Modelling bidding behaviour on german photovoltaic auctions

Abstract

In this article renewable energy support allocation through different types of auctions are assessed. The applied methodological framework is auction theory, based on the rules governing the German photovoltaic (PV) Feed-in Premium (FIP) auctions. The work focuses on bidding strategies based on an extended levelised cost of electricity (LCOE) methodology, comparing two different set of rules: uniform price and pay-as-bid. When calculating the optimal bids an iteration is developed to find the Nash-equilibrium optimal bidding strategy. When searching for the bid function, not only strictly monotone functions, but also monotone functions are considered, extending the framework typically applied in auction theory modelling. The results suggest that the PV support allocation in the German auction system would be more cost efficient using the uniform pricing rule, since many participants bid above their true valuation in the pay-as-bid auction Nash-equilibrium. Thus from a cost minimising perspective, the application of uniform pricing rule would be a better policy decision.