Auctions, as a market-based and competitive mechanism, are on the verge of becoming a predominant feature in support policies for renewable energy in Europe. They have a great potential to significantly improve the performance of the European renewable electricity support, and many national renewable energy policies will within the nearest future require a reform to ensure the development. This webinar presents the main findings of AURES project, notably the proposals for improving the current support policies for electricity from renewable energy sources through competitive market measures, with a special focus on cost-efficiency.

1. Renewable Energy Auctions in the EU
Final conference of the AURES Project
1
Webinar 29 November 2017
Lena Kitzing, DTU
David Mora, DTU

2. SHORTLY ABOUT THE PROJECT
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AUctions for Renewable Energy Support

3. Background for AURES
The new EC State Aid Guidelines1
 Competitive bidding processes gradually replace existing renewable
support schemes from 2015 onwards
 Auctions (also called tenders) as support to all new installations from
Jan 2017 (with only very few exceptions)
AURES GOAL:
 Auction types and designs specifically applicable for RES-E
 Effects of design options under different market conditions
 Lessons learnt and best practices for implementing auctions in Europe
1Guidelines on State aid for environmental
protection and energy 2014-2020, C(2014)23223

4. AURES: Who we are
 A coordination and support action under the EU Horizon2020
programme
 January 2015 to December 2017
 Eight partners from seven EU countries
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5. A typical RES-E auction
 Procurement auction
 A government agency issues
a call for tenders to install a
certain capacity / deliver
energy volume
 Project developers submit
sealed bids
 Long-term agreements1 are
made with successful bidders
5
1 either direct power purchase agreements or concessions for support payments
Source: Ecofys, 2014

6. Benefits and challenges of auctions
6
Potential benefits of auctions
 Price competition among bidders
 Support levels determined by
market
 Volume and budget control
Potential challenges of auctions
 Low realisation rates
 Higher risks for bidders favour
bigger players, increase costs
 Strategic bidding could conceal
true costs

7. AURES project at a glance
AURES combines
 Target-oriented analysis
empirical analysis
interviews with stakeholders
lessons from other industries
auction experiments
simulations in energy models
 Capacity building activities
workshops
webinars
case cooperations
bi- and multilateral meetings
interactive website
…find more information on:
auresproject.eu
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8. Framing and conceptual aspects
 auction specific design elements, assessment criteria, effects on system,
market and bidder level, known auction issues, and their interrelations
 Foundation, common language and understanding for the further analysis
Download reports here:
Design elements
Assessment criteria
Note on interrelations
8

9. Successful RES-E Auctions
AUCTION
Effectiveness
Static efficiency
Dynamic efficiency
Support costs
Local impacts
Socio-political
feasibility
Legal feasibility
To measure the success in the choice of design elements
9

10. Suitable formats and design elements
GENERAL AUCTION DESIGN ELEMENTS RES-SPECIFIC AUCTION DESIGN ELEMENTS
Selection criteria
Price-only
Multi-criteria (tenders)
Scope
Auction volume
Periodicity (number and frequency of rounds)
Target achievement safeguards (dealing with amounts not awarded/built)
Penalties
Penalising non-compliance
Penalising delays
Other
Seller concentration rules
Information provision
Web-based vs. in-person
Secondary market
Diversity
Technological diversity
Size diversity
Geographical diversity
Actor diversity
Other diversity types
Prequalification criteria
Technical requirements
Documentation requirements
Preliminary licences
Deposits and other guarantees
Financial capability requirements
Experience
Support
Remuneration type (energy or capacity-related)
Duration of contract
Updating of remuneration over time
Other
Local content rules
Deadlines and grace periods
Auction format
Single-item
Multi-item (homogenous or heterogeneous)
Auction type
Sealed-bid (static auctions)
Descending clock (dynamic auctions)
Hybrid designs
Pricing rule
Pay-as-bid (in single-item auctions: first price)
Vickrey (in single-item auctions: second price)
Uniform price
Price limits
Price ceilings
Minimum prices
Read descriptions here
10

11. RES auction design elements (selected)
What is auctioned? - Technology-specific / neutral
- Output-based / investment grants
- Sliding / fixed premiums
- Support duration, adjustments,…
How much is auctioned? - Single-item / multiple items
- Volume (capacities / budget)
How should the winners be selected? - Price-only
- Multiple criteria
How should the price be determined? - Pay-as-bid
- Uniform / pay-as-cleared
Should there be special bidding rules? - Price caps / floors
- Quotas for diversity
Should there be safeguards? - Pre-qualification rules
- Penalties (non-compliance/delays)
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12. Assessment of auction types for RES
 Theoretical framework: Independent private value model or
interdependent value model
 Chances and risks
 Level of competition
 Uncertainties
 Transparency
 Asymmetric beliefs
 Repeated conduction
 Default risks
 Experiences from other industries
 Industrial procurement
 Telecommuniation licenses
 Refinancing operations
 Oil and gas leases
Download report here
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13. AURES has analysed past implementations in
Eight non-European countries
12 European countries
Empirical auction analysis
All reports can be downloaded at www.auresproject.eu/publications
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14. Model based analysis
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Cash flow model
 Analyse changes in private investment
incentives of different auction designs
 Quantify on-strategic bid prices and
expected support levels
 Tool for policy makers in assessing
different auction designs, e.g. in
impact assessments.
 Link project specific costs to observed
bid prices and evaluate auction
outcomes on a quantitative basis.

15. Model based analysis
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Large Energy System Model
 Analysing impact of different auction
designs on energy systems
 Agent based model, taking into
account strategic incentives for bidders
 Application: influence of financial and
physical prequalification and penalties
on non-realisation risk
 Case: UK CfD auction scheme
 higher likelihood of strategic bidder
behaviour if no penalties and/or
pre-qualification WITHOUT lower
price outomes

16. Auction experiments
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 Testing theoretical bidder behaviour
in laboratory experiments, e.g.
 8 sessions with 12 subjects, cohorts of 6
 4 sessions for each pricing rule
 Binding and non-binding treatments
alternate each 10 periods
 Strategic incentives for bidders to
exaggerate supply, bid more or less
aggressive
 Increased inefficiencies observed in
certain auction designs

17. Auction implementation cases
• Cooperation with policy makers
on ongoing and future auction
implementations
• 4 cases
• 5-7 meetings per case
• 4 regional workshops
• policy making support
• joint analysis on pressing issues
• knowledge generation about
processes
17

18. Policy support toolbox
Online tool for RES auction design: www.auresproejct.eu/auctiondesigner
AURES Auction Designer
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19. Alternatives to auctions
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 Although price reductions induced by recent
auctions are welcome, low price isn’t
everything
 Other policy goals like actor and technology
diversity can be challenged
 Auctions may not deliver the needed capacity
at lowest cost in certain circumstances
 Hybrids (auction in conjunction with other
instruments) can be used to aid transition
 impact on auction bidders’ incentives
 Transitions are smoothest when they
 are planned and orderly
 have a clearly articulated trajectory
 sunk costs are handled appropriately

20. KEY RESULTS
20

21. Technology focus
Cap
Frequency
Auction format
Evaluation
Pricing rule
0 2 4 6 8 10 12
Other pricing method
Varying pricing method
Uniform
Pay-as-bid
Multi-criteria
Single criteria (price-only)
Hybrid
Dynamic
Static
More than 1 per year
1 per year
Less than 1 per year
Budget cap
Volume cap
Multi-technology
Technology specific
No. of countries
Design choices made by countries
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22. 0 2 4 6 8 10 12
> 2 years
1-2 years
< 1 year
No
Yes - for delay
Yes - for non-compliance
Yes - for withdrawel of bid
Other
Experience
Project development stage
Financial
No ceiling price
Ceiling priceBid caps
Pre-qualification
Penalties
Realisation Period
No. of countries
Design choices made by countries
22

23. Lessons learnt…Examples
High delay
penalties
Offshore wind auction, Anholt (2009/10)
Strict
schedule
Opportunities
abroad
Only one bid
submitted
Onshore wind and biomass auction (2016)
Uniform
pricing
No auction
schedule
Many
projects in
pipeline
zero support
outcome
AER III auction, mainly onshore wind (1997/98)
No pre-qualification on
planning permissions
Difficulties obtaining
permission
Low realisation
rates
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24. RECENT AUCTION RESULTS
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A word of caution: Auction outcomes of different countries are not
easily compared. Here, we only show the actual results - we have
not adjusted for differences in market situation, support design…

25. Low bids in recent renewables auctions in
Europe have made the news
Source: Bloomberg 2017
Source: Greentech Media 2017
25

26. Overall auction outcomes for solar PV
have decreased substantially
• Support period: 20 years in FR and DE, 15 years in NL
Source:EcofysbasedonAUREScasestudies,DFBE,BNetzAandStaatscourant
Auction date
22,9
21,8
22,0
19,4
20,0
16,8
16,5
15,3
13,9 13,5
13,1
15,8
12,9
10,7
10,7
8,2
6,4
5,6
9,2
8,5 8,0
7,4
7,2
6,9
6,6
5,7 4,9
6,9
11,6
14,3
8,8
10,3
11,1
0,0
5,0
10,0
15,0
20,0
25,0
2012 2013 2014 2015 2016 2017 2018
€cent/kWh
FR - rooftop PV 110-250
kW (old)
FR - rooftop PV 250 kW -
3.5 MW (old)
FR - rooftop PV 100 kW -
8 MW (new)
FR - PV 500 kW-12 MW
(old)
FR - PV 0.5-17 MW (new)
DE- PV (technology
specific)
NL - PV (technology-
neutral)
26

27. Onshore wind results by auction date…
Source:EcofysbasedonAUREScasestudiesandStaatscourant
11,8
11,1
8,7
6,7
9,6
8,4
10,4
11,2
9,5
8,7
8,2
7,4
5,7
4,3
2
4
6
8
10
12
2012 2013 2014 2015 2016 2017 2018
€cent/kWh
IT - onshore
UK - onshore
NL - onshore -
average
(technology
neutral)
DE- onshore
Auction date
Support period: 25 years in IT, 20 years in DE, 15 yeras in NL and UK
27

28. 0
50
100
150
200
250
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
AuctionresultinEUR/MWh
commissioining date
Auction outcomes for offshore wind in Europe
Technology innovation and high competition
have led to decreasing offshore prices
Source Ecofys representation based on Kitzing and Wenndring 2016, Prognos & Fichtner 2017
*
* 2012 real prices corrected for inflation
Support period: up to 20 years in DK, 15 years in UK, 15 years in NL, 20 years in DE
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29. Lessons learnt from European auction results
 Competition in auctions contributed to a decrease in prices
for all technologies. Securing market access further
incentivized aggressive bidding for offshore. Questions
about future viability and realization.
 In case of limited competition (mainly for low cost options in
technology neutral auctions), auction prices increased
despite falling technology costs
 Consider differences in support framework (e.g. market
premium and connection responsibility) and auction design
(e.g. penalties and delivery periods) when comparing prices
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Webinar: Explaining recent renewable energy auction outcomes in Europe
12 December 2017 @ 15:00 CET

30. CONCLUSIONS
30

31. Conclusions
 Competition is a crucial requirement for an efficient
price formation
 Balancing of pre-qualifications and penalties helps to
achieve seriousness of bids
 Many design options affect both competition level and
ability to realise project – policy makers need to
balance their success criteria
 Most EU countries aim at lowest possible support cost,
resulting in preference for Pay-as-bid pricing rule
31

32. Conclusions
No one-size-fits-all
 Design needs to match the market environment
 Design flexibility for development and changes
Good practices
 Binding bids, clear and simple selection criteria
 Transparent and continuous auction schedule
 Implement participation enhancing measures
 Implement both pre-qualification criteria and penalties
 Implement ceiling prices
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33. More results and concrete
recommendations can be found here…
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Framing and conceptual aspects
Overview of Design Elements for RES-E Auctions
Assessment Criteria for RES-E Auctions
Links Between Assessment of Design Elements
Auction design aspects
Assessment of Auction Types
Suitable for RES-E
Winner’s Curse in Discriminatory
and Uniform Price Auctions
Empirical aspects of auctions
Synthesis report
EU country studies: Denmark, France, Germany,
Ireland, Italy, Netherlands, Portugal, UK
Non-EU country studies: Brazil, China, South Africa,
USA (California), Peru, Mexico, Chile, Zambia
Model-based analysis
Cash flow analysis of past RES auctions in
Germany, Spain and Denmark
Modelling of Renewable Energy Auctions:
Game theoretic & Energy system Modelling
Auctions and alternatives
Identification of alternative policy
options to auctions
Comparison of auctions and
alternative policy options
Hybrids and Transitions
Future implementations
Introduction to the Case Studies
EU country studies: Croatia, Poland,
Slovakia, Spain, Netherlands/Denmark
Policy cooperation cases: information
on request
Policy support toolbox
AURES Auction Designer
Cash Flow Model
AURES Auction Academy
Recommendations
Recommendations on the role of auctions in REDII
Policy Memo 1: Secondary objectives in auctions
Policy Memo 2: Pre-qualifications and penalties
Policy Memo 3: Award types and auction outcomes
Policy Memo 4: Competition in auctions
Media
News / Blog Articles
Newsletter archive
Twitter

34. THANK YOU!
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www.auresproject.eu
David Mora
Postdoc Researcher
damor@dtu.dk
+45 46 77 51 79
Lena Kitzing
Researcher
lkit@dtu.dk
+45 24 65 90 64

35. AUCTION DESIGNER
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36. AURES Auction Designer
auresproject.eu/auctiondesigner
 Free interactive online tool
 Target group: policy makers, RES industry, other
RES stakeholders
 Based on findings of AURES project
AURES Auction Designer illustrates main design
choices, trade-offs, best practices and pitfalls
36

37. 37

38. 38
600/10= 60
Set the auction volume slightly higher to account for
non-realisation
-> your supply
Must be sufficiently high -> Competition is crucial!
When in doubt, decrease demand. Set ceiling prices.

39. 39

40. Alternating question-feedback pages tell user about
Auction Format (multi- vs. single-item)
Bidder structure and auction type (dynamic vs. static)
Pricing rules
Payment types (FIT, FIP,…)
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41. 41

42. 42

43. 43

44. 44

45. Thank you!
Communication and web:
Michael Minter
Head of Secretariat
Kattesundet 4, 3rd floor
DK-1458 København K
mm@concito.dk
+ 45 26 16 64 14
Project coordination:
David Mora
Postdoc Researcher
Produktionstorvet 426
DK-2800 Kgs. Lyngby
damor@dtu.dk
+45 46 77 51 79
Poul Erik Morthorst
Professor, Head of Section
Produktionstorvet 426
DK-2800 Kgs. Lyngby
pemo@dtu.dk
+45 46 77 51 06
Visit our website:
www.auresproject.eu
Follow AURES on Twitter
@AURESproject