Different Cost Perspectives for Renewable Energy Support: Assessment of Technology-neutral and Discriminatory Auctions

Abstract

Auctions are the prevalent instrument for promoting renewable energy sources worldwide, especially in the European Union and in Latin America. Auctions enable the controlled deployment of renewable energy sources while reducing costs. However, there are different views on relevant costs, auction targets, and their implications on the auction design. Here, the application of technology-neutral auctions is an essential topic of discussion. We show that technology-neutral auctions are not a panacea. We analyze two types of discriminatory design elements that improve the expected auction outcome with respect to specific auction targets. By applying theoretical concepts to auctions for renewable energy support, we highlight how discriminatory auctions can prevent windfall profits and how to include an overall economic perspective in the auction design. We illustrate our results with real-world examples.