Bidder restrictions are requirements to the bidders, rather than to a specific project. Such restrictions may be used to filter out any type of bidder, depending on the policy maker’s objectives.

The following measures aim to allow only competent and capable bidders to participate in the auction:

1) Restrictions/requirements regarding the developer’s experience

The measure:
Ensuring that project developers have experience with similar projects may be a way to reduce risk of delay and non-completion. It is thus a typical pre-qualification requirement, in particular in auctions for large and complex projects. The developer experience could be expressed in terms of current installed capacity, or educational level and tenure of the personnel.

Real-life examples:

In the Danish off-shore auction for Horns Rev 3, bidders needed to present one reference of operation and maintenance of an offshore wind farm with an installed capacity of minimum 25 MW. Furthermore, reference of development and management of construction of offshore wind farms for at least one wind farm with a minimum size of 100MW was a requirement for qualifying for auction participation. As a result, mainly big, experienced energy companies took part in the auction.
In Portugal, proof of technical capability was required for participating in the auction for RES support. Technical capability was presumed if the bidder had at least 30MW of installed capacity under exploitation at the time of bid submission.

2) Restrictions/requirements regarding the developer’s financial competence

The measure:
Financial robustness of the bidding company can be used to mitigate the risk of the winning bidder failing to find the necessary funding or even filing for bankruptcy before the project is realised. The criterion can be designed as a restriction, for instance by allowing only companies with a minimum credit rating or annual turnover to participate in the auction. Additionally, bid-bonds used as a financial guarantee given when entering the auction are typically required. Bid bonds are often connected to the penalty level, and can be retained by the auctioneer in case of project delay or non-completion. Instead of requiring a bid bond of the full amount in the beginning, a two-stepped approach can be taken: A first bid bond can be paid upon entering the auction. In case the bidder wins the auctions but then withdraws from signing a support agreement with the contracting party, the first bid bond is retained. A second bid bond can be paid by winning bidders upon signing the construction and support agreement with the contracting authority, and can be enforced in case the bidder fails to complete the project within a certain pre-specified time frame.

Finally, a proof of funding in terms of loan commitments can also be used as a pre-qualifying criterion ensuring efficient means of the bidder to complete the project.

Financial pre-qualifications are often combined with material pre-qualifications related to the project development stage. When the auctioneer sets high material pre-qualification requirements, financial qualification requirements can be set lower, and vice versa.

Effects on auction outcome:
Strict requirements regarding rating and turnover can reduce the number of especially small project developers in the auction. In this way competition may be reduced resulting in higher support levels. If significant amounts of capital need to be deposited upon signing of the support contract the support level is likewise expected to increase, as the support also has to cover the opportunity cost of the deposited capital, alternatively the cost of bank guarantees. It may be beneficial to consider the timing of the deposition of the financial guarantees – if the bidder has some time for negotiating with the banks, the cost of financing are likely to be reduced. Furthermore, bid bonds which can be retained in case of non-compliance increase the risk of the bidders, potentially leading to higher bid-prices. Penalties are, however, expected to increase project realisation rates.

Real-life examples:

Bid bonds applied in different auction schemes:
– Portugal, Wind and biomass: €10/kW for first bid bond, €25/kW for second
– Germany, Solar PV: €4/kW for first, €50/kW for second
– Spain, On-shore wind and biomass – €20/kW
– Italy, Multiple technologies: 5% of estimated investment costs as first bid bond, 10% of estimated investment cost as second bid bond
– Croatia, Multiple technologies: 50 HRK/kW (approx. €6.5) for first bid bond, 300 HRK/kW (approx. €40) for second
– Denmark: In the off-shore wind power auction Horns Rev 3 in Denmark a letter of intent was required from a financial institution of a demand guarantee of DKK 100 million. Moreover, the project developer needed to have a minimum annual average turnover of DKK 15 billion (€2 billion) over the last 3 years. Finally the bidders were required to have an equity ratio of 20% or above, alternatively have a long term debt rating of BBB or above (Standard & Poor’s and Fitch) or Baa3 or above (Moody’s).

3) Restrictions/requirements regarding the developer’s history of good conduct.

The measure:
Pre-qualification related to good conduct of the developer may include many different aspects. For instance, the auctioneer may require that the bidder has no (or limited) tax debt or that the project managers have a clean criminal record. Another way of promoting good conduct is to require certain management certification.

Effects on auction outcome:
Requirements regarding the history of good conduct may work as a restriction for auction participation, reduce the number of participants and, potentially lead to increased support costs. If, however, the requirements can be fulfilled at a cost for the bidder, it would add to the pre-qualification costs, hence increase the sunk cost in case the bidder loses the auction. To increase chances of winning the bidders may bid more aggressively.

Real-life examples:

Denmark: In the Danish off-shore auction scheme potential bidders were disqualified if their public debt was more than DKK 100,000.
Croatia (proposed, as of 2016): In order to participate in the proposed Croatian scheme a bidder must document that they have paid all required taxes, health insurances and pensions for employees, as well as produce a certified statement, ensuring that the person responsible for the bid has not been convicted of bribery, fraud or similar crimes.

Alternatively, bidder restrictions may be used to implement a secondary policy goal by, for instance, allowing only bidders of a certain size, with a certain ownership structure, or from a certain region to participate in the auction. See secondary objectives for more information.