This knowledge note singles outauctions as an important mechanism that has been implementedin a growing number of countries in recent decades. Itfeatures a case study of auctions designed to promote thegeneration of electricity from renewable sources in China.Although feed-in tariffs are now the cornerstone ofChina's renewable energy policy, auctions have playedand continue to play a role in identifying market prices forrenewable energy in the country. Experience with theauctioning of wind and solar concessions enabled the Chineseauthorities to modify auctions over time to yield accurateinformation about the costs of generation from renewablesources, allowing them to set feed-in tariffs at efficientlevels. This case study is interesting, because China hasset aggressive renewable energy targets and introducedpolicy incentives for rapid market development. Initialrenewable energy prices showed significant variation, andthe government s targets were not achieved prior to 2005.The most important milestone in the development of renewableenergy in China was the 2005 Renewable Energy Law. China hasapplied successive adjustments to concessions auctions toimprove their usefulness in setting appropriate feed-intariffs. The key lesson from China's experience withauctioning of concessions is that winning bid prices thatare lower than actual costs wind up deterring thedevelopment of renewable energy.
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