A Wind Tunnel Test of Wind Farm Auctions

Xinyu Li, Marco Haan, Sander Onderstal and Jasper Veldman
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Xinyu Li: PBL Netherlands
Jasper Veldman: University of Amsterdam

No 23-046/VII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Globally, governments increasingly rely on auctions to advance renewable energy. This paper studies the design of wind farm auctions and evaluates the impact of price guarantees and subsidies on auction efficiency, government revenue, and renewable-energy production. While the theoretical analysis suggests that the price guarantee has no effect, our laboratory experiment suggests that the price guarantee improves efficiency and that it often increases production and revenue. An important explanation for these results is that less risk averse subjects tend to bid less aggressively and produce less. Without the price guarantee, and hence with more uncertainty in the auction, this increases the chances that risk-loving bidders win the auction, thus compromising auction efficiency. The subsidy is less effective than suggested by theory. Bidders with a higher valuation tend to bid more conservatively than the equilibrium prediction, thus neutralizing the efficiency-enhancing effect of the subsidy.

Keywords: Auctions; Experiments; Wind farms; Renewable energy (search for similar items in EconPapers)
JEL-codes: C92 D44 F64 H23 Q58 (search for similar items in EconPapers)
Date: 2023-08-03
New Economics Papers: this item is included in nep-agr, nep-des, nep-ene, nep-env, nep-exp and nep-gth
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