Kajsa Ganhammar

Kajsa Ganhammar

PhD Candidate in Economics

Research

Work in progress

• Bidding behaviour in interdependent markets for electricity and green certificates [JOB MARKET PAPER]
Revise & Resubmit: Energy Economics

Abstract Market-based climate policies have received increased attention, making it important to understand how such politically created markets affect competition in the electricity market. This paper focuses on the green certificate policy which financially supports producers of renewably sourced electricity by means of tradable certificates, and develops a duopoly model that incorporates both the electricity and the green certificate markets in an auction-based setting. Producers are privately informed about their generation costs, and the results suggest that whether or not they are drawn from the same distribution have important implications for market outcomes. In particular, if the subsidised technology has a higher expected marginal cost than the conventional technology, the certificate policy can improve competition and efficiency in the electricity market. Conversely, if producers are ex-ante symmetric in their marginal costs, the advantage the policy creates enables the subsidised producer to bid higher at given cost as the probability of winning the electricity auction increases. This is harmful for competition and results in high consumer prices of electricity.

• Search frictions in markets where sellers offer sealed-bid auctions (draft available upon request)

Abstract Despite empirical evidence of price dispersion, there is limited research on the role of search frictions in competing auction markets. This paper incorporates search into a stylised model where two sellers post sealed-bid auctions to sell a homogeneous good. Buyers are aware of the location of one of the sellers and can choose to engage in costly search to locate the other before the auctions take place. I find that such friction leads to price dispersion because only buyers with valuations above a certain threshold are willing to engage in costly search. A simulation study shows that those that search and win the 'low-visibility' auction are better off than the non-searchers that win the 'high-visibility' auction. However, on aggregate, when including those for which search does not pay off ex-post (i.e, they lose the auction), searching buyers are the losers. This demonstrates the welfare losses associated with search frictions in auction markets. Furthermore, due to buyers inability to coordinate their search decisions, the only equilibrium involves buyers above the threshold randomising between auctions, which makes an inefficient market outcome probable.

Publications

• The effect of regulatory uncertainty in green certificate markets: Evidence from the Swedish-Norwegian market
Energy Policy, vol. 158, 2021

Abstract European Commission favours market-based support policies, such as markets for tradable green certificates, to promote renewable energy. Meanwhile, these instruments have received critique for exposing investors to large price risk as the level of support is determined by the market price of certificates. Using a two-step procedure, this study builds upon the work of Fagiani and Hakvoort (2014) by firstly examining how regulatory interventions in the Swedish-Norwegian certificate market affect price volatility, focusing particularly on the period after Norway joined in 2012. The results show that interventions in the market exacerbate price risk by resulting in regimes of increased volatility. They indicate that, contrary to policymakers expectation, prices did not stabilise after the market integration with Norway. Employing a real options approach, the study further proceeds to demonstrate that price risk increases the threshold for immediate development of Swedish wind power projects; a one standard deviation increase in certificate price volatility is estimated to reduce the probability of project development by 12%. These findings illustrate that regulatory uncertainty in terms of high price volatility disrupts the investment climate in certificate markets, ultimately affecting cost-effectiveness of such policy.