The failure of the latest 5G and renewable auctions puts pressure on the Government for the next calls

Public resources are limited and when they are auctioned they arouse great interest among companies, so governments are tempted to take advantage of this expectation to satisfy their tax collection voracity (in the case of telecommunications) or to speed up the process of deploying non-emission technologies. at favorable prices for the consumer (case of renewable energies). Sometimes, however, they achieve the opposite effect of what they are after. That is what has happened in the recent auctions for 5G mobile telephony and renewable energy.

Telecommunications operators and energy companies have decided to lower the piston in their bids and some have even neglected the process because they understood that the large disbursements do not ensure a return in the form of business. A method of pressure also so that the Executive looks for other formulas or lowers its degree of ambition when, in the next auctions – there will be more in the coming years – it re-allocates frequencies or green megawatts.

The latest example of this failure has been the auction of the 26 gigahertz (GHz) frequency band, the last remaining free for 5G mobile telephony, which was held on December 21. The process barely lasted a few hours (the joke that circulates among the companies is that it has taken longer to read the conditions than to place the bids) and resulted in a disappointing collection of 36.2 million euros, far from the 56 million price. output and even more than the goal of 100 million that the Ministry of Economic Affairs and Digital Transformation had set.

It was a minor auction, because the bulk of the frequencies had already been assigned. Of the 12 national blocks, three were deserted. Only Telefónica acquired five blocks of 200 megahertz (MHz) that corresponded to it as a maximum, but for the minimum amount of output (20 million euros). Orange and Vodafone only got two blocks each, also for the minimum price. But the worst news came from the autonomous part. To please the Basque and Catalan nationalists, the Ministry of Economy reserved for the first time in an auction of this type 38 regional concessions whose value was set according to the population. Only Globe Operator Telecom from Valladolid participated in the auction to obtain the frequencies of Castilla y León for 200,000 euros. The rest of the regional concessions remained deserted.

The department headed by Nadia Calviño cannot claim that it was not warned. The companies had asked him to postpone this auction to 2023 or 2024, because the development of 5G is still in its infancy and there are no sufficiently mature technical teams to apply this technology in high-frequency bands, suitable for deployments in areas where they accumulate many devices or people, such as factories, or airports and stadiums.

In addition, this was the fourth auction of frequencies for 5G networks held in Spain, after the auction of the 3.6 GHz band held in 2018, the tender for 20 MHz of that same band held in February 2021 and the of 700 MHz in July 2021. In the latter, the main one due to the starting amount, the Government also clicked on its objectives, since it was carried out in just two days from its beginning due to the low bid, with a collection of 1,010 million euros, slightly above (1.5% more) the starting price of 995.5 million euros, and well below the 2,100 million euros that the Ministry of Finance consigned as a collection objective in the General State Budget for 2021.

The added problem is that although the operators do not yet use these frequencies for their commercial services, they must pay the so-called radioelectric fee associated with the concession from the first year, which discourages them when bidding.

renewable auctions

Something similar has happened with the commitment to renewable energy. At the end of November, an open secret was made public in the energy world: the great renewable auction called by the Government in 2022 ended with a resounding failure, when less than 50 wind and photovoltaic megawatts (MW) were awarded out of a total of 3,300. The big names in the sector chose not to appear in this process, which was practically deserted. And those that did, were not awarded a single plant due to the low reserve price, at which the companies agree to sell the energy they generate 12 years from now. Something very similar to what happened a month before, with solar thermal, biomass and distributed photovoltaic.

The sector, both as an individual company and at the employer level, has raised its voice against prices that they consider not adapted to these times, inflation in materials —which is raising the cost of installing plates and wind turbines— and types of Rising interest —which is forcing the spreadsheets that determine the viability or otherwise of a project to be adjusted more than ever. With these wickers they consider, in short, that they can achieve much better agreements outside of that framework than within it. This rejection is especially relevant at a time like the present: renewable auctions are one of the main keys to the vault of the proposal to reform the European electricity market recently submitted by the Spanish Executive to Brussels.

In the collective imagination of the developers of renewable plants there is a clear maxim: if inputs do not become cheaper soon and the price of money does not fall, in order to revive this auction instrument —which has given such good results in the past— the Government will have to to improve the price in the following calls. In other words: the final consumers of electricity will have to pay a higher premium to the generating companies to alleviate this increase in their costs.

The failure of this latest round of renewable auctions has nothing to do with less appetite for these energies, which have no carbon footprint and are much cheaper than their fossil counterparts. Quite the opposite. The sector has not stopped growing in Spain, although it has done so in a different way, giving preference to bilateral supply contracts (known as PPAs). In this type of contract, a supplier agrees to deliver energy to a customer during a period of time and at a determined price, with much greater bargaining power than in an auction, which is by definition more rigid. The other option is to sell the energy directly to the market, without a predetermined remuneration framework.

In the renewable sector, the concern is far from the lack of appetite for new facilities —apart from these processes—, but rather in other problems. If in the specific case of auctions the low reserve price is the biggest stumbling block, on a more general level it is the administrative bottleneck: if the central government and, above all, the autonomous communities do not speed up the processing of environmental approvals, dozens of projects will be in limbo at the end of January.

“Several factors have come together that do not put the auction system in crisis, but that have slowed it down temporarily,” says Luis Atienza, former president of REE. “There is cost inflation in the renewable supply chain and the high prices for the next few quarters discourage developers from going to 12-year fixed price auctions when they can get a higher price on the market. But the main thing is the blockage in the rate of approval of the projects, which is retracting the participation of developers in the auctions”.

The solution, says Atienza, could be to review “something” the reserve price in future calls — “although little: you have to keep a very cool head so as not to set very high prices, which penalize consumers in the long term” — and, above all, to speed up processing times: “This is the most important thing, because it will have a tractor effect on the next calls: if you speed up this, you will have more appetite and more pressure to bid at auctions.”

With or without auctions, the installed power of green energy in Spain has not stopped growing in recent times. And this year no exception. According to data from Red Eléctrica de España, photovoltaic solar will end 2022 with almost 25% more installed power than a year earlier. Although more modest —and here much more ambition is required to meet the objectives of the National Integrated Energy and Climate Plan (Pniec, the Spanish roadmap for the deployment of renewables)—, the increase in wind power barely exceeded 4% . In 2021, the increase was more than 30% and almost 4%, respectively.

The Ministry for the Ecological Transition has denied, until now, that it is going to introduce changes in future calls and relies on this remarkable growth of the renewable park even without auctions. Regarding the poor result of the last calls, sources from the department headed by Teresa Ribera allege that “the calendar has been met and an excessive payment for consumers due to a temporary situation has been avoided.” And they emphasize that the power not awarded “is reserved for future tenders.” The Government, these sources point out, “will continue to launch auctions in accordance with the schedule until 2026, which establishes the holding of a minimum number of tenders that can be increased if deemed appropriate, as in 2021, when two auctions were held for wind power and photovoltaic”.

Given the bad tone of the latest calls sponsored by the Administration, the Association of Companies with Large Energy Consumption (AEGE) has already designed, together with the Iberian Energy Market Operator (OMIE), a new framework for wind power auctions and photovoltaic with the objective that its associates —the electro-intensive companies— can meet their needs. The supply term would be around 12 years —similar to that of conventional auctions, those called by the ministry—, in which these companies would ensure clean energy at a much lower price than they would get by going to the market.