Counteracting market concentration in renewable energy auctions: Lessons learned from South Africa

Wikus Kruger*, Ivan Nygaard, Lena Kitzing

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Competitive bidding programmes, or auctions, are becoming the dominant method for procuring utility-scale renewable energy generation capacity and have coincided with significant cost reductions of renewable energy (RE) technologies. The use of price in auctions as the main awarding criterion has been criticized for apparently leading to market concentration and dominance in project ownership. We investigate: to what extent South Africa's renewable energy auction programme has contributed to market concentration and dominance; if market concentration and dominance have a negative impact on electricity cost in the auction; and to what extent measures taken to counteract market concentration and dominance have led to improved competition and diversity of project ownership. The study analyses bidding data from awarded solar photovoltaic (PV) and wind projects, complemented by interviews with key stakeholders in the industry and in government. While there has been some degree of market concentration, it was not observed to have an adverse impact on project pricing or market development. Introducing preferential conditions for small, local players has been more effective at counteracting market concentration than an overall lowering of entry barriers. Finally, policy certainty and predictability seem more important to counteract market concentration and dominance than any auction design measures.

Original languageEnglish
Article number111995
JournalEnergy Policy
Volume148
ISSN0301-4215
DOIs
Publication statusPublished - Jan 2021

Keywords

  • Auctions
  • Market concentration
  • Renewable energy
  • South Africa

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