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Auction Design: Winner Selection Process Accelerating the Transition to Clean Energy Technologies RENEWABLE ENERGY AUCTIONS: A GUIDE TO DESIGN5 AUCTION DESIGN: WINNER SELECTION PROCESS Copyright Unless otherwise indicated, material in this publication may be used freely, shared or reprinted, but acknowledgement is requested. This publication should be cited as: IRENA and CEM (2015), Renewable Energy Auctions – A Guide to Design. About IRENA The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that supports countries in their transition to a sustainable energy future, and serves as the principal platform for international co-operation, a centre of excellence, and a repository of policy, technology, resource and financial knowledge on renewable energy. IRENA promotes the widespread adoption and sustainable use of all forms of renewable energy, including bioenergy, geothermal, hydropower, ocean, solar and wind energy, in the pursuit of sustainable development, energy access, energy security and low-carbon economic growth and prosperity. www.irena.org About CEM The Clean Energy Ministerial (CEM) is a high-level global forum to promote policies and programs that advance clean energy technology, to share lessons learned and best practices, and to encourage the transition to a global clean energy economy. Initiatives are based on areas of common interest among participating governments and other stakeholders. Acknowledgements ‘Renewable Energy Auctions: A Guide to Design’ is a project of IRENA and the Multilateral Solar and Wind Working Group, an initiative of the CEM led by Denmark, Germany and Spain. Authors: Luiz Augusto Barroso, with input from Rafael Ferreira, Gabriel Cunha, Arina Anisie and João Pedro Bastos. Contributing authors: Rabia Ferroukhi, Diala Hawila, Salvatore Vinci and Divyam Nagpal (IRENA). Reviewers: Henning Wuester, Alvaro Lopez-Peña, Arslan Khalid, Elizabeth Press and Paul Komor (IRENA), Gauri Singh (Government of Madhya Pradesh, India), Luiz Maurer (International Finance Corporation), Pedro Linares (Comillas Pontifical University), the Federal Ministry for Economic Affairs and Energy of Germany (BMWi), the Ministry of Climate, Energy and Building of Denmark, the Spanish Institute for the Diversification and Saving of Energy (IDAE), and the US National Renewable Energy Laboratory (NREL). For further information or to provide feedback, please contact IRENA’s Policy Unit, P.O. Box 236, Abu Dhabi, United Arab Emirates; Email: [email protected]. This guidebook comprises of six chapters and can be downloaded from www.irena.org/ Publications. Disclaimer While this publication promotes the adoption and use of renewable energy, IRENA and the CEM do not endorse any particular project, product or service provider. The designations employed and the presentation of materials herein do not imply the expression of any opinion whatsoever on the part of the International Renewable Energy Agency (IRENA) or the Clean Energy Ministerial (CEM) concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. 2015 AUCTION DESIGN: WINNER SELECTION PROCESS 2015 Contents 5 AUCTION DESIGN: WINNER SELECTION PROCESS 5.1 BIDDING PROCEDURE ������������������������������������������������������������������������������� 11 Sealed-bid process . .12 Iterative process �����������������������������������������������������������������������������������������������12 Hybrid process . .13 Main findings ����������������������������������������������������������������������������������������������������� 17 5.2 REQUIREMENTS OF MINIMAL COMPETITION . 17 Maximum awarded capacity constraints . 18 Ceiling price mechanisms ������������������������������������������������������������������������������� 18 Other mechanisms to promote competition ���������������������������������������������22 Main findings ����������������������������������������������������������������������������������������������������� 24 5.3 WINNER SELECTION CRITERIA . 25 Minimum-price auctions ��������������������������������������������������������������������������������� 25 Adjusted minimum-price auctions ��������������������������������������������������������������� 25 Multi-criteria auctions ������������������������������������������������������������������������������������� 28 Main findings ����������������������������������������������������������������������������������������������������� 33 5.4 CLEARING MECHANISM AND MARGINAL BIDS ���������������������������������������������34 Demand-side flexibility �����������������������������������������������������������������������������������34 Supply-side flexibility . 35 Ex-post adjustments ��������������������������������������������������������������������������������������� 35 Main findings ����������������������������������������������������������������������������������������������������� 36 5.5 PAYMENT TO THE AUCTION WINNER ����������������������������������������������������������� 37 Pay-as-bid pricing . 37 Marginal pricing schemes �������������������������������������������������������������������������������38 Nonstandard pricing schemes . .38 Main findings �����������������������������������������������������������������������������������������������������40 REFERENCES ������������������������������������������������������������������������������������������������������������������� 41 Figures Figure 5.1 Overview of the design elements in the winner selection process . .11 Figure 5.2 Price differences between the Brazilian auction phases . .15 Figure 5.3 Bids for PV projects in India ��������������������������������������������������������������������������� 20 Figure 5.4 Evolution of the prices in the REIPPP rounds . 21 Figure 5.5 Example of the wind generation profile, the spot price and the contract price ������������������������������������������������������������������������������������� 26 Figure 5.6 The impact of national component participation on the comparative price ��������������������������������������������������������������������������������������������� 27 Figure 5.7 Overview of the results from recent auctions in India ����������������������������� 39 Boxes Box 5.1 Experience with hybrid auctions in Brazil . 14 Box 5.2 Price reduction through hybrid auctions in Brazil . .15 Box 5.3 Prevention of collusive behavior ������������������������������������������������������������������� 16 Box 5.4 Experience with disclosure of ceiling prices in India . 20 Box 5.5 Experience with disclosure of ceiling prices in South Africa ����������������� 21 Box 5.6 California’s RAM programme ������������������������������������������������������������������������� 23 Box 5.7 Factoring in renewable production complementarity in the auction price in Brazil ������������������������������������������������������������������������������� 26 Box 5.8 Comparative price in Uruguay’s auctions ��������������������������������������������������� 27 Box 5.9 Compund winner selection process in South Africa . 29 Box 5.10 The compound winner selection criteria in France . 30 Box 5.11 China’s multi-criteria auctions with an “average-price” criterion ��������� 31 Box 5.12 Non-price competition in Uganda’s small power producer auctions . 32 Box 5.13 Ex-post adjustments on demanded quantity in the project-specific auction in Dubai . 36 Box 5.14 Lowest bid contract pricing scheme in India ��������������������������������������������� 39 Tables Table 5.1 Prices in the first and second phase of Brazilian auctions . 14 Table 5.2 Summary comparison of the bidding process options . 17 Table 5.3 Winning projects versus qualified projects in results of California’s RAM programme ������������������������������������������������������������������������� 23 Table 5.4 Summary comparison of options to ensure competition ��������������������� 24 Table 5.5 Correction factors applied in A-5 Auction in 2014 in Brazil ������������������� 26 Table 5.6 Comparison of the winning projects in Uruguay . 27 Table 5.7 Socio-economic benefits criteria in South African auctions . 29 Table 5.8 GET FiT premiums in Uganda . 32 Table 5.9 Summary comparison of winner selection criteria options ������������������� 33 Table 5.10 Summary comparison of clearing mechanism options ������������������������� 37 Table 5.11 Summary comparison of winner remuneration options �������������������������40 6| RENEWABLE ENERGY AUCTIONS - CHAPTER 5 Glossary The following definitions reflect the nomenclature used by the International Renewable Energy Agency (IRENA) and are strictly related to the renewable energy industry; definitions used by other organisations and publications may vary. Auction :Auctions refer to competitive bidding procure mentprocesses for electricity from renewable energy or where renewable energy technolo gies are eligible. The auctioned product can be either capacity (MW) or energy (MWh). Auction demand bands: Different categories within the total demand of an auction that require specific qualification requirements for submitting the bid (e.g. demand bands dedicated to specific technologies, project sizes, etc.). Auctioned volume: The quantity of installed capacity ( e.g. MW) or electricity generation (e.g. MWh) that the auctioneer is aiming to contract through the auction. Auctioneer: The entity that is responsible for setting up the auction, receiving and ranking the bids. Bid: A bidder’s offer for the product awarded in the auction – most usually a power purchase agreement for the
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