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Discriminatory Auction Design for Renewable Energy

Discussion Papers 2013, 40 S.

Mats Kröger, Karsten Neuhoff, Jörn C. Richstein


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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.

Mats Kröger

Research Associate in the Climate Policy Department

Jörn C. Richstein

Senior Research Associate / Thematic Lead Electricity Markets in the Climate Policy Department

Karsten Neuhoff

Head of Department in the Climate Policy Department

JEL-Classification: D44;Q42;Q48;Q54
Keywords: Climate policy, auctions, renewable energy, onshore wind power, reference yield model
Frei zugängliche Version: (econstor)