The auction volume refers to the amount of renewable electricity demanded by the auctioneer in each individual auction. This volume can be defined in terms of capacity (MW), generation (MWh), or budget.

auction volumes set the scope of the auction together with auction periodicity and possible target achievement safeguards.

auction volume determined in terms of capacity (MW)

When the target volume of an auction is expressed in terms of installed capacity, the auctioned good is in most cases also defined in terms of capacity. A bidder thus commits to installing the offered capacity within the specified realisation deadline. It is less common, but also possible to define the auctioned good in terms of generation. A bidder thus commits to delivering a certain amount of electricity per year for the duration of the purchase contract.

From the viewpoint of a policy maker, a capacity target volume provides less ex-ante security on total policy costs, compared to a budget-based auction target. However, by setting an appropriate ceiling price, it is possible to contain this risk. Auctions with capacity-based target volumes provide a good planning environment for the whole electricity sector and enable easy monitoring regarding the achievement of RES policy targets. This is especially true if policy targets are formulated in terms of capacity, but also applies to generation-based policy targets. From the perspective of an awarded bidder, committing to the realisation of a certain capacity, rather than generation, comes with fewer uncertainties.

Denmark, France, Germany, Ireland, Portugal, California, China, and South Africa have applied capacity-based target volumes in their auctions and have defined the auctioned good in terms of capacity as well. Brazil has applied the less common combination of defining its target volume as capacity, but the auctioned good in terms of generation.

auction volume determined in terms of generation (MWh)

Generation-based targets are unusual, but two options are possible in principle: I) the auction volume is set in terms of actual generation over the course of a given time frame (or an actual annual average); or ii) annual generation is estimated by combining standardised technology-specific annual full-load-hours with installed capacities. When the target volume of an auction is expressed in terms of generation, the auctioned good can be expressed either in terms of generation or capacity. Bidders therefore either commit to delivering a certain amount of annual electricity generation over the contract duration, or to installing a certain capacity by the end of a given realisation deadline. We consider the former case to be the more coherent and realistic one.

From the viewpoint of a policy maker, a generation target volume provides less ex-ante security on total policy costs, compared to a budget-based auction target. However, by setting an appropriate ceiling price, it is possible to contain this risk. Auctions with generation-based target volumes provide a good planning environment for the whole electricity sector and enable easy monitoring regarding the achievement of RES policy targets, especially if these are formulated in terms of a share of total electricity generation.

For bidders, committing to the delivery of a certain annual generation volume is more risky than committing to the installation of a certain capacity, as weather conditions may fluctuate across years. The regulator should thus define a range (minimum and maximum) of annual production delivery, possibly combined with banking and borrowing options.

auction volume determined in terms of budget (€)

When the target volume of an auction is set in terms of a maximum budget, the auctioned good is usually either expressed in terms of generation or capacity. Bidders therefore either commit to delivering a certain amount of annual electricity generation over the contract duration, or to installing a certain capacity by the end of a given realisation deadline.

A budget target volume clearly sets an upper limit for support expenditures, thus providing security on policy costs for the regulator, and ultimately, electricity consumers. However, with a budget cap it is unclear ex-ante how much capacity will be installed as a result of each auction round. This makes planning in the electricity system more difficult. It also means that the achievement of policy targets (which are usually expressed in terms of installed capacities or shares of total electricity production) is more difficult to monitor. This can mean both under- or overachievement of policy targets. Budget caps are thus less straightforward to be deduced from existing policy targets and must be constantly monitored and readjusted according to technology cost developments.

The Netherlands, Italy, and the UK have used budget-based auction targets. The size of bidding projects was defined in terms of capacity in all cases.

Combination with remuneration award metrics

All of these options have benefits and drawbacks.

In principle, all options can be combined with any remuneration award metric (FIT, FIP, or investment grant), but not all combinations are equally sensible in reality. By far the most common option is the combination of a capacity target volume with a generation-based award metric, usually a FIP. See also the related AURES policy memo.