Promoting technological diversity: How renewable energy auction designs influence policy outcomes

Abstract

The power sector’s transition from fossil fuels to renewable energy is crucial for mitigating climate change. To accelerate this transition, many governments have implemented renewable energy auctions that bank on rapidly falling renewable energy prices. Recently, auction designs have become increasingly “technology-neutral”, meaning that projects based on different technologies, such as solar photovoltaics and wind, compete for the same auction award. Yet, innovation literature suggests that technology-neutral designs may undermine technology diversity—an important element to ensure the security of supply. In a first step, this paper analyses how renewable energy auction design features influence auction outcomes based on a comprehensive and systematic literature review. In a second step, this paper focuses on technology diversity as one important auction outcome. More specifically, it uses a simple levelized cost of electricity model to quantitatively analyse the influence of three selected design features on the cost competitiveness of two technologies, solar photovoltaics and onshore wind. This study shows that the influence of design features on auction outcomes takes various shapes. The findings also suggest that technology-neutral auction designs may affect the cost competitiveness of different technologies in different ways and thus indeed undermine technology diversity. Thus, policymakers need to be aware of potential trade-offs between policy outcomes when designing renewable energy auctions.