ERC: Thin Competition, Not Collusion, Behind Green Energy Auction 3 Bid Clustering Near Reserve Prices

ERC: Thin Competition, Not Collusion, Behind Green Energy Auction 3 Bid Clustering Near Reserve Prices | Daily Tribune

"In this context, the economics of reverse auction theory are unambiguous: when the number of competing bidders is structurally limited, rational profit-maximizing behavior leads each bidder to anchor its offer near the reserve price ceiling rather than shade it aggressively downward. This is not collusion. This is the predicted equilibrium outcome in thin markets," the ERC said.

The commission said only three geothermal plants qualified for the 100-megawatt procurement target, while only three bidders participated in one pumped-storage hydropower lot. The withdrawal of one geothermal project further reduced competition.

The ERC stressed that competition laws require evidence of explicit coordination or concerted action, not simply bids submitted near the reserve price.

The regulator also defended its review of the auction, saying it scrutinized bids and adjusted those that exceeded reasonable cost benchmarks rather than simply accepting developers' submissions.

For geothermal projects, the ERC reduced the recommended rates for three bids after finding that certain cost assumptions did not accurately reflect the project's characteristics.

It also adjusted two pumped-storage hydropower bids that used a 20-year cost recovery assumption instead of the 40-year economic life prescribed under its Price Determination Methodology Rules.

Based on Department of Energy records, all affected bidders accepted the ERC's recommended rates except one geothermal project, which rejected the revised price and was subsequently disqualified.

"This is not the conduct of a captured regulator. It is the conduct of a Commission exercising its rate-setting authority rigorously, correcting inflated bids, and protecting consumers from above-cost pricing — even when the affected parties are powerful industry players," the ERC said.

The commission also clarified that its role in GEA-3 was limited to evaluating the reasonableness of price offers and endorsing its findings to the Department of Energy (DOE), which has sole authority to determine the auction winners.

"The ERC does not select winning bidders, does not award contracts, and does not approve the terms of reference of the auction. These are exclusively within the authority of the DOE and the Green Energy Auction Committee (GEAC)," it said.

The ERC likewise rejected claims that its reserve price ceilings were arbitrarily set, saying these were derived using a discounted cash flow model based on technology-specific construction, operating, financing, and project life assumptions.

"The resulting Internal Rates… represent the maximum rates at which projects under these technologies are expected to be economically viable while providing a reasonable return to investors… They are not targets. They are ceilings grounded in cost reality," it said.

While acknowledging that limited bidder participation raised legitimate concerns about auction design, the ERC said such issues should be addressed through future reforms rather than by attributing anti-competitive conduct to developers without evidence.

"The structural challenges observed in GEA-3… are issues that can and should be addressed in future auction rounds through improved design. The ERC stands ready to work with the DOE toward these reforms," it said.

GEA-3 covers renewable energy technologies that are not eligible for feed-in-tariff incentives, including geothermal, impounding hydropower, and pumped-storage hydropower.

It also includes run-of-river hydropower, which remains eligible for FIT incentives. The auction awarded about 6.7 gigawatts of renewable energy capacity across 11 winning bids.