A policy maker may want to steer the geographical distribution of awarded projects, for instance for reasons of socio-political acceptability.
Geographical steering is only relevant in multiple-item auctions. In single-item auctions, geographical steering is usually an inherent feature, as the auctioneer selects the site.
In order to include geographical distribution as a secondary objective in an An auction is a market mechanism with the aims of allocating..., the following design elements can be used:
1) Contingents for certain location types or regions
A minimum share of the target volume is reserved for projects situated in a certain region or location type which is favoured for the above-mentioned reasons but in which projects tend to have higher generation costs, making them less competitive on price alone. A variation on this measure is to instead define a maximum contingent for non-favoured locations.
2) Pre-qualification criterion for desired location types/regions
Projects can only participate in the An auction is a market mechanism with the aims of allocating... if they are located in a specific region or a specific location type.
3) Criterion in An auction is a market mechanism with the aims of allocating... to favour desired location types/regions (boni)
Projects from all locations can participate, but those from the desired locations/regions receive extra points and therefore have a higher likelihood of winning.
4) Reference yield model
Projects from all locations can participate. No specific type of location is favoured. However, difference in resource yield are evened out by higher prices being paid to weak resource locations and lower prices to strong resource locations. All bidders bid a price which is adjusted to an average “reference location”, which makes projects comparable. The actual price paid later to winning projects is determined by whether their actual yield is above or below the reference yield.