Bid bonds and financial pre-payments usually come in combination with a fixed penalty. An interested bidder has to pre-qualify either by delivering a bank guarantee (bid bond) or by placing cash in a designated account (financial pre-payment). If the bidder is awarded, but the contracted project is delayed or not completed, the money is not returned to the winning bidder. This fixed amount thus constitutes a penalty.

The bid-bond may at the same time serve as an indication of the bidder’s financial competence (see bidder restrictions). In case of multi-item auctions, it is common to set the financial pre-qualification as an amount per kW capacity offered in the bid, while the financial pre-qualification in single item auction can be set regardless of project capacity. A financial pre-qualification can also be divided into two steps, with a first bid bond/payment due before participating in the auction, and the second bid bond/payment due after being awarded.

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: in case of non-compliance by the agreed date (48 months after being awarded), the contracting authority would enforce the bank guarantees of 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 Danish offshore wind auction of Anholt a fixed penalty was charged in case of delayed grid connection of the last turbine. The penalty was between DKK 100 and 400 million (€ 13.4 and 53.7 million) depending on the timing of the delay announcement. Combined with a reduction in support level in case of delayed grid connection of the first turbine, the penalty has been considered the main reason for poor auction participation (the auctioneer received only one bid)