How does the uncertainty of a day-ahead weather forecast impact bidding behavior of renewable energy producers?

Pub­lished in EWI Work­ing Paper Series, 25/10, 2025:

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.

Authors: Amir Ashour Novir­doust, Pia Hoff­mann-Willers, Julian Keutz

Link: Opti­mal bid­ding of uncer­tain renew­able elec­tric­i­ty in sequen­tial mar­kets — Impli­ca­tions of risk aver­sion and imper­fect com­pe­ti­tion — EWI