Apart from bid bonds/financial pre-payments which are not paid back to the bidder in case of non-realisation or delay, there are other forms of penalties:

1) Penalty in the form of reduced support payments

The measure:
When a project is delayed, an alternative to fixed penalties can be a reduction of the support level that was awarded to the project in the auction. In this way the penalty payment is postponed until the installation starts generating revenue, and it is furthermore spread out over a longer period of time. In case a project is not realised at all, the complete support is withdrawn.

Effects on auction outcome:
With a reduction of support level the negative impact of a fixed penalty on the company’s liquidity can be avoided. The postponement of the penalty payment is therefore less likely to result in default and non-completion of projects; however, like fixed penalties, the risk of reduced support level is likely to increase bid levels.
Setting the support level reduction appropriately can be challenging. On the one hand, a too high support reduction in case of delay can render the project unprofitable, and the bidder may choose non-completion instead of realising the project with delay. Non-realisation carries no penalty under this measure. On the other hand, too little reduction will have no effect.

Real-life examples:
In the Italian multi-technology auction schemes, the awarded FIT or alternatively FIP are reduced by 0.5% for each month of delay. After a tolerance of 12-24 months, the FIT and FIP contracts are withdrawn.

If projects awarded in the German auction scheme for ground-mounted solar PV are not commissioned within a period of 18 months, the FIT decreases by €0.3 cent / kWh.

2) Penalty in the form of reduced support period

The measure:
In case of delayed realisation of awarded projects, the duration of support is reduced. Like fixed penalties and reduction of support level, support period reduction creates an incentive for completing the project on time. Compared to the other two measures, the penalty payment is postponed even further. The support period reduction can be defined for instance relative to the delay period, or by setting a fixed date for discontinuation of support payments, implying that late completion will lead to an overall shorter support period.

Effects on auction outcome:
Due to the postponement of the financial implications of the delay penalty, reduction of support period has less negative effect on the liquidity of the project developer in case of delay. This penalty type is therefore less likely to cause default before completion of project, compared to fixed penalties or support level reduction. The penalty creates incentives for completing the project because the project developer would still like to avoid delay penalty, but is less likely to reduce the number of bidders compared to fixed penalties enforced when delays occur.

Real-life examples:
In the French auction scheme for solar PV, support duration is reduced by the delay, multiplied by 2. The installation has to be connected 18 months after publication of the auction results.

In Ireland, the 15-year PPAs offered under AER V and AER VI schemes will not extend beyond the end of 2018 and 2019, respectively. Projects which came online too late will therefore not be able to make use of the full duration of the contract. Similarly, the 10-year PPAs given to biomass CHP projects cannot exceed the end of 2016.

3) Penalty in the form of exclusion from future auctions

The measure:
In case of non-compliance or misconduct, bidders can be excluded from future auctions for a certain period of time. The exclusion can either be of the bidding project or the developer itself. If exclusion is used as a penalty, it is important that exclusion together with pre-qualification requirements are defined in a way that does not offer an possibility to circumvent exclusion, for instance by redefining the project or transferring project ownership.

Effects on auction outcome:
Exclusion provides an incentive for avoiding non-compliance; hence it promotes increased seriousness of bids. In case pre-qualification costs are very high, exclusion can be very costly to the project developer, as it can prevent them from reusing the same project in following auction rounds. However, compared to the case of fixed penalties, exclusions are less likely to reduce the number of potential bidders, as it can be more difficult to quantify the value of exclusion. It is therefore less likely to increase support level compared to fixed penalties.

Real-life examples:
In the auction scheme in the UK, the primary penalty is the exclusion of any project on the same physical location from future auctions for a period of thirteen months. The project developers can be penalised either if being offered a support contract and refusing to sign it or if signing a support contract and failing to deliver the project.

In the Dutch auction scheme, an awarded project under SDE+ loses its support right and is excluded from participating again for a period of 3 years, if the project is not operational within the realisation period (3-4 years). However, in some cases it is possible to work around this exemption by “redefining” the project (e.g. by changing the capacity or the location) and apply again.

4) Production-related penalties

The measure:
Production related penalties can be imposed in cases where the production of contracted and finalised installations deviates from what was indicated in the project bid, e.g. in terms of generated electricity. In situations where contracted installations produce less than expected, the security of supply in the power system may be challenged. This should therefore be avoided. On the other hand, if remuneration is awarded by generated kWh, too much production may lead to support budgets being exceeded.

The penalty level can be either fixed or for instance based on the deviation from expected/contracted production or support costs, and may include exclusion from future auctions. The duration over which the production deviation is calculated is an important parameter to consider when designing the penalty.

Another variation of production related-penalties are those enforced when deviations from the contracted production method occur. This is relevant for instance in biomass based power generation, where penalties can be imposed if the consumed fuel does not live up to the fuel mix specified in the pre-qualification criteria.

Effects on auction outcome:
Penalties for lower-than-expected power generation increases the risk of the investor and is therefore likely to increase support levels. This is particularly valid in auctions for variable RES technology installations such as wind farms and solar PV, where the generation is greatly dependent on local conditions and may vary from year to year.

Likewise, penalties for excess production increase the risk of the bidder and may also increase support levels.
Production-related penalties are an incentive for bidders of variable REs technology projects to obtain a proper understanding of the location, for instance wind speeds and duration which are needed to determine the output of wind power plants. While this may reduce the number of interested bidders, the quality of the bids is increased.

Real-life examples:
The Polish on-shore wind power scheme includes a penalty for production deficit, i.e. failing to deliver the full contracted electricity volume. Delivering less than 85% of the offered volume in a settlement period of 3 years will result in a financial penalty at the rate of 50% of the awarded price times the total undelivered electricity.

In the proposed (as of 2016) Croatian auction scheme, fines of HRK 1,000.00-50,000.00 can be imposed in case the contracted producer fails to maintain the technological requirements needed for obtaining the status as eligible producer, fails to submit the required documentation, fails to maintain metering equipment, or conducts changes in installations without prior consent.