Market Design for Renewable Energy Auctions: An Analysis of Alternative Auction Formats

33 Pages Posted: 11 Jul 2019 Last revised: 30 Sep 2019

See all articles by Martin Bichler

Martin Bichler

Technische Universität München (TUM)

Veronika Grimm

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - School of Business & Economics

Sandra Kretschmer

Chair of Economic Theory, School of Business and Economics, Friedrich-Alexander-Universität Erlangen-Nürnberg

Paul Sutterer

Technische Universität München (TUM) - Department of Informatics

Date Written: July 9, 2019

Abstract

Auctions are widely used to determine the remuneration for renewable energies. They typically induce a high concentration of renewable energy plants at very productive sites far-off the main load centres, leading to an inefficient allocation as transmission line capacities are restricted but not considered in the allocation, resulting in an inefficient system configuration in the long run. To counteract these tendencies effectively, we propose a combinatorial auction design that allows to implement regional target capacities, provides a simple pricing rule and maintains a high level of competition between bidders by permitting package bids. By means of extensive numerical experiments we evaluate the combinatorial auction as compared to three further RES auction designs, the current German nationwide auction design, a simple nationwide auction, and regional auctions. We find that if bidders benefit from high enough economies of scale, the combinatorial auction design implements system-optimal target capacities without increasing the average remuneration per kWh as compared to the current German auction design. The prices resulting from the combinatorial auction are linear and anonymous for each region whenever possible, while minimal personalised markups on the linear prices are applied only when necessary. We show that realistic problem sizes can be solved in seconds, even though the problem is computationally hard.

Keywords: renewable energy auction, combinatorial auction, market design

JEL Classification: C63, D44, D61, Q40

Suggested Citation

Bichler, Martin and Grimm, Veronika and Kretschmer, Sandra and Sutterer, Paul, Market Design for Renewable Energy Auctions: An Analysis of Alternative Auction Formats (July 9, 2019). Available at SSRN: https://ssrn.com/abstract=3417550 or http://dx.doi.org/10.2139/ssrn.3417550

Martin Bichler

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, 80333
Germany

Veronika Grimm

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg - School of Business & Economics ( email )

Nuremburg
Germany

Sandra Kretschmer (Contact Author)

Chair of Economic Theory, School of Business and Economics, Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Lange Gasse 20
Nürnberg, 90403
Germany

Paul Sutterer

Technische Universität München (TUM) - Department of Informatics ( email )

Boltzmannstr. 3
Garching bei München, Bavaria 85748
Germany

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