Renewables Auctions in GermanyCurrent trends and outlook

Dario Traum

OFATE / DFBEW E-World 2018 side event

February 7, 2018

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4

Renewables Auctions

in Germany

Current trends

5

5.0

25.216.3

10.7

5.5 4.5 4.0

8.9

9.44.0

6.1 10.010.1

5.3

0.2 0.9 1.3 2.4 3.9 7.7 10.0 13.9 19.0 21.8 31.6 40.1 53.0 86.6 137.3

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 tba

GW

Global announced and auctioned renewables capacity

5.0

25.216.3

10.7

5.5 4.5 4.0

8.9

9.44.0

6.1 10.010.1

5.3

0.2 0.9 1.3 2.4 3.9 7.7 10.0 13.9 19.0 21.8 31.6 40.1 53.0 86.6 137.3

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 tba

Gigawatts

Other

SSA

MENA

Latin America

Asia

Europe

Other

SSA

MENA

Latin America

Asia

Europe

Awarded (cumulative)

5.0

25.216.3

10.7

5.5 4.5 4.0

8.9

9.44.0

6.1 10.010.1

5.3

0.2 0.9 1.3 2.4 3.9 7.7 10.0 13.9 19.0 21.8 31.6 40.1 53.0 86.6 137.3

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 tba

Gigawatts

Other

SSA

MENA

Latin America

Asia

Europe

Other

SSA

MENA

Latin America

Asia

Europe

Awarded (cumulative)

Awarded:

Announced:

Source: Bloomberg New Energy Finance. Note: Excludes 60.8TWh of renewable electricity already auctioned in Chile between 2006 and 2017 and 12 billion euros of subsidy

budget to be awarded in the Netherlands in October 2017.

Current trends

6

21.8

19.0

25.5

5.6

5.2

8.7

7.9

5.5

5.0

5.0

2.7

4.5

4.3

2.9

2.2

2.2

1.8

0.8

1.0

3.1

2.1

1.1

1.3

8.0

1.7

3.4 2.6

8.7

3.9

27.0

27.0

25.5

16.0

12.5

9.1

7.9

5.5

5.0

5.0

4.8

4.5

4.3

3.9

2.9

2.2

2.2

2.0

1.8

1.6

India

China

Brazil

Germany

France

Spain

Mexico

United Kingdom

South Africa

Netherlands

Turkey

Argentina

Russian Federation

Algeria

United Arab Emirates

Italy

Chile

Denmark

Australia

Morocco

GW

Top countries for announced and auctioned renewables capacity

21.8

19.0

25.5

5.6

5.2

8.7

7.9

5.5

5.0

5.0

2.7

4.5

4.3

2.9

2.2

2.2

1.8

0.8

1.0

3.1

2.1

1.1

1.3

8.0

1.7

3.4 2.6

8.7

3.9

27.0

27.0

25.5

16.0

12.5

9.1

7.9

5.5

5.0

5.0

4.8

4.5

4.3

3.9

2.9

2.2

2.2

2.0

1.8

1.6

India

China

Brazil

Germany

France

Spain

Mexico

United Kingdom

South Africa

Netherlands

Turkey

Argentina

Russian Federation

Algeria

United Arab Emirates

Italy

Chile

Denmark

Australia

Morocco

Gigawatts

Awarded

2016

2017

2018

2019

2020

TBA

21.8

19.0

25.5

5.6

5.2

8.7

7.9

5.5

5.0

5.0

2.7

4.5

4.3

2.9

2.2

2.2

1.8

0.8

1.0

3.1

2.1

1.1

1.3

8.0

1.7

3.4 2.6

8.7

3.9

27.0

27.0

25.5

16.0

12.5

9.1

7.9

5.5

5.0

5.0

4.8

4.5

4.3

3.9

2.9

2.2

2.2

2.0

1.8

1.6

India

China

Brazil

Germany

France

Spain

Mexico

United Kingdom

South Africa

Netherlands

Turkey

Argentina

Russian Federation

Algeria

United Arab Emirates

Italy

Chile

Denmark

Australia

Morocco

Gigawatts

Awarded

2016

2017

2018

2019

2020

TBA

To be awarded (by auction year):

Source: Bloomberg New Energy Finance. Note: Excludes 60.8TWh of renewable electricity already auctioned in Chile between 2006 and 2017 and 12 billion euros of subsidy

budget to be awarded in the Netherlands in October 2017.

Current trends

7

Source: EEG 2014, ‘GroKo’ coalition talk start agreement

Auction capacity corridors and extra volumes proposed in coalition agreement

2.8 2.8 2.8 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9

2 22.5 2.5

2.5 2.5

2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5

0.5 0.5 0.7 0.7 0.7 0.840.840.840.840.84

2 2

tbc tbc

2017 2019 2021 2023 2025 2027 2029

GW

Offshore wind - 'GroKo'bonus

PV - 'GroKo' bonus

Offshore wind - EEG

PV - EEG

Onshore wind - 'GroKo'bonus

Onshore wind - EEG

Current trends

8

49.1

42.9

56.8

4.6 3.5 2.8 4.2 2.6 2.6 2.4 3.2 3.4

0

20

40

60

80

100

2015 2016 2017

Euro / Mwh

Source: Bundesnetzagentur

COVERAGE RATIO

German auction prices and participation

22

38.2

2.6 2.9 2.6

0

20

40

60

80

100

May Aug Nov

Euro / MwhCOVERAGE RATIO

2017

SOLAR ONSHORE

22

38.2

2.6 2.9 2.6

0

20

40

60

80

100

May Aug Nov

Euro / Mwh

Average Min Max

Current trends

9

Source: Bloomberg New Energy Finance. Notes: Figures refer to an estimated project LCOE, taking into account tariff, inflation, merchant tail assumption and a 23-year project

lifetime. Horizontal axis refers to commissioning year.

Offshore wind levelized auction prices

Anholt

Horns Rev III

Near-shore

Krieger's Flak

Gemini

Borssele I & II

Borssele III & IV

Early CfD -- Dudgeon, Burbo, Walney

Early CfD -- Beatrice, Hornsea 1

CfD R1 -- East Anglia 1

CfD R1 -- Neart Na Gaoithe

CfD R2 -- Triton Knoll

CfD R2 -- Hornsea 2, Moray Firth

Gode Wind 3

BRW II

OWP WestHe Dreiht

Thornton Bank (I-III)

Northwind

Nobelwind

Rentel

NortherMermaid

Seastar

Northwester II

0

50

100

150

200

2012 2014 2016 2018 2020 2022 2024 2026 2028

Netherlands

Denmark

U.K.

Germany

Levelized bids (2016 $/MWh)

Belgium

Current trends

Ongoing auction

10

Renewables Auctions

in Germany

Outlook

11

3%

4%

5%

5%

6.5%

6.5%

7%

7%

7%

8.2%

4%

5%

6%

6%

7%

7.5%

7.5%

8%

8%

9%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Germany

France

Sweden

Italy

U.K. (CfD)

Spain

Ireland

Norway

Poland

U.K. (RO)

Unlevered equity returns for institutional investors

1H 2017 2H 2015

Bloomberg New Energy Finance. Note: RO = Renewables Obligation. CfD = contract-for-difference.

Equity returns are at record lows…

Institutional investor unlevered equity return expectations for onshore wind

Financing: Price suppressing factor

12

Central bank interest rates may well be on the rise

-1%

0%

1%

2%

3%

4%

5%

6%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

France

Germany

U.S.

Japan

Financing: Price lifting factor

13

Source: Maycock, Bloomberg New Energy Finance

Solar technology is getting cheaper, faster

0.1

1

10

100

1 10 100 1,000 10,000 100,000 1,000,000

historic prices (Maycock) Chinese c-Si module prices (BNEF)

1976

2003

1985

2008

Cumulative capacity

2015

2017

(est)

2016 ($/W)

NEO 2016

26.5% learning

rate

NEO 2017

28% learning

rate

SOLAR: Price suppressing factor

14

Source: AEE, Bloomberg New Energy Finance

Geographic distribution of PV

PV INSTALLED CAPACITY, 2016 PV AUCTIONED CAPACITY, cumulative

0.125GW 11.637GW 0MW 391MW

SOLAR: Price lifting factor

15

Source: AEE, Bloomberg New Energy Finance

Geographic distribution of PV

PV INSTALLED CAPACITY, 2016 PV AUCTIONED CAPACITY, cumulative

0.125GW 11.637GW 0MW 391MW

SOLAR: Price lifting factor

16

Source: Bloomberg New Energy Finance Note: Data by contract signing date

Turbine price by delivery date

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Global (ex. China) Germany (ExTool) Denmark (Extool) US (LBL) China (BNEF) Vestas global

million Euro/MW

Onshore: Price suppressing factor

17

Source: Bloomberg New Energy Finance Notes: Line shows central case, error bars

reflect the range between low speed and high speed sites

Source: Bloomberg New Energy Finance Note: Note: Averages are capacity-

weighted. We calculate the capacity factor with our proprietary Wind Farm Capacity

Factor Tool using real project data and wind resource data provided by 3TIER by

Vaisala. We assume P90 value in the capacity factor tool.

Onshore wind capacity factor Capacity factor forecast for the U.S

Onshore wind is getting cheaper as capacity factors rise

0%

10%

20%

30%

40%

50%

60%

19801984198819921996200020042008201220162020

Germany Denmark UK Spain US Canada

299MW

0%

10%

20%

30%

40%

50%

60%

70%

2017 2020 2025 2030 2035 2040

Onshore: Price suppressing factor

18

Source: Bundesnetzagentur

Citizen driven projects took it all

FIRST THREE AUCTIONS

● Pay-as-clear rather than Pay-as-bid

● 54 months delivery deadline rather than 30

months

● No permit required, hence no turbine size

lock

NEXT TWO AUCTIONS (at least)

● All projects to be delivered in 30 months

● All projects must be permitted

● Ceiling price increased to 63euros/MWh

Onshore auctions rule changes

71%84% 89%

96%95%

99%

May 17 Aug 17 Nov 17

BEG - win

BEG -application

Onshore: Price lifting factor

19

Turbine size Generation profiles: Germany LCOE - Germany

Offshore wind has surprised us

120MW

400MW

496MW

0

3

6

9

12

15

1990 2000 2010 2020

12-month weighted

Projec

MW

15MW turbines estimated

Source: Bloomberg New Energy Finance Source: Bloomberg New Energy Finance Source: Bloomberg New Energy Finance

Offshore: Price suppressing factor

Utility-scale PV

Coal

Onshore wind

CCGT

Offshore wind

0

20

40

60

80

100

120

140

160

180

200

20

17

20

20

20

25

20

30

20

35

20

40

$/MWh (real 2016)

Offshore

Onshore

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

00

:00

03:0

0

06

:00

09

:00

12

:00

15

:00

18:0

0

21

:00

normalized

20

Source: Bloomberg New Energy Finance. Notes: Figures refer to an estimated project LCOE, taking into account tariff, inflation, merchant tail assumption and a 23-year project

lifetime. Horizontal axis refers to commissioning year. Forecasts are from a selection of European countries and taken from BNEF’s New Energy Outlook 2017: Global

Overview (web | terminal).

The cost of offshore versus. onshore and solar

0

50

100

150

200

2012 2014 2016 2018 2020 2022 2024 2026 2028

Levelized bids (2016 $/MWh)

Levelized offshore prices

Onshore LCOE forecasts

Solar LCOE forecasts

January 2017 offshore forecast

German

projects

Offshore: Price suppressing factor

21

Source: Bloomberg New Energy Finance. Note: ‘Other financial institutions’ includes private equity, governments, and sovereign wealth funds.

Sellers and buyers of equity in pre-commissioned European offshore wind

-0.7

-1.2-1.4

-0.6

-2.2-2.6

-1.9

-3.9

-5.0

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

2010 2011 2012 2013 2014 2015 2016 2017 Manufacturers andsupply chain

InstitutionalInvestor

Utility

0.7

1.21.4

0.6

2.22.6

1.9

3.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2010 2011 2012 2013 2014 2015 2016 2017

$bn

Other financialinstitutions

Oil & gas

Project developer

Buyers

Sellers

Offshore: Price suppressing factor

22

“Should the business

case . . . not prove

attractive in four years

from now, we will

abandon the projects

and write off the value of

the bid bond.

Henrik PoulsenØrsted CEOFinancial Times, 2017

Offshore

0-subsidy bids

Source: https://www.ft.com/content/b4a4f0ae-e597-11e7-97e2-916d4fbac0da

23

“I don't get the impression

that there are lots of

people out there gearing

themselves up to invest a

lot of money in those sorts

of assets.

Mark Muldowney,

BNP Paribas MD Energy & InfraFinancial Times, 2017

Offshore

0-subsidy bids

Source: https://www.ft.com/content/b4a4f0ae-e597-11e7-97e2-916d4fbac0da

24

PV - realised 2035

Onshore - realised 2035

PV - tariff 2022

Onshore - tariff 2022

0

10

20

30

40

50

60

70

80

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49

2035

Euros/MWh

Source: Bloomberg New Energy Finance

Risk of PV/onshore auctions with variable premium contracts

PV

Capacity: 35GW Generation:33TWh

SUBSIDY

Per MWh: 6.6 euros

Onshore

Capacity: 63GW Generation:108TWh

SUBSIDY

Total: 0.6bn euro Per MWh: 5.1 euros

Lower realised power prices for PV as a result of price cannibalisation lead to

much higher subsidies bills despite its low cost…

Clean energy subsidies

25

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