The new Energy and Environment State Aid Guidelines of the European Commission require as of 2017 that support for renewable energy projects generally be awarded in a competitive bidding process. Exceptions to this rule are allowed only for small-scale projects, if too few bidders would be eligible, if support levels would increase or if project realisation rates would decrease. In economic theory, calls for tenders, or auctions, are an efficient tool for determining prices.
However, the literature draws attention to various prerequisites for a successful tendering process: sufficient competition must be assured, for example, through a sufficient number of bidders as well as by involving small market actors.
Since the tendering process brings about additional risks for project developers, the auction design needs to address these risks or else costs may increase significantly. In addition, experience in other countries shows that a significant number of awarded projects may not be realised.
Carefully assessing the available options for auction design is thus a central precondition for the cost-efficient expansion of renewable energy. As an increasing number of European Union Member States are considering the implementation of auctions for renewable energy, Agora Energiewende recently invited a group of academics to examine the key conditions for efficient tendering procedures and to reflect on international experience in this area.
This paper is the product of this effort. It highlights the most important auction-design features, and identifies critical issues requiring further assessment.
