Investor-friendly auctions dominate green energy funding

But it risks undermining local value.

Auctions dominate green energy funding, but their investor-friendly terms can undermine local value and long-term goals, according to a report by the International Renewable Energy Agency.

The report noted that hard currency— such as USD or EUR—puts a heavy financial strain on host countries, as it drains their cash reserves and can push them further into debt.

Sovereign guarantees require governments to pay investors if specific risks occur. However, the International Monetary Fund may view these as official debt, which makes it more expensive for the government to borrow money.

Moreover, focusing mostly on the lowest price in auction awards favours foreign owners and imports over local businesses and services.

“For a renewables project to be sustainable and generate benefits to a country, auctions must be designed to distribute risks equitably,” the report said.

In Al Jouf, Saudi Arabia, a 2017 solar auction successfully boosted the local economy by requiring that 30% of services and equipment be sourced locally. By 2019, the Sakaka photovoltaic (PV) project had hired 90% of its workforce from the immediate region.

A similar result was seen from Morocco’s Noor-Ouarzazate solar complex, where 30%-35% of the project was sourced locally. Seventy percent of the project’s workers, which included many women, were locally hired.

The report said some auctions can also include other requirements which direct project benefits in the form of clean electricity, shared revenues, or social services.

In the case of El Salvador’s first solar PV auction, winning bidders were required to allocate 3% of profits to social development programmes in the cities where the projects were located.

“When conditions are in place for countries to build a robust legal and regulatory framework, it will be easier to attract investors,” the report concluded.