Under a tender or reverse auction program, a government or utility designs a process to select bids and procure electricity to meet specified capacity goals. Effectively designed auction approaches can lower costs through encouraging competition among developers and electricity suppliers (Couture et al. 2015) and are often most effective for utility-scale projects given the costs of administering such programs (Bird et al. 2012, UNFCCC 2015). Many countries have adopted reverse auction approaches for electricity procurement, with project developers submitting bids to develop a project during a specific period (Miller et al. 2013; UNFCCC 2015). Tenders and reverse auctions allow prices to be set through a competitive bidding process, providing an approach to establish long-term fixed price contracts for electricity procurement (Couture et al. 2015). In some cases, auctions include specific project requirements in terms of size, technology, application and may also include other considerations for project selection (e.g., water use, GHG emissions, job impacts, etc.).
In some countries, auctions are being combined, or used in parallel, with FITs in policy hybrids, whereby FITs are used for smaller-scale projects and auctions are used for larger-scale procurement.