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Auction Model for Coal Decommissioning
With the “Act to Reduce and End Coal-Fired Power Generation” (KVBG) a tendering procedure for coal-fired power plants was introduced, determining decommissioning premiums for operators to incentivise the phase-out of coal-fired generation. The tenders, which are designed as pay-as-bid auctions, offer opportunities for economic optimisation. Market participants aiming to exploit this optimisation potential need to develop a robust market assessment prior to the participation in the auctions.
Auction modelling and the simulation of tender results can provide decisive added value by enabling market players to anticipate the intensity of competition and assess their own competitive position.
Against this background, the auction modelling procedure is divided into the following steps:
- Competition analysis: A detailed competitive analysis is carried out in order to obtain an indication of the likelihood of individual power plants participating in the competition. Market intelligence and up-to-date data from the market register a reliable basis for this analysis..
- Indifference price determination: For determining potential minimum bid levels for the power plants, an estimation of the cost and revenue situation for the individual projects is carried out.
- Auction simulation: Resulting estimated supply and bid prices are used to simulate the auction round (“Monte Carlo simulation”). The bidding behaviour of the market players is modified in different scenarios. The Monte Carlo approach allows the quantification of existing uncertainties. The results include average marginal bid prices and distribution parameters that allow a strategic assessment of the market.
- Bid optimisation: The results of the market simulation are used to analyse the probability of a successful bid at different bid levels. This analysis serves as the basis for the development of a promising bidding strategy.
The enervis auction model for the coal decommissioning tenders is market-leading and allows a well-founded and valuable outlook on the auction results based on both our expertise in the energy and the detailed analysis of competitive structures.
We look forward to supporting our clients in determining a suitable bidding strategy. For further information, please do not hesitate to reach out.
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