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Auctions for allocation of offshore wind contracts for difference in the UK

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  • Welisch, Marijke
  • Poudineh, Rahmatallah

Abstract

The contract for difference (CfDs) auctions are the cornerstone of the UK electricity sector's decarbonization policy and were introduced as part of the Electricity Market Reform in 2013. The CfD auctions appear to have been successful in achieving low bids for low-carbon technologies, especially offshore wind power. However, the design of the auction increases the probability of speculative bidding, while the one-shot nature of the auction prevents bidders from learning and from utilizing information efficiently. We show that implementing a stringent non-delivery penalty to induce truth telling can improve deployment rate without increasing support costs. Moreover, by holding regularly scheduled (annual, for example) auctions, information on technology cost decreases can be better incorporated into the bids, lowering investor uncertainty and thus having a positive effect on support costs.

Suggested Citation

  • Welisch, Marijke & Poudineh, Rahmatallah, 2020. "Auctions for allocation of offshore wind contracts for difference in the UK," Renewable Energy, Elsevier, vol. 147(P1), pages 1266-1274.
  • Handle: RePEc:eee:renene:v:147:y:2020:i:p1:p:1266-1274
    DOI: 10.1016/j.renene.2019.09.085
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    References listed on IDEAS

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    Cited by:

    1. Savelli, Iacopo & Hardy, Jeffrey & Hepburn, Cameron & Morstyn, Thomas, 2022. "Putting wind and solar in their place: Internalising congestion and other system-wide costs with enhanced contracts for difference in Great Britain," Energy Economics, Elsevier, vol. 113(C).
    2. Kell, Nicholas P. & Santibanez-Borda, Ernesto & Morstyn, Thomas & Lazakis, Iraklis & Pillai, Ajit C., 2023. "Methodology to prepare for UK’s offshore wind Contract for Difference auctions," Applied Energy, Elsevier, vol. 336(C).
    3. Freire Ordóñez, Diego & Shah, Nilay & Guillén-Gosálbez, Gonzalo, 2021. "Economic and full environmental assessment of electrofuels via electrolysis and co-electrolysis considering externalities," Applied Energy, Elsevier, vol. 286(C).
    4. del Río, Pablo & Kiefer, Christoph P., 2023. "Academic research on renewable electricity auctions: Taking stock and looking forward," Energy Policy, Elsevier, vol. 173(C).
    5. Nelson, Tim & Dodd, Tracey, 2023. "Contracts-for-Difference: An assessment of social equity considerations in the renewable energy transition," Energy Policy, Elsevier, vol. 183(C).
    6. Seda Canbulat & Kutlu Balci & Onder Canbulat & I. Safak Bayram, 2021. "Techno-Economic Analysis of On-Site Energy Storage Units to Mitigate Wind Energy Curtailment: A Case Study in Scotland," Energies, MDPI, vol. 14(6), pages 1-20, March.
    7. Kell, Nicholas P. & van der Weijde, Adriaan Hendrik & Li, Liang & Santibanez-Borda, Ernesto & Pillai, Ajit C., 2023. "Simulating offshore wind contract for difference auctions to prepare bid strategies," Applied Energy, Elsevier, vol. 334(C).
    8. Rubio-Domingo, G. & Linares, P., 2021. "The future investment costs of offshore wind: An estimation based on auction results," Renewable and Sustainable Energy Reviews, Elsevier, vol. 148(C).
    9. Johnston, Barry & Foley, Aoife & Doran, John & Littler, Timothy, 2020. "Levelised cost of energy, A challenge for offshore wind," Renewable Energy, Elsevier, vol. 160(C), pages 876-885.
    10. Hochberg, Michael & Poudineh, Rahmatallah, 2021. "The Brazilian electricity market architecture: An analysis of instruments and misalignments," Utilities Policy, Elsevier, vol. 72(C).
    11. Malleret, Simon & Jansen, Malte & Laido, Ahti Simo & Kitzing, Lena, 2024. "Profitability dynamics of offshore wind from auction to investment decision," Renewable and Sustainable Energy Reviews, Elsevier, vol. 199(C).
    12. Helena Martín & Sergio Coronas & Àlex Alonso & Jordi de la Hoz & José Matas, 2020. "Renewable Energy Auction Prices: Near Subsidy-Free?," Energies, MDPI, vol. 13(13), pages 1-21, July.
    13. Wei, Youzhou & Zou, Qing-Ping & Lin, Xianghong, 2021. "Evolution of price policy for offshore wind energy in China: Trilemma of capacity, price and subsidy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 136(C).
    14. Jansen, Malte & Beiter, Philipp & Riepin, Iegor & Müsgens, Felix & Guajardo-Fajardo, Victor Juarez & Staffell, Iain & Bulder, Bernard & Kitzing, Lena, 2022. "Policy choices and outcomes for offshore wind auctions globally," Energy Policy, Elsevier, vol. 167(C).
    15. Sheykhha, Siamak & Borggrefe, Frieder & Madlener, Reinhard, 2022. "Policy implications of spatially differentiated renewable energy promotion: A multi-level scenario analysis of onshore wind auctioning in Germany," Energy Policy, Elsevier, vol. 169(C).

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