Delays in the construction of power plants from electricity auctions in Brazil

Abstract

Brazil has a long-running experience with auctions as an instrument to procure electricity both from renewable and non-renewable sources. We build a database containing project-level information from auction rounds held in Brazil during the 2005–2017 period and employ multiple regression analyses to investigate the integrated effect of auction design elements, individual bids and project features on construction delays. We find that the schedule performance of wind power projects has been strongly improved with the introduction of a preliminary transmission capacity phase in auctions and when the risk of delays in the extension of the transmission grid was transferred to project developers. Projects contracted in auctions with longer lead times took more time to be completed but faced lower risk of project delays and penalties. Large scale plants were more prone to delays, while no significant difference was found between projects awarded in technology-specific or multi-technology auctions. Lower individual bids were not associated with longer delays, suggesting that apparently the Brazilian hybrid auction system was able to minimize the winner's curse. Our results add empirical evidence to the literature and may provide policy makers with new insights on how to design auctions to promote the expansion of renewable electricity supply.