How to design an auction: The impact of auction implementation elements on the financing costs of renewable electricity projects

In the European Union (EU), the imperative to boost renewable electricity and its share in the energy mix is paramount due to both climate change urgency and heightened energy insecurity. Favourable financing is crucial for renewable electricity expansion.
Various policies, such as support schemes and subsidies, increase the attractiveness of investments in renewable energy (RE). RE auctions are considered an efficient and effective way for allocating the level of support. While the influence of auctions on financing conditions has received some scholarly attention, exploration of their relationship to the cost of equity or debt-to-equity ratio has been relatively limited. We employ cross-classified multilevel and zero-inflated beta regressions within a Bayesian framework on data from eight EU countries. We found that frequent RE auctions may increase the debt-to-equity ratio, whereas larger auctions may increase the cost of equity and decrease the debt-to-equity ratio of RE projects. To the author's knowledge, this is the first time that the impact of frequency and size of auctions on cost of equity and debt-to-equity ratio has been quantitatively estimated. In addition, we were able to demonstrate how Bayesian modelling can be used in this field of research where data access often proves difficult.