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Bidding Behaviour in Interdependent Markets for Electricity and Green Certificates

Author

Listed:
  • Ganhammar, Kajsa

    (Department of Economics, Lund University)

Abstract

Market-based climate policies have received increased attention, making it important to understand how such politically created markets affect competition in the electricity market. This paper focuses on the green certificate policy which financially supports producers of renewably sourced electricity by means of tradable certificates, and develops a simple duopoly model that incorporates both the electricity and the green certificate markets in an auction-based setting. The results suggest that, in case the subsidised technology has a higher expected marginal cost than the conventional technology, the policy can improve competition and efficiency in the electricity market. Conversely, if producers are ex-ante symmetric in their marginal costs, the advantage the policy creates enables the subsidised producer to bid higher at given cost as the probability of winning the electricity auction increases. This is harmful for competition and results in high consumer prices of electricity.

Suggested Citation

  • Ganhammar, Kajsa, 2023. "Bidding Behaviour in Interdependent Markets for Electricity and Green Certificates," Working Papers 2023:8, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2023_008
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    References listed on IDEAS

    as
    1. Eirik S. Amundsen & Gjermund Nese, 2016. "Market Power in Interactive Environmental and Energy Markets: The Case of Green Certificates," CESifo Working Paper Series 5922, CESifo.
    2. Amundsen, Eirik Schrøder & Nese, Gjermund, 2016. "Market power in interactive environmental and energy markets: The case of green certificates," Working Papers in Economics 04/16, University of Bergen, Department of Economics.
    3. Amundsen, E.S. & Mortensen, J.B., 2001. "The Danish Green Certificate System: Some Simple Analytical Results," Norway; Department of Economics, University of Bergen 226, Department of Economics, University of Bergen.
    4. Amundsen, Eirik S. & Mortensen, Jorgen Birk, 2001. "The Danish Green Certificate System: some simple analytical results," Energy Economics, Elsevier, vol. 23(5), pages 489-509, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    asymmetric procurement auctions; electricity markets; green certificates; renewable energy;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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