Modelling of the upcoming Polish renewable auctions in 2021 & future CfD incomes

The upcoming renewable auctions are approaching fast (May-June 2021) – in spite of the recent high wholesale price levels (at the beginning of May ’21 nearly all forward products are trading at close to 70€/MWh or above), the auctions have traditionally attracted a good number of investors given the 15 years long floor price support.

To be successful, a number of factors need to be taken into account in the formation of a bidding strategy. Initially, however, the asset operator should clearly articulate its route-to-market strategy and the risk appetite – given the current price levels and our price projections, an increased merchant profile of the asset may be an attractive option for some investors.

Once the risk appetite and auction volume are defined, Baringa can help bidders to maximise their success based a proven auction simulation tool. The tool works on building a cost based merit order of the eligible renewable projects for the auction, taking into account key inputs such as project specific costs and merchant tail expectation. It has flexibility to simulate different scenarios/sensitivities. We have been modelling the large scale onshore wind and solar auctions in Poland for the last couple of years, and our modelling results have been in close proximity to the auction outcomes. More information can be seen in the pdf document that can be downloaded below.

With a secured CfD contract, one should note that current design of the Polish CfD scheme creates opportunities for renewable generators to achieve higher revenues compared to their strike price as it requires to allocate a minimum 85% of the auction volume to the CfD mechanism. This allows the asset owners to market the remaining volumes directly on the exchange and exploit high price events in the market. Baringa has developed a model that looks to optimise the revenues with this optionality in the CfD contract, allowing you to understand the additional yield asset owners can expect.

For more information, please contact Vikash Ahuja or Simon Tywuschik