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Abstract

With the upcoming implementation of the centralized capacity market in Poland, capacity auctions will be organized where domestic power companies will offer their available capacities. It is assumed that bidding will be auctioned according to the so called descending clock auction system with uniform-price (Pay-as-Clear), which will lead to the market equilibrium price. Some analysts, however, are of the view that it is more appropriate to organize capacity auctions in the Pay-as-Bid formula, as this system should lead to lower prices that those of Pay-as-Clear, hence lower costs of capacity purchase. However, this opinion does not confirm the practice – theoretical considerations do not take into account such important factors as the behavior of market players and the tendency of bidders to accept a higher risk or the lack of access to advanced analyses, and thus better information for all market participants. This paper presents a hypothetical calculation of the prices in the centralized capacity market using Monte Carlo simulations. The results of the study confirm that the price level for the Pay-as-Bid system, due to the asymmetry of information and the level of concentration of the power generation sector in Poland would lead to higher prices than for the Pay-as-Clear system on average by approximately 2.5%. The implementation of the PAB system would, therefore, be less efficient to electricity consumers.

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Authors and Affiliations

Piotr W. Saługa
Jacek Kamiński

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