Study shows that renewable energy auctions don't reduce costs any more than feed-in tariffs

A study just published in the International Journal of Sustainable Energy Planning and Management says that renewable energy auctions do not reduce costs of renewable energy projects any more than conventional feed-in tariffs.

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Renewable Energy Auctions and Tenders: How good are they?

David Toke

Abstract

This paper analyses the performance of two cases of renewable energy (RE) auction/tender systems in an effort to contribute to the evaluation of RE auction/tender systems and to study best practice in their delivery of RE projects. This is done by comparing regimes in different settings, one concerned with Danish offshore wind development, the other concerned with renewable energy development in South Africa. It is found that regulatory factors which promote certainty in deployment, including measures to ensure that projects achieve grid connection, are important in assuring delivery of the programmes. However cost reductions that are associated with renewable energy auctions are not caused mainly by the auction systems themselves, but rather are associated with general declines in the costs of renewable energy technologies. Moreover, the effect of renewable energy auctions systems may be more concerned with limiting renewable energy deployment rather than reducing the costs of energy generated by renewable energy projects that are deployed.

The article can be accessed free of charge at:

http://journals.aau.dk/index.php/sepm/article/view/1197

This is an important piece of work since it contradicts a lot of narratives spread by leading utilities and governments who are anxious to limit the spread of renewable energy. Despite the clear message from Paris that we need to expand renewable energy as rapidly as possible the means of promoting renewable energy now being chosen are much concerned with limiting its expansion. This is being done under the guise of allegedly making the schemes be implemented at a low as cost as possible through 'auctions'. Yet as this study suggests, this system does not reduce prices - that is being done by global technological mechanisms - but what governments want to do is to limit the renewable energy that is deployed, and the auction systems can do this because they cap the amounts of capacity that can be deployed. Big energy companies also like the system since they can dominate auctions more easily.

Another important message brought by the study is that the auction systems need to be designed to maximise certainty for and by developers. Otherwise the schemes who win contracts will not be implemented. This means guaranteeing grid connection conditions for developers and to guarantee that the schemes actually materialise (through a system of penalties for non-implementation of projects).