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Electricity Auctions : An Overview of Efficient Practices

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  • Luiz T. A. Maurer
  • Luiz A. Barroso
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    Abstract

    This report assesses the potential of electricity contract auctions as a procurement option for the World Bank's client countries. It focuses on the role of auctions of electricity contracts designed to expand and retain existing generation capacity. It is not meant to be a 'how-to' manual. Rather, it highlights some major issues and options that need to be taken into account when a country considers moving towards competitive electricity procurement through the introduction of electricity auctions. Auctions have played an important role in the effort to match supply and demand. Ever since the 1990s, the use of long-term contract auctions to procure new generation capacity, notably from private sector suppliers, has garnered increased affection from investors, governments, and multilateral agencies in general, as a means to achieve a competitive and transparent procurement process while providing certainty of supply for the medium to long term. However, the liberalization of electricity markets and the move from single-buyer procurement models increased the nature of the challenge facing system planners in their efforts to ensure an adequate and secure supply of electricity in the future at the best price. While auctions as general propositions are a means to match supply with demand in a cost-effective manner, they can also be and have been used to meet a variety of goals.

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    File URL: https://openknowledge.worldbank.org/bitstream/handle/10986/2346/638750PUB0Exto00Box0361531B0PUBLIC0.pdf?sequence=1
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    Bibliographic Info

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    This book is provided by The World Bank in its series World Bank Publications with number 2346 and published in 2011.

    ISBN: 978-0-8213-8822-8
    Handle: RePEc:wbk:wbpubs:2346

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    Postal: 1818 H Street, N.W., Washington, DC 20433
    Phone: (202) 477-1234
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    Web page: https://openknowledge.worldbank.org
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    Related research

    Keywords: Private Sector Development - E-Business Infrastructure Economics and Finance - Infrastructure Economics Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth - Markets and Market Access Private Sector Development - Emerging Markets;

    References

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    1. Moreno, R. & Barroso, L.A. & Rudnick, H. & Mocarquer, S. & Bezerra, B., 2010. "Auction approaches of long-term contracts to ensure generation investment in electricity markets: Lessons from the Brazilian and Chilean experiences," Energy Policy, Elsevier, vol. 38(10), pages 5758-5769, October.
    2. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
    3. Colin Loxley & David Salant, 2004. "Default Service Auctions," Journal of Regulatory Economics, Springer, vol. 26(2), pages 201-229, 09.
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    5. Botero B, Sergio & Isaza C, Felipe & Valencia, Adriana, 2010. "Evaluation of methodologies for remunerating wind power's reliability in Colombia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(7), pages 2049-2058, September.
    6. Lloyd, Debra & Woo, C. K. & Borden, Michael & Warrington, Ron & Baskette, Carmen, 2004. "Competitive Procurement and Internet-Based Auction: Electricity Capacity Option," The Electricity Journal, Elsevier, vol. 17(4), pages 74-78, May.
    7. Batlle, Carlos & Barroso, Luiz A. & Pérez-Arriaga, Ignacio J., 2010. "The changing role of the State in the expansion of electricity supply in Latin America," Energy Policy, Elsevier, vol. 38(11), pages 7152-7160, November.
    8. Alfred E. Kahn & Peter Cramton & Robert H. Porter & Richard D. Tabors, 2001. "Pricing in the California Power Exchange Electricity Market: Should California Switch from Uniform Pricing to Pay-as-Bid Pricing?," Papers of Peter Cramton 01calpx, University of Maryland, Department of Economics - Peter Cramton, revised 27 Jan 2001.
    9. Dutra, Joisa & Menezes, Flavio, 2005. "Lessons from the Electricity Auctions in Brazil," The Electricity Journal, Elsevier, vol. 18(10), pages 11-21, December.
    10. ,, 2008. "An Introduction to Auction Theory," OUP Catalogue, Oxford University Press, number 9780199275991.
    11. Peter Cramton & Steven Stoft, 2007. "Colombia Firm Energy Market," Papers of Peter Cramton 07cfem, University of Maryland, Department of Economics - Peter Cramton, revised 2007.
    12. Andersson, Per & Hultén, Staffan & Valiente, Pablo, 2005. "Beauty contest licensing lessons from the 3G process in Sweden," Telecommunications Policy, Elsevier, vol. 29(8), pages 577-593, September.
    13. Batlle, C. & Rodilla, P., 2010. "A critical assessment of the different approaches aimed to secure electricity generation supply," Energy Policy, Elsevier, vol. 38(11), pages 7169-7179, November.
    14. Oren, Shmuel S., 2005. "Generation Adequacy via Call Options Obligations: Safe Passage to the Promised Land," The Electricity Journal, Elsevier, vol. 18(9), pages 28-42, November.
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    Cited by:
    1. Stephen, James D. & Mabee, Warren E. & Saddler, Jack N., 2013. "Lignocellulosic ethanol production from woody biomass: The impact of facility siting on competitiveness," Energy Policy, Elsevier, vol. 59(C), pages 329-340.
    2. Poudineh, Rahmatallah & Jamasb, Tooraj, 2014. "Distributed generation, storage, demand response and energy efficiency as alternatives to grid capacity enhancement," Energy Policy, Elsevier, vol. 67(C), pages 222-231.
    3. Maria Vagliasindi, 2013. "Revisiting Public-Private Partnerships in the Power Sector," World Bank Publications, The World Bank, number 13118, March.
    4. Greve,T. & Pollitt, M. G., 2012. "Designing electiricty transmission auctions: an introduction to the relevant literature," Cambridge Working Papers in Economics 1245, Faculty of Economics, University of Cambridge.
    5. Rego, Erik Eduardo, 2013. "Reserve price: Lessons learned from Brazilian electricity procurement auctions," Energy Policy, Elsevier, vol. 60(C), pages 217-223.

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