ANALYST UPDATE: ERF Price discovery – bidding the “maximum”?

While international pressure mounts on the Abbott government to step up its long term climate ambition, domestically the wheels are beginning to turn on the first ERF auction in March, and the dynamics of the new reverse auction format.

While the ERF is designed to purchase abatement ‘at least cost’, whereby the best chance of success (according to the Clean Energy Regulator) is to offer bids at “the lowest price at which it is worth your while to do the project”, the discriminatory price (pay-as-bid) format of ERF auctions is more likely to see proponents bid the “maximum” as they seek more acceptable project returns, and avoid locking themselves into ‘worst case’ prices.

In this Market Insider, we take a closer look at price discovery under the ERF, and the role of ‘strategic bidding’ in a dark auction process.

STATE OF PLAY

The past four weeks have been a rollercoaster ride for the Coalition, with the passage of the CFI Amendment Bill through the Senate delivering a significant domestic policy win, only for celebrations to be cut short by the announcement of a landmark deal between China and the United States – placing renewed pressure on the Coalition to set