Auctions are now the leading procurement method globally for the supply of renewables-based power. While auctions to date have helped deliver competitively priced renewable power, they have often done so within a financial architecture that limits developing countries’ ability to develop sustainable renewable energy sectors and build resilient local industries. This typically entails sovereign guarantees from the host country government, power purchase agreements (PPAs) denominated in hard currency, award criteria based largely on the lowest bid price, and imported equipment and services, often with limited consideration for broader development goals such as local value creation. Under current norms, private actors bear minimal risk, typically backed by government guarantees, while developing countries largely shoulder the risks of depleting currency reserves and plunging deeper into debt distress.

This report discusses elements within IRENA’s framework for the design of auctions, highlighting the trade-offs to consider for balancing multiple objectives: securing low prices and achieving high project realisation rates, while limiting macroeconomic risks and debt burdens, and advancing broader development goals.

Auctions offer a potentially powerful way of securing renewable energy capacity at competitive prices as well as spurring local industry and improving local capacity, even in difficult investment contexts. As countries with varied experiences in implementing renewable energy auctions proceed with future rounds, auction design can further evolve to allow for contractual arrangements where risks are shared more equitably, and where objectives beyond price and project realisation are also prioritised.

Report by the International Renewable Energy Agency