IDEAS home Printed from https://ideas.repec.org/p/diw/diwwpp/dp2013.html
   My bibliography  Save this paper

Discriminatory Auction Design for Renewable Energy

Author

Listed:
  • Mats Kröger
  • Karsten Neuhoff
  • Jörn C. Richstein

Abstract

Designing auctions that favor low resource quality installations allows countries to geographically diversify their renewable energy production, while lowering payments to low-cost producers. In this paper, we develop a stylized model showing that a discriminatory auction design favoring low-wind-yield locations leads to a tradeoff between production costs and producer rent and that the scheme can lower consumer costs even without considering the positive externalities of distributed generation. We explore the influence of the heterogeneity of production costs, the strength of the adjustment, and the regulator’s knowledge about cost structures. Through a numerical analysis of the German reference yield model, we estimate that at current auction levels intra-technology discrimination through the reference yield model leads to a reduction of consumer costs of around 24.8 billion Euro or 13% between 2023 and 2030.

Suggested Citation

  • Mats Kröger & Karsten Neuhoff & Jörn C. Richstein, 2022. "Discriminatory Auction Design for Renewable Energy," Discussion Papers of DIW Berlin 2013, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp2013
    as

    Download full text from publisher

    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.848765.de/dp2013.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. repec:zbw:rwirep:0542 is not listed on IDEAS
    2. Manuel Frondel & Stephan Sommer & Colin Vance, 2015. "The burden of Germanyùs energy transition: An empirical analysis of distributional effects," Economic Analysis and Policy, Elsevier, vol. 45(c), pages 89-99.
    3. Paul Lehmann & Patrik Söderholm, 2018. "Can Technology-Specific Deployment Policies Be Cost-Effective? The Case of Renewable Energy Support Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(2), pages 475-505, October.
    4. Jan Kreiss, Karl-Martin Ehrhart, Marie-Christin Haufe, and Emilie Rosenlund Soysal, 2021. "Different Cost Perspectives for Renewable Energy Support: Assessment of Technology-neutral and Discriminatory Auctions," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    5. Ryberg, David Severin & Tulemat, Zena & Stolten, Detlef & Robinius, Martin, 2020. "Uniformly constrained land eligibility for onshore European wind power," Renewable Energy, Elsevier, vol. 146(C), pages 921-931.
    6. May, Nils, 2017. "The impact of wind power support schemes on technology choices," Energy Economics, Elsevier, vol. 65(C), pages 343-354.
    7. Dieter Helm, 2010. "Government failure, rent-seeking, and capture: the design of climate change policy," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(2), pages 182-196, Summer.
    8. Ryberg, David Severin & Caglayan, Dilara Gulcin & Schmitt, Sabrina & Linßen, Jochen & Stolten, Detlef & Robinius, Martin, 2019. "The future of European onshore wind energy potential: Detailed distribution and simulation of advanced turbine designs," Energy, Elsevier, vol. 182(C), pages 1222-1238.
    9. Fabra, Natalia & Montero, Juan Pablo, 2020. "Technology-Neutral vs. Technology-Specific Procurement," CEPR Discussion Papers 15554, C.E.P.R. Discussion Papers.
    10. Karsten Neuhoff & Stefan Bach & Jochen Diekmann & Martin Beznoska & Tarik El-Laboudy, 2013. "Distributional Effects of Energy Transition: Impacts of Renewable Electricity Support in Germany," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    11. Eicke, Anselm & Khanna, Tarun & Hirth, Lion, 2020. "Locational investment signals - How to steer the siting of new generation capacity in power systems?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 41(6), pages 281-304.
    12. Bichler, Martin & Grimm, Veronika & Kretschmer, Sandra & Sutterer, Paul, 2020. "Market design for renewable energy auctions: An analysis of alternative auction formats," Energy Economics, Elsevier, vol. 92(C).
    13. Engelhorn, Thorsten & Müsgens, Felix, 2021. "Why is Germany’s energy transition so expensive? Quantifying the costs of wind-energy decentralisation," Resource and Energy Economics, Elsevier, vol. 65(C).
    14. David Newbery, 2021. "Designing Efficient Renewable Electricity Support Schemes," Working Papers EPRG2107, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    15. del Río, Pablo & Cerdá, Emilio, 2014. "The policy implications of the different interpretations of the cost-effectiveness of renewable electricity support," Energy Policy, Elsevier, vol. 64(C), pages 364-372.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gawel, Erik & Lehmann, Paul & Purkus, Alexandra & Söderholm, Patrik & Witte, Katherina, 2017. "Rationales for technology-specific RES support and their relevance for German policy," Energy Policy, Elsevier, vol. 102(C), pages 16-26.
    2. Davi-Arderius, Daniel & Trujillo-Baute, Elisa & del Río, Pablo, 2023. "Grid investment and subsidy tradeoffs in renewable electricity auctions," Utilities Policy, Elsevier, vol. 84(C).
    3. Simshauser, Paul, 2024. "On static vs. dynamic line ratings in renewable energy zones," Energy Economics, Elsevier, vol. 129(C).
    4. Klie, Leo & Madlener, Reinhard, 2022. "Optimal configuration and diversification of wind turbines: A hybrid approach to improve the penetration of wind power," Energy Economics, Elsevier, vol. 105(C).
    5. Paul Simshauser & Farhad Billimoria & Craig Rogers, 2021. "Optimising VRE plant capacity in Renewable Energy Zones," Working Papers EPRG2121, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    6. Meus, Jelle & De Vits, Sarah & S'heeren, Nele & Delarue, Erik & Proost, Stef, 2021. "Renewable electricity support in perfect markets: Economic incentives under diverse subsidy instruments," Energy Economics, Elsevier, vol. 94(C).
    7. Paul Lehmann & Patrik Söderholm, 2018. "Can Technology-Specific Deployment Policies Be Cost-Effective? The Case of Renewable Energy Support Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(2), pages 475-505, October.
    8. Simshauser, Paul & Billimoria, Farhad & Rogers, Craig, 2022. "Optimising VRE capacity in Renewable Energy Zones," Energy Economics, Elsevier, vol. 113(C).
    9. Drescher, Katharina & Janzen, Benedikt, 2021. "Determinants, persistence, and dynamics of energy poverty: An empirical assessment using German household survey data," Energy Economics, Elsevier, vol. 102(C).
    10. Mats Kröger & Maximilian Longmuir & Karsten Neuhoff & Franziska Schütze, 2022. "The Costs of Natural Gas Dependency: Price Shocks, Inequality, and Public Policy," Discussion Papers of DIW Berlin 2010, DIW Berlin, German Institute for Economic Research.
    11. Grimm, Veronika & Sölch, Christian & Zöttl, Gregor, 2022. "Emissions reduction in a second-best world: On the long-term effects of overlapping regulations," Energy Economics, Elsevier, vol. 109(C).
    12. del Río, Pablo & Kiefer, Christoph P., 2023. "Academic research on renewable electricity auctions: Taking stock and looking forward," Energy Policy, Elsevier, vol. 173(C).
    13. Winter, Simon & Schlesewsky, Lisa, 2019. "The German feed-in tariff revisited - an empirical investigation on its distributional effects," Energy Policy, Elsevier, vol. 132(C), pages 344-356.
    14. Hedenus, F. & Jakobsson, N. & Reichenberg, L. & Mattsson, N., 2022. "Historical wind deployment and implications for energy system models," Renewable and Sustainable Energy Reviews, Elsevier, vol. 168(C).
    15. Moritz A. Drupp & Ulrike Kornek & Jasper N. Meya & Lutz Sager, 2021. "Inequality and the Environment: The Economics of a Two-Headed Hydra," CESifo Working Paper Series 9447, CESifo.
    16. Klie, Leo & Madlener, Reinhard, 2020. "Concentration Versus Diversification: A Spatial Deployment Approach to Improve the Economics of Wind Power," FCN Working Papers 2/2020, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised May 2021.
    17. Stanley Risch & Rachel Maier & Junsong Du & Noah Pflugradt & Peter Stenzel & Leander Kotzur & Detlef Stolten, 2022. "Potentials of Renewable Energy Sources in Germany and the Influence of Land Use Datasets," Energies, MDPI, vol. 15(15), pages 1-25, July.
    18. Fabra, Natalia, 2021. "The energy transition: An industrial economics perspective," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    19. Niall Farrell & Seán Lyons, 2016. "Equity impacts of energy and climate policy: who is shouldering the burden?," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 5(5), pages 492-509, September.
    20. Moshe Maor, 2020. "Policy over- and under-design: an information quality perspective," Policy Sciences, Springer;Society of Policy Sciences, vol. 53(3), pages 395-411, September.

    More about this item

    Keywords

    Climate policy; auctions; renewable energy; onshore wind power; reference yield model;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp2013. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bibliothek (email available below). General contact details of provider: https://edirc.repec.org/data/diwbede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.