Dr. David Jacobs gave a presentation on lessons learned from auction design for renewable electricity projects. He discussed key questions for policymakers to consider when designing auctions, including what is being auctioned and when, who can participate, how bids will be evaluated, what price determination mechanism will be used, what payments winners will receive, and how to ensure projects are actually built. He noted advantages like cost efficiency and investor security, but also disadvantages like high administrative costs and risk of underbidding. Dr. Jacobs concluded by discussing options for combining auctions with feed-in tariffs to support both large and small renewable energy projects.

1. Auctioning RE projects: Lessons
learned from auction design for
renewable electricity
Dr. David Jacobs
Managing Director
IET – International Energy Transition GmbH
Clean Energy Regulators Initiative Webinar Programme
Leonardo Energy
7 October 2015

2. IET – International Energy Transition
2
Dr. David Jacobs
o Founder and director of IET
o 10+ years experience in renewable energy policies
o 50+ publications on energy and climate
o PhD in renewable energy policies
o Lecturer on energy and climate issues at FU Berlin
o Focus on sustainable energy policy and
market design
o Consulting and presentations in 30+ countries
around the world
o Clients: IRENA, UNEP, BMWi, IEA-RETD, World
Bank, OSCE, Ka-Care, etc.

3. Solutions Center - Background and Vision
The Solutions Center:
 Is one of several CEM Initiatives, which include:
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 Has more than 35 partners, including IRENA, IEA,
IPEEC, Sustainable Energy for All, Bloomberg New
Energy Finance and Leonardo Energy
 Is co-chaired by the U.S. Department of Energy and
the Australian Department of Industry.
3
The Clean Energy Ministerial (CEM) launched
the Clean Energy Solutions Center in April
2011.
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5. RE Auctions world wide
• RE auctions: from 7 countries in 2005 to 60 countries in 2015
Source: IRENA 2015, REN21 2005, REN21 2015

6. Designing auctions:
Key questions for policymakers

7. Key questions when designing auctions
of RE
1. What is being auctioned and when? (Procurement schedule)
2. Who can participate in auctions? (Pre-qualifications)
3. On what basis are bid evaluated? (selection criteria)
4. What mechanisms is used for price determination? (Price-finding
mechanism)
5. What payment will winners receive? (payment modalities)
6. How can I assure that projects will actually get built? (Penalties for
none-compliance)
7

8. Procurement schedule:
What is being auctioned and when?

9. • Scale of auction (MW)?
• Technology neutral versus technology-specific auctions?
• Frequency of auction rounds?
• Upper or lower limit on project size?
• Upper or lower limit on prices?
Procurement schedule

10. Pre-qualifications:
Who can participate in auctions?

11. • Prequalification requirements for auctions – important for project
realization rate!
Pre-qualifications
Material pre-qualifications Financial pre-qualifications
Grid access and connection Bid bonds
Securitization of land Demonstrate financial strength
Contracts for equipment Project finance track-record
Permits

12. Selection criteria:
On what basis are bids evaluated?

13. • Lowest bids/prices
• Primary objective of auctions
• Lowest bids/prices plus X
• Additional selection criteria usually reflect additional
policy objectives:
• Job creation
• Local content
• Locational incentives
• Etc.
Selection criteria

14. Payment modalities:
What payment will winners receive?

15. • Pay-as-bid
• Minimize costs
• Take resource variations into account
• Marginal cost payment
• Same price for all winners (highest cost winner determines
price)
• Avoid “winner’s curse”
Payment modalities

16. Price-finding mechanism:
What mechanisms is used for price
determination?

17. • Sealed-bid auctions
• Simple design – ceiling price?
• Each bidder writes down a single bid which is not disclosed
to other bidders and the most competitive bidders win
(“pay as bid”).
• Decending-clock (Dutch auction)
• Multi-round bid
• Auctioner starts with a high price and then calls out successively
lower prices until quantity offered and quantity required match!
• Hybrid design
Price-finding mechanism

18. Descending Clock Auction Dynamics
Auction clearing price
Source: Author based on Maurer and Borroso 2011

19. Penalties for none-compliance:
How can I assure that projects will
actually get built?

20. • Penalties for failure to fulfil awarded contracts
• No (or only partial) payback of bid bonds or construction
bonds; Completion bonds
• Reduction of tariff payment levels/payment period
• Exclusion from next auction round
• Define maximum lead times
Penalities for none-compliance

21. Summary:
Advantages and disadvantages

22. Pros and cons of auction mechanisms
Advantages Disadvantages
Cost efficiency and price competition High administrative costs (complexity)
High investor security (PPA) Discontinuous market development
(stop-and-go cycles)
Volume and budget control risks of not winning project increases
finance costs
Predictability of RE-based electricity
supply (sector growth)
Risk of underbidding (lack of
deployment and target achievement)
Combination with other policy
objectives, e.g. local content, etc.
Exclusion of small-scale actors

23. Auctions and feed-in tariffs:
Mutually exclusive or
complementary?

24. • What is being auctioned?
• Frequently fixed price contracts (payments per kWh)!!
• In this case, the major difference between FITs and auctions is the
price-discovery mechanism:
• Administratively fixed prices (FITs)
• Price determination via competitive bidding (auctions)
Auctions versus FITs?

25. • Do you have experience in setting prices administratively?
• Is there sufficient interest in investing in renewables in your country
(competition in Least Developed Countries)?
• Is the market big enough to create competition (size of auction;
schedule for auctions)?
• Which type of actors should invest (small vs. big)?
Auctions or FITs: No easy answer…

26. • Move from FITs to auctions
• Use auctions to determine FIT prices
• Use auctions for emerging technologies and FITs for mature
technologies
• Use auctions for large projects and FITs for small projects
Combining FITs and auctions

27. • Specific auction design for smaller actors?
• Funds for the project development stage
• Lower prequalification criteria for small scale actors (bid
bonds)
• Use auction results to determine fixed prices for certain
investor groups?
Auctions design for small-scale actors

28. Further reading – combining support
mechanisms
28
• Next Generation of Renewable
Electricity Policy
o How rapid change is breaking
down conventional policy
categories
o http://www.nrel.gov/docs/fy15os
ti/63149.pdf

29. Further reading on auction design
29
• IRENA and CEM (2015), Renewable Energy Auctions – A Guide to Design
• GIZ (2015): Renewable energy auctions. Goal-oriented policy design.
• World Bank (2013), Promoting Renewable Energy through Auctions: The Case of China, Brazil,
South Africa
• del Río, P. and P. Linares (2014). "Back to the future? Rethinking auctions for renewable
electricity support." Renewable and Sustainable Energy Reviews 35(0): 42-56.
• PPIAF (2014), South Africa’s Renewable Energy IPP Procurement Program: Success Factors and
Lessons, May 2014. World Bank Group.
• Ecofys et al. (2015), Designing renewable energy tenders for Germany, Executive summary of
recommendations.
• Maurer, L. T. A. and L. A. Barroso (2011). Electricity auctions: An overview of efficient practices.
Washington, DC, World Bank, Energy Sector Management Assistance Program.

30. Dr. David Jacobs
Founder and Director
IET – International Energy Transition GmbH
Phone: +49 163 233 90 46
E-mail: jacobs@iet-consulting.com
Twitter: @InterEnerTrans
Thanks for your attention!