This knowledge note singles outauctions as an important mechanism that has been implementedin a growing number of countries in recent decades. Itfeatures case studies of auctions designed to promote thegeneration of electricity from renewable sources in Brazil,China, and India. Auctions in various forms are being usedto promote the generation of electricity from renewablesources. Properly structured auctions can avoid thedisadvantages of feed-in tariffs and renewable purchaseobligations. Moreover, they offer the best of both of theseearly mechanisms, providing stable revenue guarantees forinvestors while also avoiding the risk of overbuilding. Theydo this by determining both price and quantity in advance.Promoting renewable energy through auctions is important,because experience with the use of auctions can guide futureefforts. Among the examples of the benefits to be obtainedfrom generating electricity from renewable sources are (i)increasing countries' energy security by reducing theirdependency on fossil fuel imports, (ii) reducing greenhousegas emissions as part of a worldwide effort to mitigateclimate change, (iii) promoting electrification whilereducing the need for isolated applications such as dieselgenerators, and (iv) minimizing local pollution. Auctionsare an effective way to stimulate competition amonginvestors, provide price disclosure while eliciting theright amount of investment, and offer revenue stability vialong-term contracting.
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