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The EU has set itself the goal of becoming a fully sustainable, low-carbon economy by 2050. The on-going development of renewable energy and transition towards greater reliance on clean technologies for the production of electricity is a key element of the strategy to achieve this.
Traditionally, government support has essentially been provided through feed-in tariffs, guaranteed prices for the production of power from renewable energy sources. However, now that the renewable energy market is more mature and can benefit from established technology and processes, it is necessary to introduce a greater element of competition to ensure that clean electricity is also provided at the best price for the consumer.
One way of doing this is through renewable energy support (RES) auctions at which renewable energy companies compete for government contracts, which are then awarded to the bidder offering the best price. Since January 2017, EU countries are obligated to use competitive auction to grant renewable energy support for new installations.
The EU-funded AURES project, which has recently ended, has helped governments to ensure that such auctions function in the way intended, which is to enhance the competitiveness of the sector while continuing to support the expansion of renewable energy.
“AURES has undoubtedly, whether directly or indirectly, provided important input into the design of successful auctions in Europe,” says daily project coordinator David Mora of the Technical University of Denmark. “These auctions have resulted in awarding new renewable energy contracts at lower prices for consumers and taxpayers.”
Policy innovation supporting technological innovation
Among the objectives of the AURES project was to provide tailor-made policy support in the implementation of such auctions.
“In order to fully realise the potential of renewable energy, we need policy as well as technological innovation,” says Mora. “The success of the policy shift towards competitive auctions will depend, to a significant extent, on the nitty-gritty auction design details.”
Factors that need to be taken into account include the possible need for auctions to be sector-specific so as to allow for the optimal development of different technologies, and entry criteria to ensure bidders are able to actually deliver.
Penalties for not achieving project realisation due to underbidding and the protection of smaller, community-based energy producers also have to be considered. These factors all depend on the specific policy goals of the authorities designing the auction.
AURES also aimed to generate new insights on the applicability of auctions for renewable support, as well as on specific auction designs. In addition, it promoted stakeholder interactions.
“We have applied a theoretical and empirical approach to analyse market conditions, design elements, and implementation procedures,” says Mora. “In addition, we evaluated different auction designs and alternatives, identified best practices, and we have facilitated knowledge sharing through our dissemination activities.”
Free online resources
As well as organising regular workshops and working closely with government and energy agencies on request, the AURES project has produced a number of resources that are freely available on the project website.
These include numerous reports and publications, the AURES Academy that offers a selection of training webinars and the AURES Auction Designer, an interactive online tool developed mainly for policymakers. Through a step-by-step process, it illustrates main auction design choices, trade-offs, best practices and pitfalls.