Enhancing Strategic Bidding Optimization for Renewable Energy Auctions: A Risk-Adequate Marginal Cost Model

Abstract

The shift toward auction mechanisms for renewable energies has introduced competitive price discovery of financial support levels for new projects. The starting point of finding an optimal bidding strategy in these auctions must always be a reliable determination of the marginal cost, which is the minimum sales price per unit of electricity required to permit an economically viable project realization at an acceptable level of risk. We focus on enhancing strategic bidding by introducing a holistic financial modeling approach for a risk-adequate quantification of the marginal cost, which serves as the basis for strategic bidding optimization models. In order to permit a proof-of-concept and in-depth understanding of our model enhancement, we conduct a simulation study of an onshore wind farm in Germany. The results of our study show that our modeling approach enables quantifying bid prices that are both cost-competitive and sustainable in terms of a likely project realization.