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Title: Energy market design : experimental economics
Author: Yiakoumi, Despina
ISNI:       0000 0004 9355 7018
Awarding Body: University of Aberdeen
Current Institution: University of Aberdeen
Date of Award: 2020
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This thesis investigates key design parameters of the capacity auction which has been implemented as part of the GB Capacity Market in the energy sector. The focus is given on the market power opportunities. It is investigated how auction parameters can mitigate or facilitate these opportunities as well as the actual exercise of market power in an auction design similar to the capacity auction. The thesis contributes in auction theory and experimental literature regarding market power opportunities/exercise in multi-unit procurement descending clock auctions. No other work to date makes this contribution. It focusses on the pricing rules, the feedback policy, the market concentration and the shape of the demand curve. Theoretically it was shown that the last-accepted bid (LAB) pricing rule is superior to the first-rejected bid pricing rule (FRB). Also, feedback regarding how many resources are left in the auction is inferior to the case no feedback is given to participants during the clock auction. When there is a pivotal seller in the market the two feedback policies are indifferent. The step demand diminishes all market power opportunities in comparison to an inelastic demand for capacity. Laboratory experiments were run to investigate further these parameters. The results showed that FRB is inferior to LAB, supporting the choice of the latter pricing rule for the GB capacity auction. Experimental results on feedback policy deviate from the theoretical predictions. Although no feedback reduces the auction price in theory, experimental results illustrate that participants can tacitly collude and increase the price of the auction significantly. This could be an argument for the use of restricted partial feedback in the GB capacity auction; to reduce market power opportunities and tacit collusion. When there is a pivotal player in the market the feedback policy cannot eliminate the exercise of market power as in theory. Experimental results illustrate that the inelastic demand depending on the other design parameters of the auction and depending on the market concentration, can create market power opportunities. On the other hand, a step demand eliminates the market power opportunities and the tacit collusion. The results of the thesis support the choice of LAB with combination of limited feedback and elastic demand. However, concerns arise regarding how well the design characteristics of the auction will eliminate the market power exercise and tacit collusion as the market concentration in the Capacity Market changes. Therefore, auction design should be revised and adapt according to the characteristics of the market.
Supervisor: Rouaix, Agathe ; Phimister, Euan ; Swierzbinski, Joseph Sponsor: Energy Technology Partnership
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: Energy industries ; Experimental economics ; Game theory ; Auction theory