Power Engineering Consulting Joint Stock Company 3 - The best solution for the best choice
Choose languages:
The PECC3 webinar series “International Experiences in Renewable Energy Auction” (IEREA2021) concluded its final session at 8 a.m. on August 21st, 2021, with the support of the Center for Procurement Support (CPS), Public Procurement Agency – Ministry of Planning and Investment. In keeping with the session’s theme of “Sharing is caring,” this session discussed the auction theory and case studies of renewable energy auctions in the United States.
Mr. Tran Quoc Dien – Deputy General Director of PECC3 – delivered an welcoming speech on behalf of the organizers. He expressed gratitude to the USA’s government officials and experts, as well as the representatives from ministries, branches, associations and Vietnamese businesses, for their participation. The U.S. provided support to Vietnam’s renewable energy development. In 2015, USAID launched “Vietnam Low Emission Energy Program”, and the U.S. Department of State also supported many renewable energy projects in Vietnam. More importantly, U.S. Vice President – Ms. Kamala Harris would visit Vietnam next week. This marked the first-ever visit to Hanoi by a sitting American vice-president. This webinar series, therefore, provided more timely opportunities for Vietnam to understand how to develop policy frameworks for RE auctions.
Mr. Le Tuan Anh – Director of Industrial Economy Department, Ministry of Planning and Investment – spoke on behalf of the Ministry. He discussed the recent explosive growth of solar power in Vietnam. The Government of Vietnam was promoting the sustainable development of renewable energy and studying the transition from FiT to competitive auctions. He thanked the speakers for sharing their insights in this session, as well as partners and sponsors of the program.
Ms. Anna Shpitsberg – Deputy Assistant Secretary for Energy Transformation at U.S. Department of State – expressed her delight that renewable energy auctions were given a platform to shine today, and that Vietnam was interested in this market. The FiT scheme boosted Vietnam’s development in recent years, and now that the country switched to auctions, the new scheme would strengthen the renewable energy and other manufacturing sectors. In today’s session, besides auction scheme building, the US also expanded on how to gradually achieve the lowest price, increase the degree of competition, accelerate the integration of supply chain, and promote the capacity of Vietnam in certain cases of local requirements. Climate change had a significant impact on the U.S. and other countries, and renewable energy would brace us against the fight. She thanked PECC3 and the Center for Procurement Support for organizing this program.
Mr. James Bennett – Program Manager, Office of Renewable Energy Programs, Bureau of Ocean Energy Management – discussed the US auction policy for renewable energy projects and new wind turbine techniques in shallow and deep water areas. He analyzed the differences between the West and East Coasts of the U.S., as well as the auction promotion policies and PPAs used in East Coast projects. The U.S. Government leased the marine areas to businesses looking to develop projects here. The auction process for seabed areas was organized in rounds, with bidders could place “live” or “exit” bids. The bidder having the highest bid would win the bid. A bidder could only win one lease area. The goal was to create competition and cohesion among project developers. After receiving the lease, the winner began execution. In the U.S., the states would be the contracting parties, determining which marine areas could be leased for offshore wind power production. The lease price gradually increased across 17 of its marine areas.
Ms. Christine Covington – Vietnam Lower Energy Emissions Program – shared more insights on the U.S. trend in solar power. She investigated the differences in the development and management of PPA in the solar power market between states. The U.S. held joint auctions for different RE technologies, which frequently outperformed traditional technologies in terms of price. Battery storage coupling with wind and solar power also rose as a new and competitive trend. To purchase energy generation and storage technologies, the US government used a variety of methods, including competitive auctions, centralized auctions, and bilateral agreements. She described 3 stages of the U.S. competitive auctions and the functions of the entities in each stage. She drew attention to a case study of the U.S. Navy. All stages, such as information requirements, technical document evaluation, bid proposal, bid review and negotiation, and so on, would be given three years to complete. This gave all parties enough time to meet the requirements and analyze the best price. The US Navy’s Joint Base Pearl Harbor Hickam project is an example of this process in action.
Mr. Chu Ba Thi – Senior Energy Specialist, The World Bank in Vietnam – presented about international experience and considerations for Vietnam on renewable energy auctions. Global solar power tariffs decreased significantly by 80% between 2015 and 2021. The World Bank was assisting governments in mitigating risks in the renewable energy industry and leveraging private investments at scale. He proposed eight key questions to be addressed during the process of scheme development to ensure sustainability. Questions covered volume targets, space, time, method and risk allocation. During the planning stage, grid infrastructure would add a layer of difficulty, so Vietnam needed to devise a proper plan for the transmission and storage system. The assigned capacity should be deployed in rounds based on demand at various times. This ensured an even distribution of financial risk and saved time for the completion of infrastructure. The process should be led by centralized operators/regulators.
During the auction stage, it was necessary to balance price and risks while setting out qualifications and requests for proposals. Investors would have more time to focus on project development if the government handled land space and the grid system, as was the case with solar projects. Between site auctions and substation auctions, the latter would be the less risk option. He had two case studies of Argentina and Burkina Faso, both of which used World Bank recommendations to address issues at home. About auctioneer selection, all countries following centralized auctions (e.g., India, Spain, etc.) established task-specialized departments. Other countries (e.g., Germany, Chile, Malaysia, Brazil) used regulators to manage and supervise the auctions. Vietnam, Egypt, the United Arab Emirates, etc. use procurers or utilities, such as EVN in Vietnam. He concluded that nationally-led auctions were generally more successful. Concerning auction capacity per round, each country has its own upper and lower thresholds , making it difficult to reach a universal standard. He discussed PPAs before ending the presentation. To ensure long-term financing, PPA terms for large solar projects were typically 20-25 years.
Mr. Nguyen Thanh Hai – Special Counsel, Baker McKenzie – provided legal insight and advice on the auctioneer roles. He suggested that Vietnam implement government-led centralized auctions. Local governments would assist if issues arose as a result of land sovereignty, and regulators would participate in the development of the legal framework. With little time left, Vietnam needed to tailor the global model to Vietnamese law, and then testing the two least-risky industries, wind power and solar power. The Government shall take charge of land approvals, grid connection and infrastructure. Substation auctions could be a proper option, because investors would be more excited if they could choose areas and capacities best suited their capacity. The government should carefully prepare the pre-qualifications and organize the auctions on a national scale. Depending on the requirements of each project, it may be assigned to a government agency, for example, the Ministry of Industry and Trade, the Ministry of Natural Resources and Environment, etc.
The session concluded with Prof. Carlos Batlle – Researcher at MIT Energy Initiative and Professor at the Florence School of Regulation (European University Institute). He presented on the energy economy in the Latin Souths (Europe and America). South America boasted abundant wind and solar resources, with wind offshore in Columbia and solar power in Chile being standouts. When it comes to wind and solar structures, these countries have one thing in common: precise planning is required prior to project start-up, from location selection to scale evaluation and subsequent steps. Having a mature hydroelectricity market, South America built energy storage systems with great success. However, as seasons (dry or wet) played a bigger part, price volatility remained challenges for many years. It meant that this market had yet to achieve long-term price stability and was forced to auction off new technologies. Southern Europe planned according to the EU’s National Energy and Climate Plans, and as a result, they completed the new scheme faster than South America. In some South American countries, investors opposed the currency codes used in the agreement, or failed to finish the projects on time, or even abandoned the projects. Organizers, therefore, asked the investors to put up their assets as collateral if they wanted to participate in 2-stage auctions. This ensured the projects were performed and completed. In a centralized scheme, auction agencies would take the lead while the government would decide on plans as well as provide instructions and assume overall responsibility.
Organizers needed to consider three following elements when designing requests for proposal, including (1) capacity required for each technology, (2) pre-qualification requirements such as connection, environmental impact assessment, land-use rights and financial qualifications, (3) appropriate auction prices. Agreements in some countries, such as Argentina, set the time for commercial operation based on demand. In general, different measures were taken by governments to reduce cost risks. Methodology intent, in South America over the last 10 years, the market price plummeted, the wind and solar resources overwhelmed and contributed to 40% – 50% of total capacity. Therefore, the target of 30% is achievable, the resources could afford it, and the governments only needed to handle cost risks. Aside from energy structure and price policy, investors were also interested in other methodology elements.
Ms. Vu Quynh Le – Deputy Director General, Public Procurement Agency, Ministry of Planning and Investment: Why does Spain auction technologies in each 1 GW package? This requires dozens of projects to supply this 1GW in a package. With centralized auction, should Vietnam auction on a project basis instead of package?
Prof. Carlos Batlle: Auction capacity would vary depending on system state. Grid systems in Spain are far beyond the current generation level of development. As a result, despite the fact that 27-30 new projects are required to meet the capacity of 1 GW, many investors have indicated their readiness. In Portugal and other South American countries, the grid-connected system poses a real difficulty as investors can only integrate to the system if they can connect with the authorities or security agencies. So, if investors want to enter a market, they must first conduct research to determine the appropriate technology and capacity, as well as, more importantly, whether they can connect with the relevant institutions. On the other hand, each country’s government may hold auctions for each technology or for multiple technologies, depending on its own pace of research and considerations. So, based on the current situation in Vietnam, you can decide how to auction.
Mr. Nguyen Tuan Phat – Legal Counsel, PECC3 – moderated the session and gave the first questions to BOEM.
What are the prerequisites for auction? Should we auction off each project from a few dozen to several hundred MW? Should we limit the number of bidders?
James Bennett – Program Manager, Office of Renewable Energy Programs, Bureau of Ocean Energy Management (BOEM): Our process enables developers to use the lease space and develop projects in collaboration with the government agencies. We do not define the project; rather, we define the project’s location. It is entirely up to the developers to decide what types of projects to pursue in order to leverage the local supply chain and open the door to future expansion. Basically, offshore lease areas can have enough power generation capacity for economic development at scale. They could have up to 100 turbines or more GW. The authorities will define the PPA terms and evaluate the project’s ability to use local resources and supply chains. The federal government will decide which areas of land and sea will be leased. To participate in the auction, bidders must meet prequalification in finance, techniques, and experience. Foreign businesses must establish a subsidiary in the United States and demonstrate their capacity.
Ms. Pham Thi Gam – Deputy Director of Policy and Legal Department, Vietnam Administration of Seas and Islands (VASI), Ministry of Natural Resources and Environment (MoNRE): Based on the U.S. experience, what are the requirements we need to set out for marine spatial planning, right to use or environmental impact assessments, etc.?
Mr. James Bennett – Program Manager, Office of Renewable Energy Programs, Bureau of Ocean Energy Management (BOEM): The regulations for onshore and offshore wind are vastly different. Environmental impact surveys, seabed surveys, and so on all follow similar procedures. The distinction is in the right to lease; onshore wind power is managed by the state government, whereas offshore wind power is managed by the federal government. While conducting marine spatial planning, particularly in the East Coast with 17-18 states, the federal government has to work actively with each state government to streamline the documents, procedures and data flow. The evaluation, review, and reporting of environmental impacts are all the same. Auctions in the United States are based on prices as well as the needs of associations, unions, and communities. I just concentrate on one aspect of the process: lease area allocation. We have other criteria for PPAs.
Ms. Adrienne Fink – Principal Consultant Offshore Renewables, US at Offshore Wind Consultants (OWC): How does the Bureau of Ocean Energy Management determine which marine areas can be leased, which parties can participate, and how does the process get started after all of these steps have been completed?
Mr. James Bennett – Program Manager, Office of Renewable Energy Programs, Bureau of Ocean Energy Management (BOEM): We have been working with the federal and state governments to establish a task force since 2019, when we began this process. We define each party’s roles and responsibilities. We will need the agreement of all relevant states once the marine areas have been determined. Then we design the scheme and assign capacity, among other things, to carry out this process.
Dr. Le Net – Partner, LNT & Partners – added some more information about Vietnam. Land areas under the jurisdiction of the Provincial People’s Committee can be auctioned off based on highest bid, lowest bid or direct scheme. In Vietnam, renewable energy projects are distributed unevenly across the North and the South. The Ministry of Industry and Trade just issued a circular and a draft on auctions, tariffs and prequalification requirements.
How can auctions be made more competitive? Before or after the auctions, how should the ceiling price be disclosed? Should investors propose a fixed price or a price in relation to a known or unknown ceiling price? Should financial parties be allowed to participate in the auctions?
Ms. Pham Thi Thuy Ha – Director of Procurement Management Department, Vietnam Electricity (EVN): Regarding the process of selecting a developer, the Ministry of Industry and Trade has now established the criteria for the auction scheme, in which EVN also participated. From the standpoint of EVN, we want to create a competitive low-price auction system. Policies relating to land, technology, connectivity, auction prices and locations require the support of all relevant parties in order to create a competitive and appealing auction environment. There should be an agency to ensure that auctions are held in a transparent manner, as well as a legal framework to resolve any disputes that arise. In the first draft, the Ministry of Industry and Trade stated that the ceiling price would vary and be announced with requests for proposal. We would prefer that bidders offer a fixed price rather than a percentage. Financial institutions should participate in the auctions to increase transparency over the process. This draft should be used as a test for upcoming renewable energy projects. We encourage new players to participate in order to ensure that the process meets local requirements. The participation must be in accordance with the Procurement Law.
At the end of the seminar, Ms. Vu Quynh Le – Deputy Director General, Public Procurement Agency, Ministry of Planning and Investment – expressed her appreciation to the representatives of the U.S. Department of State, BOEM, USAID, WB and speakers for their contributions to Vietnam’s renewable energy market. She emphasized the roles of the Ministry of Industry and Trade, Electricity Authority and Public Procurement Agency in the development of the competitive auctions framework for renewable energy. Following five sessions jam-packed with the experiences of countries that paved the way. Vietnam is expected to make significant progress in the development of the scheme and the study of the applicability of auctions in the Vietnamese legal and business environment. She hoped that there would be more platforms that allow for genuine and open dialogue in order to broaden the lessons.
PECC3 wishes to express its gratitude to Nishimura & Asahi and LNT & Partners for generously sponsoring the seminar.
The webinar series “International Experiences in Renewable Energy Auction” (IEREA2021) received positive feedback from representatives of ministries and agencies, policymakers, renewable energy businesses, and legal departments. Numerous questions have been submitted via email, and we will post the responses to the speakers’ questions on the PECC3 event page as soon as they are received.
To get an overview of other sessions (Denmark, India, Germany, UK), please find details at the website of Power Engineering Consulting JS. Company 3 (PECC3). We are proud bringing our integrity and trust to our distinguished partners through this webinar series.
