Optimal bidding of uncertain renewable electricity in sequential markets - Implications of risk aversion and imperfect competition

Amir Ashour Novirdoust, Pia Hoffmann-Willers and Julian Keutz
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Amir Ashour Novirdoust: EWI
Pia Hoffmann-Willers: EWI
Julian Keutz: EWI

No 2025-10, EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)

Abstract: This paper develops an analytical model of sequential electricity markets in which renewable and conventional producers compete in two stages. Building on previous work, we introduce risk-averse renewable producers and distinguish between competitive and oligopolistic renewable producers. The model captures strategic bidding behavior under uncertainty in renewable production and limited flexibility of conventional producers in the second stage. Our results show that risk aversion amplifies strategic withholding in oligopolistic settings, thereby increasing the forward premium. This effect intensifies when conventional producers are less flexible. While risk aversion has no impact on welfare under perfect competition or when conventional producers are fully flexible, its interaction with market power and supply-side inflexibility generates welfare losses. In a heterogeneous market structure of renewable producers, competitive producers benefit from higher prices caused by the withholding of oligopolistic producers, particularly when those producers are risk-averse.

Keywords: Sequential Markets; Strategic Bidding; Risk Aversion; Market Power; Renewable Energy (search for similar items in EconPapers)
JEL-codes: D43 D81 L13 L94 Q21 (search for similar items in EconPapers)
Pages: 39
Date: 2025-11-05
New Economics Papers: this item is included in nep-com, nep-ene, nep-ind, nep-reg, nep-rmg and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ewikln:021748

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