Please activate JavaScript!
Please install Adobe Flash Player, click here for download

GSR 2015

90 04 POLICY LANDSCAPE SIDEBAR 6. COMPETITIVE BIDDING / TENDERING: TRENDS IN POLICY DESIGN Competitive bidding, or tendering, has been used to procure and incentivise renewable energy generation for decades, starting in North America and Europe in the 1980s and 1990s. In recent years, use of competitive bidding has spread to all regions of the world. A wide range of options exists for designing competitive bidding, relating to the requirements for participation, whether the bids are awarded based on price or other factors, how many winners there are, and what is actually awarded (e.g., a long-term incentive or the right to negotiate a long-term contract). These and other design options can result in dramatically different outcomes and results. Some of the largest competitive procurements in recent years have occurred in emerging economies (e.g., India, Russia, South Africa), with a heavy concentration of recent activity in Latin America. Argentina, Brazil, Chile, and Peru have awarded contractsforover13,000MWofcapacitythroughtenderingsince 2007, and Uruguay has used competitive bidding to increase its wind power capacity from 40 MW in 2012 to its target of 1 GW by 2015. In Central America, El Salvador, Guatemala, Honduras, and Panama each released bids for renewable energy in 2014. A noteworthy trend from recent tenders in Latin America and other regions is a sharp decrease in renewable energy contract prices, especially for solar PV. The recent solar PV tender in Brazil, for example, awarded contracts to 890 MW of capacity, with an average bid price of USD 0.087 per kWh. In Dubai, a tender for 100 MW of solar PV received bids as low as USD 0.06 per kWh in November 2014. Panama awarded contracts to 172 MW of solar PV with an average price of USD 0.088 per kWh, whereas wholesale spot market prices in Panama spiked above USD 0.30 per kWh in 2014. The recent low solar PV contract pricing in some countries has raised questions as to whether these prices are high enough to support viable projects. A key issue for policymakers to consider is how many of the recently awarded contracts worldwide will lead to projects that are built. Competitive bidding can place downward pressure on renewable energy prices. However, it also can result in high levels of contract failurei if pricing is unrealistically low due to speculative behaviour or inexperienced bidders. Careful design can help mitigate these risks. As competitive bidding continues to diffuse internationally, an important question is how bidding intersects with other policy frameworks. Since the early 2000s, there have been debates on the comparative merits of bidding and other policy types, such as feed-in tariffs (FITs) and short-term certificate trading. Tendering has replaced FITs as the primary renewable energy procurement mechanism in some countries (e.g., South Africa), whereas FITs have replaced tendering in others (e.g., China and Ireland). Increasingly, policymakers are deploying FITs and competitive bidding in combination. In some jurisdictions, bidding and FITs have been deployed in parallel to support different market segments. In France and Taiwan, FITs are used to support small- scale solar PV systems, whereas bidding is used to support large-scale systems. In Uganda, bidding is used to support solar PV, and FITs are used to support other resources. In other jurisdictions, elements of FIT and competitive bidding design are used in hybrid policies. Alternately, competitive bidding outcomes can be used to set FIT rates. These policy combinations have given policymakers greater flexibility, but they also may make it more difficult, going forward, to draw distinctions between policy types using the traditional labels. Source: See Endnote 27 for this section. i - Contract failure occurs when renewable energy projects are not built after they are awarded contracts. For example, competitive tenders in France, Ireland, and the United Kingdom resulted in contract failure rates of 68–78% in the 1990s. Renewable energy tendering—also referred to as public competitive bidding or auctioning—is being adopted by an increasing number of countries. As of early 2015, 60 countries had held both technology-neutral and single-technology renewable energy tenders. (p See Sidebar 6.) Countries such as Jordan, Russia, and Uganda used multi-technology tenders during 2014, while examples of countries holding single technology tenders include Argentina, Egypt, India, Morocco, and Rwanda. Other countries, such as Brazil and South Africa, held both single and multi-technology auctions.33 Specific multi-technology auctions include Jordan’s allocation of 12 solar PV and two wind projects in its first renewable energy tender, and Uganda’s third tendering round for hydro, biomass, and bagasse power project developers.34 Examples of single-technology auctions include Argentina, which launched a geothermal tender in early 2015; India, which used tendering to advance its solar PV sector at the national level, and where six states held solar PV tenders; and Rwanda, which held a solar PV auction.35 In North Africa, both Egypt and Morocco held wind actions.36 At the sub-national level, the Australian Capital Territory held a tender for large-scale wind power.37 Highlighting the growing shift towards tendering, Poland’s new renewable energy law, adopted in early 2015, established a new tendering system designed to replace the existing system of green certificate trading.38 Policymakers have begun to enact a number of revisions to existing tendering mechanisms in order to make their tendering schemes more attractive. In Europe, countries such as Denmark and France began implementing a dialogue with the private sector to foster close collaboration on the design of tenders.39 Elsewhere, policymakers have implemented new regulations governing the management of tenders. Brazil revised its tender

Pages Overview