Capacity Bunching in Renewable Energy Production

This paper studies behavioural responses to a discontinuous (‘notched’) revenue scheme for renewable energy production, in which support the scheme depends on the installed capacity. We present a simple model demonstrating that this discontinuous revenue function causes capacity bunching either due to plant splitting into different legal entities or due to withholding capacity and analyse its impact on the auction market. Using data from the German energy market register we show sizeable capacity bunching in a sample of ground-mounted photovoltaic systems. This excess bunching is to 56% driven by plant spitting and to 44% by capacity withholding