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Auction Schemes, Bidding Strategies and the Cost-Optimal Level of Promoting Renewable Electricity in Germany

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  • Andreas Voss and Reinhard Madlener

Abstract

Germany is among the leading countries regarding the promotion of renewable energy towards a sustainable energy system transition. In this paper, we investigate the German pilot auction scheme for solar photovoltaics introduced in the Renewable Energies Act 2014 (EEG 2014) that serves as a pilot for the auction-based promotion of the three major large-scale renewable electricity generation technologies (wind, solar, biomass) as of 2017. A strategic bidding model is used to determine the optimal bidding strategy and to determine the resulting project value. We consider pay-as-bid and uniform pricing and single and multiple bids. Moreover, we investigate the impact of investment cost uncertainty. In a sensitivity analysis we show how bid strategy adjustments affect the outcome. Specifically, higher uncertainty regarding the market clearing price increases the project value, as this additional uncertainty can be used to raise the probability of obtaining a higher level of remuneration by an adjusted auction strategy. The first-price auction can generate additional profits by placing a second, higher bid with a low probability of success. Investment cost uncertainty can have either a positive or negative impact on the project value, depending on the auction parameter values chosen.

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  • Andreas Voss and Reinhard Madlener, 2017. "Auction Schemes, Bidding Strategies and the Cost-Optimal Level of Promoting Renewable Electricity in Germany," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    • Handle: RePEc:aen:journl:ej38-si1-madlener
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    Cited by:

    1. Geßner, Daniel, 2023. "Performance of Renewable Energy Policies - Evidence from Germany's Transition to Auctions," W.E.P. - Würzburg Economic Papers 105, University of Würzburg, Department of Economics.
    2. David P. Brown and Andrew Eckert, 2020. "Imperfect Competition in Electricity Markets with Renewable Generation: The Role of Renewable Compensation Policies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 61-88.
    3. Sheykhha, Siamak & Borggrefe, Frieder & Madlener, Reinhard, 2022. "Policy implications of spatially differentiated renewable energy promotion: A multi-level scenario analysis of onshore wind auctioning in Germany," Energy Policy, Elsevier, vol. 169(C).
    4. Shyekhha, Siamak & Borggrefe, Frieder & Madlener, Reinhard, 2019. "A Counterfactual Analysis of Regional Renewable Energy Auctions Taking the Spatial Dimension into Account," FCN Working Papers 22/2019, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    5. Rahman, Md Momtazur & Khan, Imran & Field, David Luke & Techato, Kuaanan & Alameh, Kamal, 2022. "Powering agriculture: Present status, future potential, and challenges of renewable energy applications," Renewable Energy, Elsevier, vol. 188(C), pages 731-749.
    6. Batz Liñeiro, Taimyra & Müsgens, Felix, 2021. "Evaluating the German PV auction program: The secrets of individual bids revealed," Energy Policy, Elsevier, vol. 159(C).
    7. Grashof, Katherina, 2019. "Are auctions likely to deter community wind projects? And would this be problematic?," Energy Policy, Elsevier, vol. 125(C), pages 20-32.
    8. Yong Long & Yu Wang & Chengrong Pan, 2017. "Auction Mechanism of Micro-Grid Project Transfer," Sustainability, MDPI, vol. 9(10), pages 1-20, October.
    9. del Río, Pablo & Kiefer, Christoph P., 2023. "Academic research on renewable electricity auctions: Taking stock and looking forward," Energy Policy, Elsevier, vol. 173(C).
    10. Barbara Glensk & Reinhard Madlener, 2019. "Energiewende @ Risk: On the Continuation of Renewable Power Generation at the End of Public Policy Support," Energies, MDPI, vol. 12(19), pages 1-25, September.
    11. Wrede, Matthias, 2022. "The influence of state politics on solar energy auction results," Energy Policy, Elsevier, vol. 168(C).
    12. Reinhard Madlener & Barbara Glensk & Lukas Gläsel, 2019. "Optimal Timing of Onshore Wind Repowering in Germany under Policy Regime Changes: A Real Options Analysis," Energies, MDPI, vol. 12(24), pages 1-33, December.
    13. Romano, Teresa & Fumagalli, Elena, 2018. "Greening the power generation sector: Understanding the role of uncertainty," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 272-286.
    14. Taimyra Batz Li~neiro & Felix Musgens, 2021. "Lessons Learned from Photovoltaic Auctions in Germany," Papers 2104.07536, arXiv.org.
    15. Walgern, Julia & Peters, Lennart & Madlener, Reinhard, 2017. "Economic Evaluation of Maintenance Strategies for Offshore Wind Turbines Based on Condition Monitoring Systems," FCN Working Papers 8/2017, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    16. Liu, Junxia, 2019. "China's renewable energy law and policy: A critical review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 99(C), pages 212-219.
    17. Stetter, Chris & Piel, Jan-Hendrik & Hamann, Julian F.H. & Breitner, Michael H., 2020. "Competitive and risk-adequate auction bids for onshore wind projects in Germany," Energy Economics, Elsevier, vol. 90(C).

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