• Energy Research
• economics and business close

Abstract This paper presents a preemption game model based on real option theory to analyze the optimal bidding price for investors participating in a renewable auction. We studied how investors each decides their own optimal bidding price, with preemption by rivals and incomplete information, to balance their expected profits and ability to hedge risk. We demonstrate that adjusting the bidding price to hedge the risks from adverse market conditions can equal that of choosing a flexible investment time based on the standard real option model. The unique Bayesian Nash equilibrium of the game constituted with the optimal bidding price of each investor is also characterized. The quantitative solution to the model is provided, with integration of least squares Monte Carlo, and in the case study we calculate the optimal bidding price of offshore wind power concessions in China. An interesting finding in the quantitative evidence is that, although the optimal bidding price is close to zero net present value if the number of participants is large, with consideration of risk-hedging ability, investors may tend to play a hostile bid, which shows that a large number of participants may do harm to some renewable projects that are not mature enough.

To achieve carbon emissions control targets, policymakers often need a basket of policies to account for the complexity of abatement. The instruments in the policy mix are often interconnected. It is of great importance to study how different abatement policies perform in practice—in other words, to evaluate the effectiveness of the abatement policy mix. This paper builds a multisector partial equilibrium model and then studies the policy effectiveness using data from two energy-intensive sectors in China, namely, the iron and steel sector and the cement sector. The results show clear evidence that these policies interact, and the policy mix is not a simple aggregation but rather differs across sectors, which leads to fundamentally different scenarios in terms of energy savings, emissions reductions and production behaviors. Energy-savings subsidies can increase production and profit with a lower equilibrium level of carbon prices, whereas output-based rebating of allowances reduces production and is associated with higher carbon prices.