Lithuania: first technology-neutral premium auction, biogas alongside wind and solar

In 2019 Lithuania changed the way it supports renewable energy: instead of separate tariffs for each technology it introduced a joint auction in which solar and wind power plants and biogas and biomass installations compete for a premium on top of the market price. For new biogas installations seeking support this means the end of a fixed, administratively set rate (installations already supported keep the conditions granted) and the need to bid a price in competition with cheaper technologies.

How the first round worked

The auction was launched on 2 September 2019, and bids were accepted until 25 November 2019. According to ICIS, the design differed from earlier Lithuanian competitions in two respects: it was technology-neutral and it awarded a market premium (feed-in premium), not a fixed tariff (feed-in tariff). The generator sells energy on the market, and the state tops up the bid premium on top of the market price.

In the first round 300 GWh per year was available for allocation. The bid ceiling was set at a market premium of €48.93/MWh. The ceiling works as a safeguard for the budget: a bid above the cap does not win regardless of the investor's costs.

A zero premium as a signal

The TaiyangNews service reported on 25 December 2019 that at least three bidders (not named) submitted a premium of €0/MWh. This means a willingness to earn solely from selling energy at the market price, with a guarantee included in a 12-year contract. Revised bids were due by 30 December 2019, with a lower bound of €0/MWh, and the winners were announced for January 2020. The government declared up to €146 million of support spread over 12 years for the winners under the renewable energy act.

For biogas plants the conclusion is cautious. A zero bid is usually submitted by projects with low unit costs, in practice most often photovoltaics and wind. An agricultural biogas plant has fuel (substrate) and operating costs, so it needs a higher premium, but it benefits from producing energy in a dispatchable way and being able to deliver it also when prices are higher. What earnings this brings in practice will be decided by market prices, not by the auction itself.

Further rounds

A schedule was announced for the following years: - 29 May 2020 — 700 GWh, - 6 April 2021 — 700 GWh, - 19 April 2022 — 700 GWh.

The unused pool from the first round was to be carried over to later rounds. For investors this means a predictable calendar, but also the need to prepare permits and a grid connection before the auction date is announced.

What this means for Polish projects

The solution is similar to the Polish auction system, in which biogas and biomass compete for a fixed price in separate baskets (see the renewable energy auction of December 2019). The difference is that Lithuania has no basket for biogas: the lowest premium wins regardless of the source.