<h3>Situation</h3>
<p>I am modeling an auction-based electricity market. Lets assume they call an auction for 500MWh, and participants can submit bids of at least 1MWh for a given price of <span class="math-container">$x$</span> EUR/MWh. Each participant may submit as many bids at as many prices as they want. There are no max and min (altough below some prices it would not make sense to submit a bid) prices. The auction is sealed-bid (participants dont know what others are bidding), and the auction is paid-as-bid, that is, every participant receives their submitted price. These auctions are done every few days, and will be done for many years. Each auction may achieve different prices.</p>
<p>Now when an auction is over, <span class="math-container">$n$</span> bids are accepted such that the total volume contributed by these bids adds up to the required 500MWh. These <span class="math-container">$n$</span> bids have different prices, however we can compute the <strong>average price</strong> <span class="math-container">$\bar x$</span> that was achieved.</p>
<h3>Question</h3>
<p>Now assume we know the distribution of this average price <span class="math-container">$\bar x$</span>. For example lets say its a normal distribution with mean 100€ and std 50€. Over 1000 auctions, the average price will thus be close to 100€.</p>
<p>With this knowledge, can I assume that there is some bidding strategy that allows me to bid in this auction and on average achieve a price of 100€ with a reasonable volume (e.g. up to 10% of the volume?). To phrase it differently, would it be possible for me to bid in a way that my bids dont greatly affect the average price achieved? Or at least affect them in a way that is predictable, e.g. my average achieved over many runs would be 100€ minus some constant or relative value.</p>
<h3>Notes</h3>
<ul>
<li>The reason I am asking this is because I am modeling this market, and the only data I have are the average price per MW achieved on it per auction. From this I can formulate a distribution and get an idea of what the price in this auction should look like. So if this were a stock market, I could very easily model the distribution of prices I can achieve. I am wondering if I can do similar assumptions with these sealed-bid pay-as-bid auctions.</li>
<li>I am new to this area and if there are any issues with my question please leave a comment I am happy to elaborate</li>
<li>Is this the best stackexchange for such as question? Or should I rather try the quantitative finance or mathematics stack exchanges?</li>
<li>Lastly, I would greatly appreciate any recommendations of literature (books or papers) in this area or describing this or a similar problem. I could not find much by myself.</li>
</ul>

CC BY-SA 4.0
2022-03-04T04:42:17.113Z
1. Sounds like a European electricity reserve capacity auction.
Giskard
CC BY-SA 4.0
2022-03-04T04:44:38.663Z
2. Now assume we know the distribution of this average price $\bar{x}$. This is a bit unclear. Are you assuming this is the disribution of the average of *all bids*, no matter how you yourself will bid, or the distribution of the average of the *other bids*?
Giskard
CC BY-SA 4.0
2022-03-04T04:47:52.940Z
3. As this auction is repeated regularly, it seems unrealistic to assume that if you start to win with your 50MW all the time other actors will not adapt their own strategy.
Giskard
CC BY-SA 4.0
2022-03-04T04:50:05.740Z
4. "*With this knowledge, can I assume that there is some bidding strategy that allows me to bid in this auction and on average achieve a price of 100€ with a reasonable volume (e.g. up to 10% of the volume?).*" I find this unclear. How many bids will you submit? "*To phrase it differently, would it be possible for me to bid in a way that my bids dont greatly affect the average price achieved?*" What does "*dont greatly affect*" here mean exactly? Without an exact definition a precise answer is not possible.
Giskard
CC BY-SA 4.0
2022-03-04T04:56:39.760Z
Here is a short memo/paper highlighting some of the difficulties in modelling such auctions. [SWI 2011: Strategic bidding in a primary reserve auction](https://www.swi-wiskunde.nl/swi2011/wp-content/uploads/sites/8/2016/05/Statkraft_scproc_2011.pdf) Papers giving better bidding advice are probably available.
Giskard
CC BY-SA 4.0
2022-03-04T08:02:18.147Z
1. quite close, its a dutch congestion / flexibility auction (and its for energy, not capacity)    | 2. Well I only have data where I am not yet participating. Creating a dist from this data hence models the price where I am not participating. Though If i dont bid too much, i was hoping that my bids would not influence too much. Maybe wrong thinking.   | 3. I agree, altough I was hoping that there are some arguments I can use to show that this does not have to be like this, e.g. that I can participate in these auctions without influencing price.
charelf
CC BY-SA 4.0
2022-03-04T08:06:27.837Z
4. My wording is unclear since I am really unsure of what I can / cant do. If you want a precise answer, these auctions are on avg 100MWh, and I would like to get 10MWh, so 10% lets say. Of course, if there is some argument to be made for a different value, Im very open.   | 5. THANK YOU a lot, your comments are helpful and I will look into this paper. Its probably a good starting point.
charelf
<auctions>
Price achievable in sealed-bid pay-as-bid energy auctions
charelf
# Price achievable in sealed-bid pay-as-bid energy auctions

(Asked by: username_0 on 2022-03-03)

### Situation

I am modeling an auction-based electricity market. Lets assume they call an auction for 500MWh, and participants can submit bids of at least 1MWh for a given price of $x$ EUR/MWh. Each participant may submit as many bids at as many prices as they want. There are no max and min (altough below some prices it would not make sense to submit a bid) prices. The auction is sealed-bid (participants dont know what others are bidding), and the auction is paid-as-bid, that is, every participant receives their submitted price. These auctions are done every few days, and will be done for many years. Each auction may achieve different prices.

Now when an auction is over, $n$ bids are accepted such that the total volume contributed by these bids adds up to the required 500MWh. These $n$ bids have different prices, however we can compute the **average price** $\bar x$ that was achieved.

### Question

Now assume we know the distribution of this average price $\bar x$. For example lets say its a normal distribution with mean 100€ and std 50€. Over 1000 auctions, the average price will thus be close to 100€.

With this knowledge, can I assume that there is some bidding strategy that allows me to bid in this auction and on average achieve a price of 100€ with a reasonable volume (e.g. up to 10% of the volume?). To phrase it differently, would it be possible for me to bid in a way that my bids dont greatly affect the average price achieved? Or at least affect them in a way that is predictable, e.g. my average achieved over many runs would be 100€ minus some constant or relative value.

### Notes

* The reason I am asking this is because I am modeling this market, and the only data I have are the average price per MW achieved on it per auction. From this I can formulate a distribution and get an idea of what the price in this auction should look like. So if this were a stock market, I could very easily model the distribution of prices I can achieve. I am wondering if I can do similar assumptions with these sealed-bid pay-as-bid auctions.
* I am new to this area and if there are any issues with my question please leave a comment I am happy to elaborate
* Is this the best stackexchange for such as question? Or should I rather try the quantitative finance or mathematics stack exchanges?
* Lastly, I would greatly appreciate any recommendations of literature (books or papers) in this area or describing this or a similar problem. I could not find much by myself.

**Tags:** auctions
> **Comments:**
> **username_1**: 1. Sounds like a European electricity reserve capacity auction.  
> **username_1**: 2. Now assume we know the distribution of this average price $\bar{x}$. This is a bit unclear. Are you assuming this is the disribution of the average of *all bids*, no matter how you yourself will bid, or the distribution of the average of the *other bids*?  
> **username_1**: 3. As this auction is repeated regularly, it seems unrealistic to assume that if you start to win with your 50MW all the time other actors will not adapt their own strategy.  
> **username_1**: 4. "*With this knowledge, can I assume that there is some bidding strategy that allows me to bid in this auction and on average achieve a price of 100€ with a reasonable volume (e.g. up to 10% of the volume?).*" I find this unclear. How many bids will you submit? "*To phrase it differently, would it be possible for me to bid in a way that my bids dont greatly affect the average price achieved?*" What does "*dont greatly affect*" here mean exactly? Without an exact definition a precise answer is not possible.  
> **username_1**: Here is a short memo/paper highlighting some of the difficulties in modelling such auctions. [SWI 2011: Strategic bidding in a primary reserve auction](https://www.swi-wiskunde.nl/swi2011/wp-content/uploads/sites/8/2016/05/Statkraft_scproc_2011.pdf) Papers giving better bidding advice are probably available.  
> **username_0**: 1. quite close, its a dutch congestion / flexibility auction (and its for energy, not capacity)    | 2. Well I only have data where I am not yet participating. Creating a dist from this data hence models the price where I am not participating. Though If i dont bid too much, i was hoping that my bids would not influence too much. Maybe wrong thinking.   | 3. I agree, altough I was hoping that there are some arguments I can use to show that this does not have to be like this, e.g. that I can participate in these auctions without influencing price.  
> **username_0**: 4. My wording is unclear since I am really unsure of what I can / cant do. If you want a precise answer, these auctions are on avg 100MWh, and I would like to get 10MWh, so 10% lets say. Of course, if there is some argument to be made for a different value, Im very open.   | 5. THANK YOU a lot, your comments are helpful and I will look into this paper. Its probably a good starting point.  

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## 0 answers

