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Many governments worldwide are rolling out auctions as their preferred method for allocating subsidies to renewable energy projects. Well-designed auctions can harness the power of competition to deliver renewables more cost-effectively than when government officials set support levels. Auctions, however, introduce allocation risk—i.e., the risk that a project will not be allocated support. Investors need to understand auction dynamics and must be able to identify which bidding strategy is most likely to result in a favorable outcome.

In this paper, NERA Senior Consultant Alon Carmel consider the use of auctions to set support levels for offshore wind power projects—both the experience to date and the implications for bidders in future auctions. They look at offshore wind auctions that have recently been run in Denmark, the United Kingdom, France, and the Netherlands, and those that are planned for Germany in 2017. The authors compare recent clearing prices in offshore wind auctions, discussing some of the reasons that they differ, and outlining plans for future auctions. They then explore the issues that bidders must consider and examine how analysis can help assess different strategies, before reflecting on the likely evolution of these auctions in Europe.