Energy Transition Program → Simulator: Policy Instruments – Shaping Energy Markets

Begin with the barrier—not the instrument

Economic instruments solve different problems. A project may need competitive price discovery, dependable revenue, affordable consumer treatment, public risk sharing, investment incentives or credible environmental value. Most projects need a coordinated package rather than one instrument.

Filter by principal benefit

Procurement price-setting

Feed-in tariff vs reverse / competitive auction

Both can support renewable investment, but they discover or set the electricity price differently. Understanding that distinction helps explain the Saudi utility-scale procurement model.

Feed-in tariff (FIT)

How price is set: An authority establishes an eligible tariff or payment rule in advance; qualifying generators respond to that administered price.

Strength: Can provide simple, predictable revenue support and has historically helped early renewable markets scale.

Design risk: If the tariff is set too high, consumers or the public sector can overpay; if too low, investment may not occur. Eligibility, duration, degression and cost allocation therefore matter.

Reverse / competitive auction

How price is set: The buyer specifies the procurement requirement and qualified developers compete, allowing bids to reveal a competitive project price.

Strength: Competition can improve price discovery and allocation discipline when qualification, site, grid and contract conditions are credible.

Design risk: The lowest bid is not automatically the best deliverable bid. Unrealistic pricing, grid delay or weak risk allocation can undermine delivery.

Saudi utility-scale learning chain:Reverse / competitive auction→Competitive bid and project selection→Long-term PPA / revenue framework→Financing and delivery

Saudi application: In this simulator, E01 is therefore labelled and taught as Reverse / competitive auctions. The auction and PPA are complementary: the auction supports competitive price discovery and selection, while the PPA provides the contractual revenue framework needed for bankability. FITs remain an important comparator and may be relevant in other market designs or distributed-generation contexts; they are not presented here as the principal current Saudi utility-scale procurement mechanism.

See how the instruments combine

The matrix shows the typical strength of alignment between each instrument and each benefit. It is a learning guide, not a legal rule. Select an instrument to explore its strategic use and design boundary.

Limited Possible Strong Principal

Read the project case study, design the package and assign accountability

Use each project case study to identify the decision that must be made. Use the evidence to choose the outcome that must be optimised, select one primary instrument, strengthen it with supporting instruments, and allocate institutional responsibility.

Economic instruments quiz

The instrument is identified. Select its most relevant use or benefit, then check the answer to receive a short explanation.

Answered: 0 / 20Checked score: 0 / 20

Review your project case study selections

Use this section to review the economic instrument packages selected across the ten project case studies. The application is exploratory and does not mark project selections.

Project case study review

Facilitator discussion

Which target outcome did the participant prioritise, and why?
Does the primary instrument materially improve that target outcome?
How do the two supporting instruments strengthen the primary intervention?
Which institution must approve, procure, finance, regulate, implement or assure the package?
What trade-offs are visible in the impact graph?