Stand-alone renewable energy auctions: The case of Peru

Abstract

Electrification policies are crucial to improve the welfare of rural populations worldwide. In this context, auctions for the deployment of stand-alone solar home systems (SASHS) are an appropriate alternative to facilitate access to electricity in rural areas. The aim of this paper is to analyze the design elements and functioning of the SASHS auction in Peru in order to derive lessons for the effective and efficient design of those auctions. Based on an analytical framework developed elsewhere, this article draws on official documents and data, secondary material and interviews with stakeholders. Our results show that some design elements are particularly suitable in this regard. In contrast to renewable electricity auctions in general, for which the volume auctioned is usually set as capacity (MW) or generation (MWh), the volume of SASHS auctions should be set in terms of the number of SASHS providing an electricity service. Geographical diversity, with different auctions per region, would ensure the adoption of a minimum amount of SASHS in a given geographical area. Financial solvency, but not technical reputation, should be required. Otherwise, only the incumbents would be able to participate in the auction. The choice of technology-specific, price-only, sealed-bid, single-item auctions brings benefits in terms of economies of scale, lower support or transaction costs and a greater transparency or simplicity. A correction factor on the remuneration which accounts for the quality of the service, as applied in the Peru auction, is suitable for this type of auctions. Finally, provision of technical information, which facilitates the participation in the auction, and the implementation of a non-disclosed ceiling price are deemed appropriate. In contrast, given the low presence of local companies in the Peruvian PV market, the adoption of local content requirements would lead to higher support costs without significantly increasing the local development potential.