Moving Forward on Reverse Auctions: 7 Things to Know

I participated in a workshop in Tanzania on reverse power auctions July 26-29, organized by the US Energy Agency (USEA) on behalf of USAID’s Power Africa initiative. A developing country with ambitious goals for its energy sector, Tanzania is pursuing reverse auctions (RAs) as a low-cost way to bring on additional energy, including significant renewable capacity. Well-designed RAs can help countries develop renewables or other power sources. Here are seven things you should know about them:

1. What RAs are.

Whereas a live auction, or one on a website typically involves an item, a seller, and several potential buyers bidding up the price, in a reverse auction there is a single buyer, and several of bidders competing to sell them the item they want, aiming to offer the lowest price (or the bid most aligned with a specified set of criteria), either through submission of offers in advance (“sealed-bid”), or during a live bidding process (e.g. “descending clock” auction). This is a common procurement practice for many goods, but has become popular for renewable energy in recent years.