Discussion Paper Details

Please find the details for DP14060 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Auctions with Unknown Capacities: Understanding Competition among Renewables

Author(s): Natalia Fabra and Gerard Llobet

Publication Date: October 2019

Keyword(s): Electricity markets, Forecasts, Multi-unit auctions and renewables

Programme Area(s): Industrial Organization

Abstract: The energy transition will imply a change in the competitive paradigm of electricity markets. Competition-wise, one distinguishing feature of renewables versus fossil-fuels is that their marginal costs are known but their available capacities are uncertain. Accordingly, in order to understand competition among renewables, we analyze a uniform-price auction in which bidders are privately informed about their random capacities. Renewable plants partially mitigate market power as compared to conventional technologies, but producers are still able to charge positive markups. In particular, firms exercise market power by either withholding output when realized capacities are large, or by raising their bids above marginal costs when realized capacities are small. Since markups are decreasing in realized capacities, a positive capacity shock implies that firms offer to supply more at reduced prices, giving rise to lower but also more volatile market prices. An increase in capacity investment depresses market prices, which converge towards marginal cost when total installed capacity is sufficiently large, or when the market structure is sufficiently fragmented.

For full details and related downloads, please visit:

Bibliographic Reference

Fabra, N and Llobet, G. 2019. 'Auctions with Unknown Capacities: Understanding Competition among Renewables'. London, Centre for Economic Policy Research.