Finland: only wind won the first premium auction, although biogas could take part

The first and so far only Finnish auction for a technology-neutral premium showed how hard it is for biogas power plants to compete with onshore wind. Although biogas was on the list of permitted technologies, the lowest bids came exclusively from wind generators, and the average premium bid by the winners was €2.49/MWh.

Auction rules

The round held in autumn 2018 (from 15 November to 31 December) concerned 1.4 TWh of energy a year. Onshore and offshore wind, solar, biogas, wood biomass and wave energy were admitted; geothermal was not included. The competition was closed, and the bids submitted were binding on the bidders. Settlement was based on the pay-as-bid principle: the winner receives a premium equal to its own bid, not the highest one accepted.

The legal basis was Act 1396/2010 on support for electricity production from renewable sources (the chapter on the tender system). The competent authority and regulator of the system is the Energy Authority (Energiavirasto), alongside the Ministry of Economic Affairs and Employment.

Result

According to the description of the scheme in the European Commission's database, all the cheapest bids came from companies building onshore wind farms. The average premium for the accepted projects was €2.49/MWh, which means that the premium was only a small supplement to the market price. Such results are typical of auctions without baskets: the technology with the lowest unit cost takes the entire limit.

Why biogas lost

A biogas plant bears costs that wind and solar do not: substrates, operating the digesters, servicing the generator set. It is therefore hard for it to offer a premium close to two to three euro per megawatt-hour. This does not mean biogas is unprofitable, only that in a single competition it was up against a technology with a different cost structure. In Finland, biogas had previously benefited from a separate premium system with a target price of €83.50/MWh, closed to new installations at the start of 2019 (details in the analysis of the Finnish premium system).

Consequences

• Since 2018 Finland has not announced any further rounds of premium auctions, so there is no open channel of electricity support for new biogas installations.
• For investors the signal matters: a technology-neutral auction does not serve the development of biogas unless a separate basket is provided for it.

How to read the average premium

The value of €2.49/MWh is an average of the projects accepted in one competition, not a rate to which a biogas plant can be compared. The auction premium depends on the energy price on the wholesale market: the higher the market price, the lower the top-up needed. With electricity prices fluctuating in subsequent years, this value is not an indicator for future rounds, merely a description of the 2018 result.