Renewable Energy Auctions

As the renewable energy sector matures, policies must be adapted to reflect changing market conditions. The falling cost of new technologies, the growing prevalence of variable renewables in the power system, and greater emphasis in policy toward economic, social and environmental objectives alter the conditions for new market entrants and new power generation projects. One important trend has been the increasing use of auctions, as policy makers seek to procure renewables-based electricity at the lowest price while fulfilling other objectives.

IRENA produced its first study on auctions in 2012. Renewable Energy Auctions in Developing Countries highlighted key lessons from countries that had implemented auctions, namely Brazil, China, Morocco, Peru and South Africa. Renewable Energy Auctions: A Guide to Design, published in 2015, advised policy makers on the implications of various approaches to designing auctions and has served as a basis for auction guidelines issued by development banks and related organisations, such as the European Bank for Reconstruction and Development and the Energy Community Secretariat (EBRD and EnCS, 2018).

Four years after its first report on the topic – and amid record-breaking low prices for solar and wind power resulting from auctions – IRENA published Renewable Energy Auctions: Analysing 2016, which analysed the factors behind the low prices, including aspects of auction design. In 2018, IRENA analysed auctions in South Africa, Uganda and Zambia in Renewable Energy Auctions: Cases from sub-Saharan Africa. Collectively, IRENA's studies have provided an invaluable reference for renewable energy auction design around the world.

In 2019, IRENA analysed auctions globally with a focus on market developments in 2017-2018 in the study Renewable Energy Auctions: Status and Trends Beyond Price. The focus of the study was how to design auctions to achieve objectives beyond price discovery. Auctions designed in innovative ways can help to achieve specific country goals, beyond solely procuring electricity at the lowest price. These goals might include integrating higher shares of variable renewable energy into the grid; ramping up solar and wind power, in particular; ensuring greater participation of communities or other new and small players; and maximising the socio-economic benefits of renewables. Alongside such diverse aims, ensuring timely project completion remains a paramount objective. IRENA’s studies on auctions have become the reference for designing auctions worldwide.

IRENA released its first country-specific auctions case study in 2021 with Renewable Energy Auctions in Japan: Context, Design and Results. The report found that many of the challenges that Japanese auctions have faced can be tackled through auction design elements that go beyond price reduction. These elements can focus on: smoother grid integration of renewables, ensuring timely project completion, and/or supporting a just and fair energy transition. The study also revealed that relatively high prices results do not necessarily tarnish an auction’s success. The report will be followed by a similar case study for Colombia.

    

Featured