Recently, the Netherlands started conducting offshore wind farm auctions. In these public tenders companies compete with each other to secure a permit and associated subsidy to build and operate a wind farm. The company/companies with the lowest bid (in eurocents per kilowatt hour) win(s) the auction. The winner(s) will receive a permit to build and operate the wind farm and will be granted the associated subsidy.
One 700 MW wind farm off the coast of Borssele has already been auctioned. Four additional offshore wind farms, each 700 MW, will follow in the coming years, also off the coast of the provinces of North and South Holland. Combined, these five wind farms will have a combined capacity of 3,500 MW, generating enough electricity for more than five million households.
We offer the following services:
Bid strategy advice
For bidders who are participating in an offshore wind farm auction we develop an optimal bid strategy based on game theoretic analysis and/or auction simulations. Together with the Energy Finance Institute, we also perform valuation studies and market competition studies that serve as input for the bid strategy analysis.
Bidding in these kind of auctions can be complicated. For example, the first 700 MW wind farm auction in the Netherlands was a first-price combinatorial sealed-bid auction where companies could bid on lot I, lot II and/or lot I+II. When determining their bid strategy, bidders should not only decide on how high to bid, but also on the number of bids (up to three). Each bid has an impact on the probability of winning (of lot I and/or lot II) and the profit margin.
Auction design advice
Given the government agencies’ objectives, we design the optimal auction based on game theoretic reasoning, laboratory experiments and/or auction simulations. We not only advise on the auction format, but also on the design details of the auction, including the packaging of the lots. We also provide in-house training on auction theory and practical lessons from real life auctions for government agencies.