Core Project: Renewable Energy Auctions
Improving the design and implementation of renewable energy auctions in Sub-Saharan Africa to accelerate investment in clean energy technologies.
Recent years have seen record levels of renewable electricity being procured and the lowest ever prices recorded for long-term renewable energy contracts, in many cases undercutting the costs for fossil-fuel based electricity generation. This trend in renewable energy investment and costs is in large part driven by the rise of auctions – interchangeably referred to as competitive tenders or bids – for long-term contracts between Independent Power Projects and off-takers, typically the national or local utility. Previously, feed-in tariffs were the most widespread renewables support mechanism, but delivered little investment in Sub-Saharan Africa. Auctions, although quite recent, have already delivered more investment in renewables at lower prices than any other procurement or contracting method for the region.
Running effective auctions requires good planning, procurement and contracting capacity, and can involve significant transaction costs. Auctions also risk attracting too little bidding interest, leading to higher prices; as well as delays in reaching financial close and construction. While these are important to consider, a well-designed and implemented programme can effectively mitigate these risks, and costs can be easily offset by the benefits of lower tariffs.
However, many African countries have struggled to successfully address the risks and costs involved, resulting in poor outcomes. There is an important need to learn from and distil current experiences with renewable energy auctions for the African context.
The specific objectives of the proposed EEG study are to:
Improve our understanding of renewable energy auction design choices, de-risking mechanisms, implementation modalities and associated outcomes in Sub-Saharan Africa.
Link research on renewable energy auctions in different world regions for the benefit of Sub-Saharan Africa and South Asia.
Adapt and apply a coherent analytical framework for renewable energy auctions across different market segments, allowing for comparison and identification of appropriate lessons.
Appropriately disseminate and build capacity on renewable energy auction design and implementation for Sub-Saharan Africa. We will aim to support 2-3 countries, but ultimately this will be determined by demand from the countries themselves.
With burgeoning urban populations and growing economies, Sub-Saharan Africa’s electricity needs are growing.