The impact of competition, trust and capital on renewable energy auction outcomes in sub-Saharan Africa: Analysing auctions in South Africa, Zambia and Namibia

Abstract

Africa is short of power, despite having abundant renewable energy resources. Over the past decade, renewable energy auctions have emerged as an effective mechanism to competitively procure utility-scale private power projects. This paper identifies the elements contributing to efficient price and effective project realisation outcomes through comparative case studies in South Africa, Zambia and Namibia. The analysis combined existing literature and theory on those elements that contribute to success in Independent Power Projects (IPPs), with that on renewable energy auction design and implementation. The application of an integrated analytical framework shows that the introduction of renewable energy auctions in Africa provides an essential programmatic element which connects existing country and project level factors and is crucial in achieving superior project realisation and price outcomes, compared to projects procured through direct negotiation or feed-in tariffs.Auction price outcomes are mainly determined by factors that act as auction signals, barriers and incentives primarily geared towards increasing competition in the procurement process and lowering projects' cost of capital. The case studies also show that project realisation is determined by bidder quality, project preparation levels, investor commitment, constraints (revenue stream and political economy) and post-award support. These are influenced by factors from all three levels – country, project and programme – that act as auction signals, barriers, incentives and support measures. Factors influencing bidders’ trust in the auctioning authority and auction process are particularly important signals influencing both project prices and realisation rates.