adjustments to price (say, quarterly) based on published methodologies.

  2. Karl-Friedrich Lenz

    Thanks for your comment.
    Actually, adjusting each quarter is what Germany does right now for solar (small scale installations not subject to auction rules), Article 49 EEG.
    And these adjustments depend on market developments. If there is a lot of new capacity, tariffs are reduced stronger, if there is not much, they can even increase. This shows that a FIT also is influenced by markets, the tariffs are not set in a vacuum.

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