Auctions for a Brighter Future - Using an Agent-Based Model to Simulate Auctions of Solar PV in Sweden

Abstract

Global warming is one of the most pressing threats to humanity of our time. One of the areas where transitioning towards sustainability is most urgent is in the energy sector. In this thesis, the implementation of an auction-based subsidy scheme for solar photovoltaics (PV) in Sweden is modeled and analyzed. The aim is thus to estimate the total cost of implementing such a system, determine whether allocative efficiency would be achieved and if the cost would exceed the welfare loss from continuing as status quo. The model is based on a previous article where the same subsidy system is simulated for onshore wind power in Germany, in this thesis it is adopted to a Swedish context for solar PV. The results of the simulation are compared to the welfare loss from continuing as usual based on the social cost of carbon dioxide. The auctioning system is discussed in relation to the current main Swedish subsidy scheme used to promote sustainable energy: tradable green certificates (TGC). The simulation exhibits decreasing cost per kWh for promoting solar PV as more auction rounds are carried out. Allocative efficiency is not achieved, however, the cost of implementing the auctions would far subceed the welfare loss from generating the corresponding electricity with the current energy mix. When compared to TGC, the total cost of the auctioning system exceeds the current price for promoting the corresponding expansion through the current system, however, the target expansion is arguably achieved with a considerably greater certainty using the auctioning system.