Analysing the impact of renewable energy auctions on market concentration

Abstract

An abundant literature on the advantages and drawbacks of different auction design elements exists. However, their comparative effects on market concentration have not been explored, despite the increasing concern of governments about this issue. This article covers this gap in the literature. It follows an exploratory approach to provide a better understanding of the relationship between auctions, design elements and market concentration. An analytical framework is developed to assess the effects of auction and auction design elements on two aspects of market concentration (number and diversity of firms). Then, some research proposals are inferred from this framework and illustrated with a case study of wind power in Spain. Data have been collected through an expert elicitation survey and a Multi-criteria Analysis has been performed. The results show that, compared to administratively-set remuneration, auctions increase market concentration. Furthermore, their impact on market concentration is mediated by the choice of specific design elements (the existence of a schedule, the remuneration type and stringent prequalification requirements). However, those effects of auctions and their design elements are relatively low compared to other context factors. Therefore, if the aim is to reduce market concentration, policy makers should improve these context conditions, followed by auction design.