Reverse auction set as alternative in evaluating RE investments

By Myrna M. Velasco – February 27, 2017, 10:04 PM

from Manila Bulletin

With feed-in-tariff (FIT) already at its dead end for wind and solar technologies, the proposal for the next round of investments on this technology would be to do it via reverse auction – that may be done akin to the competitive selection process (CSP) already institutionalized in the power industry.

“What we can explore is reverse auction and I think in many jurisdictions right now, reverse auction seems to be a very effective mechanism – the result is lower prices instead of high prices,” Senate Committee on Energy Chairman Sherwin T. Gatchalian has propounded.

He said the bidding may also be done with the aid of the Philippine Electricity Market Corporation (PEMC) as third party auctioneer – similar to what is being proposed for conventional technologies under the competitive selection process (CSP) edict on power supply contracting.

In a reverse auction, the roles of the buyer and the seller are typically reversed – wherein the sellers would generally outbid each other so they can obtain business or service for the buyer at a price that would be on declining proportion.

“It is also very important to look at the world; and to look at what they are doing,” he said, noting that in many other power markets, fixed subsidies are already getting out of fashion.

Gatchalian reiterated that “in many jurisdictions now, reverse auction is the mechanism of choice,” specifying that the solar bidding outcome of many market domains resulted in reduced prices, to the tune of P1.33 per kilowatt hour equivalent for Mexico; P1.44 per kwh for Chile; P1.48 per kwh for United Arab Emirates; P2.46 per kwh for El Salvador; and P2.99 per kwh for Zambia – price offers that are way lower than the P8.69 per kwh prevailing reduced FIT rate in the Philippines.

He expounded that “swift technological developments have brought us to the point where RE sources can match the production and cost efficiency of conventional power sources, such as coal, hydro and natural gas.”

Gatchalian thus noted that the automatic next step “should be to inject true competition into the game,” stressing further that “more competition with a whole array of foreign and domestic RE players battling one another to produce clean energy at lower costs, will allow us to slash power rates throughout the country.”

For the proposed reverse auction, he opined that there is no need for legislation on such, it would just be a matter of policy decision and regulation-setting for the Department of Energy (DOE) and the Energy Regulatory Commission.

“There’ s no need for legislation – we need to give the regulators and policymakers some flexibility to implement it,” the lawmaker stressed; while emphasizing that “efforts should be made to make power cheaper, rather than on making it more expensive through subsidies given to private investors.”