How do External Costs affect Pay-as-bid Renewable Energy Connection Auctions?
Renewable energy deployment costs comprise both internal generation costs and external location-related infrastructure, environmental and social costs. To minimise generation costs, competitive connection contract auctions are becoming increasingly common. Should external costs have considerable influence on site selection outside of the auction process, optimal bidding strategies may be affected by the resulting re-ranking of winning bids. This paper elicits the impact this may have on optimal bidding behaviour. Specifically, we address the impact internalisation of external costs may have on bidding strategy. With deterministic generation costs, optimal bidding strategies include a markup. The optimal markup is lower if external costs are internalised into the investment decision. If investors have the ability to appropriate rents, due to market dominance or asymmetric information, non-internalised external costs lower markup. Generation cost uncertainty may result in below-cost bidding. This is less likely when externalities are not internalised. For markets where bids are competitively priced, this paper provides evidence to suggest that methods to minimise externalities associated with renewables deployment should be integrated with competitive pay-as-bid auctions.
|Date of creation:||Nov 2015|
|Contact details of provider:|| Postal: Whitaker Square, Sir John Rogerson's Quay, Dublin 2|
Phone: (353-1) 863 2000
Fax: (353-1) 863 2100
Web page: http://www.esri.ie
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bushnell, James B & Oren, Shmuel S, 1994. "Bidder Cost Revelation in Electric Power Auctions," Journal of Regulatory Economics, Springer, vol. 6(1), pages 5-26, February.
- Rassenti, Stephen J & Smith, Vernon L & Wilson, Bart J, 2003. "Discriminatory Price Auctions in Electricity Markets: Low Volatility at the Expense of High Price Levels," Journal of Regulatory Economics, Springer, vol. 23(2), pages 109-123, March.
- William A. Brock & Steven N. Durlauf, 2001.
"Discrete Choice with Social Interactions,"
Review of Economic Studies,
Oxford University Press, vol. 68(2), pages 235-260.
- Brock,W.A. & Durlauf,S.N., 2000. "Discrete choice with social interactions," Working papers 7, Wisconsin Madison - Social Systems.
- Baumol, William J, 1972. "On Taxation and the Control of Externalities," American Economic Review, American Economic Association, vol. 62(3), pages 307-322, June.
- Charles A. Holt & Roger Sherman, 2014. "Risk Aversion and the Winner's Curse," Southern Economic Journal, Southern Economic Association, vol. 81(1), pages 7-22, July.
- 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).
- Shrimali, Gireesh & Tirumalachetty, Sumala, 2013. "Renewable energy certificate markets in India—A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 26(C), pages 702-716.
- Charles Warren & Carolyn Lumsden & Simone O'Dowd & Richard Birnie, 2005. "'Green On Green': Public perceptions of wind power in Scotland and Ireland," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 48(6), pages 853-875.
- van Haaren, Rob & Fthenakis, Vasilis, 2011. "GIS-based wind farm site selection using spatial multi-criteria analysis (SMCA): Evaluating the case for New York State," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(7), pages 3332-3340, September.
- Sánchez-Lozano, J.M. & García-Cascales, M.S. & Lamata, M.T., 2014. "Identification and selection of potential sites for onshore wind farms development in Region of Murcia, Spain," Energy, Elsevier, vol. 73(C), pages 311-324.
- Niall Farrell, Mel T. Devine, William T. Lee, James P. Gleeson, and Sean Lyons, 2017. "Specifying An Efficient Renewable Energy Feed-in Tariff," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
- Farrell, Niall & Devine, Mel & Lee, William & Gleeson, James & Lyons, Seán, 2013. "Specifying An Efficient Renewable Energy Feed-in Tariff," MPRA Paper 49777, University Library of Munich, Germany.
- Ramachandra, T.V. & Shruthi, B.V., 2007. "Spatial mapping of renewable energy potential," Renewable and Sustainable Energy Reviews, Elsevier, vol. 11(7), pages 1460-1480, September.
- Swider, Derk J. & Weber, Christoph, 2007. "Bidding under price uncertainty in multi-unit pay-as-bid procurement auctions for power systems reserve," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1297-1308, September.
- Hemmati, Reza & Hooshmand, Rahmat-Allah & Khodabakhshian, Amin, 2016. "Coordinated generation and transmission expansion planning in deregulated electricity market considering wind farms," Renewable Energy, Elsevier, vol. 85(C), pages 620-630.
- Mallika Chawla & Michael G. Pollitt, 2013. "Energy-efficiency and Environmental Policies & Income Supplements in the UK: Evolution and Distributional Impacts on Domestic Energy Bills," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
- Enzo Sauma & Shmuel Oren, 2006. "Proactive planning and valuation of transmission investments in restructured electricity markets," Journal of Regulatory Economics, Springer, vol. 30(3), pages 358-387, November.
- Doherty, Ronan & O'Malley, Mark, 2011. "The efficiency of Ireland's Renewable Energy Feed-In Tariff (REFIT) for wind generation," Energy Policy, Elsevier, vol. 39(9), pages 4911-4919, September.
- Phillips, Benjamin R. & Middleton, Richard S., 2012. "SimWIND: A geospatial infrastructure model for optimizing wind power generation and transmission," Energy Policy, Elsevier, vol. 43(C), pages 291-302.
- van der Weijde, Adriaan Hendrik & Hobbs, Benjamin F., 2012. "The economics of planning electricity transmission to accommodate renewables: Using two-stage optimisation to evaluate flexibility and the cost of disregarding uncertainty," Energy Economics, Elsevier, vol. 34(6), pages 2089-2101.
- Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2009. "Nonparametric Identification of Risk Aversion in First-Price Auctions Under Exclusion Restrictions," Econometrica, Econometric Society, vol. 77(4), pages 1193-1227, July.
- Longo, Alberto & Markandya, Anil & Petrucci, Marta, 2008. "The internalization of externalities in the production of electricity: Willingness to pay for the attributes of a policy for renewable energy," Ecological Economics, Elsevier, vol. 67(1), pages 140-152, August.
- Alberto Longo & Anil Markandya & Marta Petrucci, 2006. "The Internalization of Externalities in The Production of Electricity: Willingness to Pay for the Attributes of a Policy for Renewable Energy," Working Papers 2006.132, Fondazione Eni Enrico Mattei.
- James Nicolaisen & Valentin Petrov & Leigh Tesfatsion, 2000. "Market Power and Efficiency in a Computational Electricity Market with Discriminatory Double-Auction Pricing," Computational Economics 0004005, EconWPA.
- Nicolaisen, James & Petrov, Valentin & Tesfatsion, Leigh S., 2001. "Market Power and Efficiency in a Computational Electricity Market with Discriminatory Double-Auction Pricing," Staff General Research Papers Archive 2050, Iowa State University, Department of Economics.
- Nicolaisen, James & Petrov, Valentin & Tesfatsion, Leigh S., 2000. "Market Power and Efficiency in a Computational Electricity Market with Discriminatory Double-Auction Pricing," Staff General Research Papers Archive 1952, Iowa State University, Department of Economics.
- Dupont, B. & De Jonghe, C. & Olmos, L. & Belmans, R., 2014. "Demand response with locational dynamic pricing to support the integration of renewables," Energy Policy, Elsevier, vol. 67(C), pages 344-354.
- Rodriguez Ortega, Maria Pia & Pérez-Arriaga, J. Ignacio & Abbad, Juan Rivier & González, Jesús Peco, 2008. "Distribution network tariffs: A closed question?," Energy Policy, Elsevier, vol. 36(5), pages 1712-1725, May.
- Valentine, Scott Victor, 2010. "A STEP toward understanding wind power development policy barriers in advanced economies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(9), pages 2796-2807, December.
- Baban, Serwan M.J & Parry, Tim, 2001. "Developing and applying a GIS-assisted approach to locating wind farms in the UK," Renewable Energy, Elsevier, vol. 24(1), pages 59-71.
- Cox, James C & Smith, Vernon L & Walker, James M, 1988. "Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
- Voivontas, D. & Assimacopoulos, D. & Mourelatos, A. & Corominas, J., 1998. "Evaluation of Renewable Energy potential using a GIS decision support system," Renewable Energy, Elsevier, vol. 13(3), pages 333-344.
- Lang, Corey & Opaluch, James J. & Sfinarolakis, George, 2014. "The windy city: Property value impacts of wind turbines in an urban setting," Energy Economics, Elsevier, vol. 44(C), pages 413-421.
- Anthony D. Owen, 2004. "Environmental Externalities, Market Distortions and the Economics of Renewable Energy Technologies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 127-158.
- Enzo Sauma & Shmuel Oren, 2006. "Proactive planning and valuation of transmission investments in restructured electricity markets," Journal of Regulatory Economics, Springer, vol. 30(3), pages 261-290, November.
- Ladenburg, Jacob & Lutzeyer, Sanja, 2012. "The economics of visual disamenity reductions of offshore wind farms—Review and suggestions from an emerging field," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(9), pages 6793-6802.
- Azadeh, A. & Ghaderi, S.F. & Nasrollahi, M.R., 2011. "Location optimization of wind plants in Iran by an integrated hierarchical Data Envelopment Analysis," Renewable Energy, Elsevier, vol. 36(5), pages 1621-1631.
- Drechsler, Martin & Ohl, Cornelia & Meyerhoff, Jürgen & Eichhorn, Marcus & Monsees, Jan, 2011. "Combining spatial modeling and choice experiments for the optimal spatial allocation of wind turbines," Energy Policy, Elsevier, vol. 39(6), pages 3845-3854, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:esr:wpaper:wp517. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sarah Burns)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.