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Prepress Content: The following article is a preprint of a scientific paper that has completed the peer-review process and been accepted for publication within The Energy Journal.

While the International Association for Energy Economics (IAEE) makes every effort to ensure the veracity of the material and the accuracy of the data therein, IAEE is not responsible for the citing of this content until the article is actually printed in a final version of The Energy Journal. For example, preprinted articles are often moved from issue to issue affecting page numbers, and actual volume and issue numbers. Care should be given when citing Energy Journal preprint articles.

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The Energy Journal
Volume 40, Number 6

Renewables, Allowances Markets, and Capacity Expansion in Energy-Only Markets

Paolo Falbo, Cristian Pelizzari, and Luca Taschini

DOI: 10.5547/01956574.40.6.pfal
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We investigate the combined effect of an Emissions Trading System (ETS) and renewable energy sources on investments in electricity capacity in energy-only markets. We study the long-term capacity expansion decision in fossil fuel and renewable technologies when electricity demand is uncertain. We model a relevant tradeoff: a higher share of renewable production can be priced at the higher marginal cost of fossil fuel production, yet the likelihood of achieving higher profits is reduced because more electricity demand is met by cheaper renewable production. We illustrate our theoretical results comparing the optimal solutions under a business-as-usual scenario and under an ETS scenario. This illustration shows under which limiting market settings a monopolist prefers to withhold investments in renewable energy sources, highlighting the potential distortionary effect introduced via an ETS. Our conclusions remain unaltered under varying key modelling assumptions.

Uncovering Bidder Behaviour in the German PV Auction Pilot: Insights from Agent-based Modeling

Marijke Welisch and Jan Kreiss

DOI: 10.5547/01956574.40.6.mwel
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This paper analyses bidder behaviour in the German photovoltaic (PV) auction pilot. It uses a novel approach combining insights from data analysis and decision theory to optimise an agent-based simulation model. We model both a uniform pricing (UP) scheme, a pay-as-bid (PAB) scheme, and a benchmark case, where agents adapt their bidding strategy. The findings are contrasted with empirical auction outcomes. The comparison shows that, especially in the early rounds, bid prices were above the costs - possibly due to uncertainties and false expectations concerning competition. This is particularly visible in the first round. Adapting their expectations to a higher competition level, bidders in the pay-as-bid simulation subsequently decrease their bids. From simulating a separate auction for arable land bidders, we see that this bidder type reduces support costs substantially and that an implicitly discriminatory auction yields more aggressive bids and can induce further cost reductions.

Incentivizing Energy Efficiency under Private Information: The Social Optimum

Franz Wirl

DOI: 10.5547/01956574.40.6.fwir
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This paper addresses how far public initiatives should try to eliminate the energy efficiency gap if consumers hold private information about their willingness to pay for efficiency. The major finding is that even socially optimal efficiency programs should only close a fraction of the gap. This conclusion has to be strengthened if the external costs of energy were internalized, because an intervention is then only justified for low costs of public funds and very large payback gaps. Furthermore, the realistic assumption of private information implies that the highest subsidies must be paid to efficient types, which turns incentives based on perfect information upside down.