Design of auctions for market premia for onshore wind generation: theoretical and experimental testing

Cooperation: CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute). CERGE-EI is a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences

Deployment of renewable generation is essential for the reduction of carbon emissions to combat global warming and for the EU states to fulfill their legal obligations with respect to climate targets. Onshore wind generation plays a major role in this process. Renewable energy sources, including the relatively cheap onshore wind energy, will, however, need subsidies for at least another decade. Designing subsidy mechanisms that are efficient, effective, cheap, non-distortive and supporting innovation is thus an issue of key importance. The new mechanism of auctions for market premia is highly promising and will be implemented in Germany in 2017. However, there are important design issues that need careful consideration to assure that the new mechanism fulfills the objectives. The project focuses on applying theory of auctions and experiments to investigate relevant design issues. We especially focus on the issues of bidder commitment, bidder entry, bidder collusion, small bidder entry and the effect on innovation.

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