Presidencia de la República Mexicana/Flickr/CC BY 2.0
Long-term power supply auctions are an increasingly popular instrument worldwide for attracting renewable energy investment while cutting prices, increasing energy security, and reducing emissions. Latin America has been at the forefront of using auctions to boost renewable energy capacity. The small markets of Central America and the Caribbean, as well as larger countries with nascent non-conventional renewable (which excludes large hydroelectric dams) energy sectors, such as Ecuador, could benefit from introducing electricity auctions modeled on the most successful features employed elsewhere in Latin America.
Clean Energy Auctions in Latin America analyzes government-led long-term power auctions with participation from non-conventional renewable sources in six countries in Latin America and the Caribbean (Brazil, Chile, Mexico, Argentina, Peru, and Jamaica) since 2015. The study examines the key auction design elements in each case and analyzes the outcomes, including the level of participation from foreign and domestic firms, prices achieved, amount of energy contracted, and degree to which projects were completed on time.
Key findings
The clean energy auctions adopted a wide range of design features intended to promote competition, attract qualified players and achieve a variety of policy objectives, including greenhouse gas emissions reductions and energy security. The average contract length was 20 years and most countries priced contracts in USD, which lowered risk for developers.
Since 2015, contracts exceeding US$46.8 billion of investment and 32 GW of new installed capacity have been awarded through government-led auctions in Latin America and the Caribbean.
Auctions have awarded a large share of projects to renewable energy sources, especially wind and solar, at low prices by international standards, even in cases where fossil fuels are also competing. This seems to suggest that wind and solar have achieved grid parity in many markets and it may not be necessary to hold technology specific auctions.
The number of bids received far exceeded the number of projects awarded in most auctions, suggesting a high level of competition.
Large international firms have been major participants in general, and have dominated in Chile, Mexico, and Peru, contributing major investments. In Argentina and Brazil, domestic firms played a greater role.
The auctions awarded a total of roughly 27 GW of new non-conventional projects and will nearly double total non-conventional renewable energy capacity in the six countries compared to 2014 if all the projects come online. The amount of non-conventional renewable capacity awarded was large, when compared both to existing non-conventional renewable capacity and to overall capacity within each country. In other words, if all of the projects awarded in these auctions come online, it will add significant non-conventional renewable energy capacity to the system in every country.
However, many projects were not built on time. The causes of delays included failure to obtain local consent, delays in transmission network expansion, difficulty obtaining financing, and supply bottlenecks. In five of the six countries, only a third or less of projects awarded in the first auction during the time frame studied were completed on time. This suggests that countries organizing auctions should consider strict pre-qualification requirements as well as bid bonds, completion bonds, and other penalties.
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