f97.beERIK SCHMIDT’S WORKSHOP
← All terms

Glossary · Energy industry & energy transition

Tender (competitive bidding procedure)

Tender renewable energies support scheme market premium Capacity market electricity market bid

A tender is a regulated competitive procedure. In it, a public body or a commissioned actor awards a specific service, quantity of energy, capacity or support entitlement under conditions set in advance. In the electricity system, this may concern, for example, support entitlements for renewable energy, firm capacity for security of supply, balancing reserve or specific services for grid operation. Bidders submit bids. The award decides who may deliver, build, provide capacity or receive support.

In Germany, the Federal Network Agency (Bundesnetzagentur) conducts the tenders under the Renewable Energy Sources Act (EEG). A bid for onshore wind energy or for larger solar installations consists of two pieces of information: a strike price ("anzulegender Wert") in cents per kilowatt-hour (bid value) and an installed capacity in kilowatts (bid quantity). A solar park or wind farm therefore does not simply offer "electricity". It states a value at which it can be operated economically under the rules of the support regime. This value is the basis for calculating the market premium: the installation sells its electricity on the market and additionally receives a sliding premium if the market value is below the awarded value. The bid value is therefore neither an ordinary electricity price nor a complete expression of the costs of the electricity system.

What is actually awarded in a tender

Every tender begins with the definition of its subject matter. This may be a quantity of energy in megawatt-hours, a capacity in megawatts, reserve capacity that can be called upon at any time, a grid resource at a specific location, or a support entitlement. This definition often shapes the outcome more strongly than it appears at first glance. If installed capacity is tendered with a support value per kilowatt-hour, a project with low support costs can win the award even though its generation matches demand poorly in terms of timing. If firm capacity is tendered, by contrast, what counts is not the annual electricity volume but availability in scarcity situations.

In this respect, a tender differs from the ongoing electricity market. There, bids for specific delivery hours continuously meet demand. A tender, by contrast, determines in advance which contribution is needed, who may participate, which evidence is required and by which rules the award is made. It also differs from a fixed feed-in tariff. There, the state sets the price, and the quantity results from the investment decisions of operators. In a tender, the quantity is typically specified, and the price is determined through bids.

The term auction captures the matter only partially, because it mainly describes the price-formation mechanism. A tender additionally comprises participation conditions, deadlines, securities, permit requirements, realisation obligations, penalties, location rules and, where applicable, qualitative criteria. One example from the EEG is the solar installations of the second segment, that is, installations on buildings or noise barriers. The procedure is project-specific: the installation must be built at the location stated in the bid. A bid must comprise at least 1,001 kilowatts and may not exceed 20 megawatts. For each bid, a fee and a project security contribution of 35 euros per kilowatt bid are payable. As a rule, there are three bidding dates per year.

Bid value, award and realisation

An award is neither a finished structure nor a delivered kilowatt-hour. It is a right or an obligation subject to conditions. Between the award and commissioning lie permits, financing, supply contracts, grid connection, construction costs, interest rate developments and often questions of local acceptance. A low award value can therefore mean two things: high cost efficiency or an overly optimistic bid. If awarded projects are not implemented, a gap arises between the tendered quantity and the quantity that actually takes effect.

For this reason, many tenders work with securities, deadlines and penalties, that is, contractual penalty payments. For onshore wind energy, for example, penalty payments per kilowatt of bid quantity become due if the installation does not enter operation on time. Their amount increases with the length of the delay. Such rules are intended to prevent actors from strategically blocking sites or awards. However, requirements that are too strict can exclude smaller bidders or make projects more expensive, because bidders price the risks into their bids. Requirements that are too lenient favour low bids with high default rates. At its core, it is a matter of distributing risks among the state, project developers, financiers, grid operators and electricity customers.

The award rule also creates incentives. Under the pay-as-bid method, each successful bidder receives the value it bid itself. The Federal Network Agency awards the EEG awards for onshore wind and for solar installations in this way: the bids with the lowest values are successful until the volume is reached. Under the uniform-price method, by contrast, all successful bidders receive the same price, often that of the most expensive bid still awarded. The pay-as-bid method rewards precise calculation, but tempts bidders to estimate the expected marginal price instead of bidding their costs. The uniform-price method can make participation easier, but opens up other possibilities for strategic bidding. Neither method replaces a careful definition of the product being tendered.

Fields of application and current legal framework

  • Renewable energy: Under the EEG, there are separate tenders for onshore wind, solar installations on open land and on buildings, biomass and biomethane, as well as innovation tenders. Smaller installations below the respective thresholds are exempt from the tender obligation. A separate procedure applies to offshore wind energy.

  • Firm capacity: Under the Electricity Security of Supply and Capacity Act (StromVKG), the Federal Network Agency, according to the trade press, tendered 4,500 megawatts of "reduced capacity" for the first bidding date on 8 September 2026. This is a weighted measure of the contribution to security of supply. Awarded installations commit for 15 years. This instrument is not to be equated with a comprehensive, technology-neutral capacity market, which according to media reports is yet to be designed.

  • System services: The transmission system operators procure balancing reserve in separate tenders. Interruptible loads were tendered until mid-2022 under the Ordinance on Interruptible Loads (AbLaV). The ordinance largely expired on 1 July 2022, and since 2023 no levy has been charged for it. A successor product is no longer based on this ordinance.

The support design itself is also changing. Under Article 19d of the EU Electricity Market Regulation, inserted by Regulation (EU) 2024/1747, direct price support for investments in new installations of certain technologies must in future take the form of two-way contracts for difference or equivalent schemes. Under such contracts, revenues above a reference value are paid back. The level of remuneration is, in principle, to be determined in an open, transparent and non-discriminatory competitive procedure. Under the transitional provision, the obligation applies from 17 July 2027. Tenders thus remain the central allocation instrument, but the product being tendered is changing.

Why tenders matter in the electricity system

Tenders link political target quantities with economic competition. If a state pursues an expansion path for wind energy, photovoltaics, biomass, storage or firm capacity, it can use tenders to steer which quantity is to be built and under which conditions. Many investments are capital-intensive, and their revenues depend for years on market prices, grid constraints and regulation. An award partially limits this uncertainty. Banks and investors regard it as a plannable revenue component. Grid operators learn where installations are expected to connect to the grid. Policymakers translate target paths into annual award volumes. The basic rules derive from laws, ordinances and European state aid rules.

This framework makes costs visible, but also shifts them to places that do not appear in the award price. A wind farm with a low bid can aggravate grid congestion if it is built in a region with scarce grid capacity. Inexpensive solar expansion can feed in a lot at midday without contributing to meeting peak load in the evening. A capacity product can increase security of supply, but triggers payments to installations that only rarely generate electricity. The award value therefore usually reflects the project costs under a particular set of rules, not the full system costs.

Common misinterpretations

  • Award value equals cost or electricity price: Bids contain assumptions about financing, term, support rules, future market values, location and risks. In addition, the value of a kilowatt-hour depends on when it is generated. Two installations with the same bid value can contribute very differently to meeting the residual load.

  • Tender equals automatic cost reduction: Competition only works if enough permitted projects participate and the quantity matches the field of bidders. In the case of undersubscription, that is, when fewer bids are received than the quantity tendered, it loses its disciplining effect. The award values then also reflect scarcity of land, permits, components or capital.

  • Technology-neutral equals neutral: Photovoltaics, wind, storage, flexible loads and power plants have different time profiles and location effects. If only a price per megawatt or per kilowatt-hour is compared, differences in controllability, grid load and contribution to security of supply disappear. Conversely, technology-specific tenders are less competitive between technologies.

  • Tender equals market: A tender is administratively framed competition. The public sector determines need, product and eligibility. Bid caps, volumes, realisation deadlines, location signals and sanctions can be more important than the mere ranking of bids.

Relationship with grid, flexibility and security of supply

The benefit of a tendered capacity depends on whether it is available at the right place, at the right time and with the necessary technical characteristics. Balancing reserve requires a fast and reliable response. Grid resources must reduce congestion at specific grid points. Storage and flexible consumers can complement tender results if they bring generation and consumption together better in time. Good design therefore discloses which system function is being procured. Is as much renewable annual electricity volume as possible to be created? Is firm capacity to be available in scarcity hours? Is a grid bottleneck to be relieved locally? Or is flexibility to facilitate the integration of fluctuating generation? Each of these tasks requires different evidence, metrics and contract conditions.

Tenders are thus not a technical detail of support, but a tool of electricity market and infrastructure governance. They translate objectives into awarded projects, set investment signals and distribute risks. Their quality is not shown by a low award value alone. What is decisive is whether the bids result, in good time, in installations or services that fit the tendered task.

Sources

Related glossary entries

Edited by eCMS on 11.11.2026 14:50

© 2026 Erik Schmidt. All rights reserved. Quotations with a link to the source are welcome.