# **1 INTRODUCTION**

Over the last two decades, many developed and developing countries have introduced a combination of incentives to promote grid-connected and off-grid renewable energy (RE) in support of multiple policy objectives – including, among others, enhancing energy security, reducing GHG emissions, improving local environmental sustainability, and increasing energy access. REN21 (2013) identified 127 countries with active renewable energy support policies in the beginning of 2013. Still, an analysis of the policies currently in place reveals that there is a very wide diversity in the mechanisms adopted by governments to meet this common goal; and as the sector matures revisions to existing policies have become increasingly common. A large body of literature has been developed reporting on the features and performance of different types of such policy mechanisms (see e.g., Kwant 2003; Finon and Perez 2007; Nilsson, Nilsson et al. 2009; Barradale 2010; Lee and Shih 2010; Lüthi and Prässler 2011; Zhang, Li et al. 2011; Kitzing, Mitchell et al. 2012; Fouquet 2013; Zhao, Tang et al. 2013; del Río and Cerdá 2014; Fais, Blesl et al. 2014; Gürkan and Langestraat 2014; Mir-Artigues and del Río 2014).

We consider one popular policy instrument; auction mechanisms. Early implementations of this type of scheme had a poor performance, leading most countries to lean towards other types of mechanism such as feed-in tariffs (FIT) and renewable purchase obligations (RPO). More than a decade later, however, a “second wave” of interest in RE auctions, largely led by emerging countries, has been gaining momentum (see e.g., Butler and Neuhoff 2008; Nielsen, Sorknæs et al. 2011; Buckman, Sibley et al. 2014; del Río and Linares 2014; Mayr, Schmidt et al. 2014). This paper provides analysis of three instances of auctiontype mechanisms being adopted by three emerging countries – Brazil, India, and China. These countries have been selected for the significant volume of renewable energy deployed through auctions and experience accumulated over the last decade; and our main goal is to provide a condensed analysis that highlights how the various countries’ particular underlying circumstances and choice of auction design features have played a role on the ultimate success or failure of this type of scheme.<sup>3</sup>

# **2 RENEWABLE ENERGY AUCTIONS**

There is a large body of literature reporting on the features and performance of different types of RE support mechanisms – see for example: Mananteau, Finon et al (2003), Kreycik, Couture et al (2011), Elizondo-Azuela and Barroso L. (2012), Wang X. (2012). In auction-based mechanisms<sup>4</sup> , both price and quantity are determined in advance of the decision to build the projects, under a public bidding process. Because of this characteristic, auctions can in a sense achieve the “best of both worlds” of FITs and

> 3 We have presented our figures in US dollars whenever applicable – implementing an exchange rate of 2.2 BRL/USD for Brazil, 60 INR/USD for India, and 6.1 CNY/USD for China<sup>3</sup> . However, it is difficult to estimate how investors have handled exchange rate volatility over this period – the Brazilian real remained relatively stable over the last decade (although it experienced some devaluation in the last couple of years), while the Indian rupee underwent nearly a 20% depreciation since 2011 and the Chinese yuan appreciated by nearly 25% since 2005. In addition, the three countries’ very different tax structures, capital costs and labor costs (among other elements) all represent confounding variables that make it difficult to make meaningful comparisons. For this reason, any cross-country comparisons of the values in U.S. dollars presented throughout this paper should be made with caution.

> 4 For the purpose of this paper, the expressions “concessions”, “competitive bidding”, “tenders”, and “auctions” will be used interchangeably to refer to the type of scheme detailed in this section.

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