With an aim to meet the target of increasing the power capacity from renewable resources in a cost-effective way, the government can consider auction method to procure such projects, a recent study said.
A study conducted by Climate Policy Initiative (CPI) and the Indian School of Business said using auctions to procure renewable energy projects can be effective in meeting the government's dual goals of the deployment of ambitious renewable energy targets and meeting those targets cost-effectively.
The 20 auctions examined by the institutions across the world showed that auctions were almost always more cost-effective when compared to feed-in tariffs, where government decides the tariffs, a statement issued by CPI stated.
"Auctions for solar power, worldwide and in India, have resulted in tariff reductions of up to 58 per cent. In countries other than India, auctions for wind power have resulted in tariff reductions of up to 30 per cent. Typically, wind power in India has been procured through feed-in tariffs and solar power through auctions," the study found out.
CPI, however, noted that an appropriate policy support was needed for the success of such auctions.
"While there is a potential for auctions to inhibit deployment, appropriate policy support could improve the ability of auctions to deploy the intended amount of renewable energy. There are certain risks, which can affect auctions and if not managed properly, can result in poor deployment," CPI said.
CPI suggested certain policy changes like paying successful bidders what they bid instead of requiring them to match the lowest bid, improving transmission infrastructure and permit procedures, stringent penalties for delays in deployment, and payment guarantees for off-takers, which can reduce the risk of non-deployment.