Bidding Behaviour in Interdependent Markets for Electricity and Green Certificates

Kajsa Ganhammar ()
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Kajsa Ganhammar: Department of Economics, Lund University, Postal: School of Economics and Management, Box 7080, S-220 07 Lund, Sweden

No 2023:8, Working Papers from Lund University, Department of Economics

Abstract: Market-based climate policies have received increased attention, making it important to understand how such politically created markets affect competition in the electricity market. This paper focuses on the green certificate policy which financially supports producers of renewably sourced electricity by means of tradable certificates, and develops a simple duopoly model that incorporates both the electricity and the green certificate markets in an auction-based setting. The results suggest that, in case the subsidised technology has a higher expected marginal cost than the conventional technology, the policy can improve competition and efficiency in the electricity market. Conversely, if producers are ex-ante symmetric in their marginal costs, the advantage the policy creates enables the subsidised producer to bid higher at given cost as the probability of winning the electricity auction increases. This is harmful for competition and results in high consumer prices of electricity.

Keywords: asymmetric procurement auctions; electricity markets; green certificates; renewable energy (search for similar items in EconPapers)
JEL-codes: D43 D44 Q48 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2023-08-22
New Economics Papers: this item is included in nep-com, nep-ene, nep-env, nep-reg and nep-res
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