In its latest monthly column for pv magazine, SolarPower Europe describes which policy tools are expected to help Europe move at a faster pace in solar and renewable energy deployment. The European trade body discusses the upcoming support schemes, the transformation of the PPA market and the rise of green finance.
April 12, 2024 Simon Dupond – SolarPower Europe
In 2023, global investment in solar overtook investment in oil for the first time. In the story of the energy transition, investing capital in solar energy has never been so exciting – solar booms while the cost of generating solar electricity drops. The script for solar project development is changing.
Many new characters have joined a stage previously dominated by government subsidies and feed-in-premiums. No longer mere ‘extras’, private investors – ranging from financial institutions to corporates – are seizing prominent roles. Against the landscape of the 2022 energy crisis, electricity markets have demonstrated extreme resilience, paving the way for solar projects to explore merchant remuneration routes. How has the backdrop changed, and what does the sector need to keep investment flowing?
The next-generation support schemes
While governments no longer solely direct the narrative of solar investments, their role remains pivotal in achieving our deployment ambitions. Nonetheless, in many EU countries, solar auctions have fallen short of expectations, resulting in the inefficient use of available public budgets and causing unnecessary delays in deployment. Additionally, bid ceilings proposed by auction regulators often do not accurately reflect the solar levelized cost of electricity (LCOE), especially given the challenges posed by inflation and a high-interest global environment that solar developers must contend with.
Some EU countries, like France or Portugal, are proactively tackling this inflationary environment, by indexing support schemes to price evolutions during both project construction and operation. This adjustment is set to increase the resilience of the solar business case to future changes in the macroeconomic environment and will likely be a good model to expand on and for other countries to follow.
Recently finalized EU legislation – the Net-Zero Industry Act and the Electricity Market Design Revision – will also set new rules for renewable energy auctions and public remuneration mechanisms. Among these requirements, is the incorporation of non-price criteria into the competitive auction processes of EU countries. Implementing these criteria clearly, and consistently across the EU, is crucial in preventing under-subscribed auction rounds, properly preparing industry, and supporting the acceleration of decarbonization. The technical details of these rules will come in an Implementing Act drafted by the European Commission and planned for the beginning of 2025.
Under the new EU Electricity Market Design, so-called ‘contracts-for-difference’ – the main public price support mechanism for renewables – have to be non-distortive and respond to market signals. While meeting this new objective, their ability to provide investors’ certainty and long-term hedging must remain untouched, especially in the context of an increasing number of hours
for which electricity prices are below zero.