Impulse response of auction price by practicing auction scheme for solar PV generation to generation quantity, investment and Brent crude oil price

Abstract

Energy is crucial for economic progress worldwide, regardless of a country’s development status. However, the negative impacts of traditional energy sources have prompted global policymakers to reconsider fossil fuel consumption patterns. In addition to these harmful effects, regional conflicts such as the Russia-Ukraine war and tensions involving Israel, Palestine, and Iran are contributing to instability in the global energy market, which in turn affects general market stability. Consequently, global leaders are focusing on country-specific energy policies that prioritize the transition to renewable energy sources in future energy strategies. To ensure the widespread and cost-effective use of solar photovoltaic energy, many countries, including those in the European Union and beyond, are increasingly utilizing renewable energy auction techniques. Thus, the primary focus of this study is to evaluate the impact of a competitive auction technique on the expansion of solar PV generation and the potential reduction (or stabilization) of Brent crude oil prices (i.e., West Texas intermediate oil price). This is particularly relevant given the shifting investment trends in the renewable energy sector, with a specific emphasis on seven open and dynamic economies within the EU. To conduct this analysis, the authors employed a panel vector autoregression (VAR) model, utilizing annual data spanning from 2000 to 2021. The result indicates that the competitive auction value for solar PV accelerates the generation of solar PV in the selected EU countries and the countries are likely to decrease their reliance on fossil fuel-based sources for electricity generation. Because, the auction price is becoming competitive to the Brent crude oil price. Further, the investment in the solar PV sector is not sufficient yet.