Renewable energy auctions
A growing number of countries are shifting towards renewable energy auctions for procurement of electricity generation capacity. Transparent, well-designed and implemented calls for tenders introduce competition in the markets, leading to remarkably low prices. The sharp reduction in the prices of renewable energy around the world, in many cases cheaper than conventional power, has been attributed to a large extent to the implementation of auctions. In 2018, 48 countries across the globe held auctions for renewable energy technologies.
Cheap solar electricity through auctions
Auctions are proving to be one of the most successful instruments in Africa. Ethiopia recently concluded auctions for solar power projects of 250 MW capacity and realised the lowest bid of $0.02526-per-kWh. This rate is not only the lowest price for solar in Africa but also among the lowest in the world. These low prices were enabled by a carefully designed investment framework implemented by the government of Ethiopia and World Bank under the Scaling Solar programme. The Scaling Solar programme is designed to be the "one stop shop" for a suite of World Bank Group's services that will help increase private participation in countries with nascent renewable energy markets. Under the programme, technical support, document templates, pre-approved financing, insurance products and guarantees are offered to the national governments to implement large scale renewable energy projects at low costs. Other countries participating in this programme are Senegal, Zambia, Madagascar. Ethiopia’s state-owned power utility Ethiopian Electric Power (EEP) signed an agreement with the International Finance Corporation (World Bank Group) to advise on phase wise scaling of solar power. As part of this agreement, the technical, financial, and social feasibility, as well as the design of the auctions, were carried out by IFC. The financing proposal, payment guarantee and insurance details were made part of the tenders to reduce the risk exposure to the potential bidders. This played a significant role in attracting 12 bidders. The project was awarded to ACWA Power, one of the largest developers of power projects based in Saudi Arabia. Ethiopia has now announced a second round of auctions for a capacity of 750 MW.
Solar auction with record low prices
Portugal’s second solar auctions, concluded in September 2020, led to the realisation of one of the lowest solar electricity prices of $0.01316/kWh, at least $0.0001/kWh less than the previous world record in Abu Dhabi. More importantly, Portugal showed us the way to strategically design solar auctions in a way that could optimise grid stability and promote flexibility, often considered the biggest hurdles for the integration of large-scale renewable energy projects. Portugal invited bids for three different types of auction designs. 1) Standard price, relative to the standard market prices, is offered to the bidders; 2) Solar plus storage option, where bidders offer discount over the premium offered by the government for stable power and grid connection; Bidders can also sell the electricity generated from storage system to general market; 3) System compensation is offered by the bidders for accessing grid connection and selling electricity to open market.