Market Power and Price Exposure: Learning from Changes in Renewable Energy Regulation

Natalia Fabra and Imelda Imelda

American Economic Journal: Economic Policy, 2023, vol. 15, issue 4, 323-58

Abstract: Given the critical role of renewable energies in current and future electricity markets, it is important to understand how they affect firms' pricing incentives. We study whether the price-depressing effect of renewables depends on their degree of market price exposure. Paying renewables with fixed prices, rather than market-based prices, is more effective at curbing market power when the dominant firms own large shares of renewables, and vice versa. Our empirical analysis leverages several short-lived changes to renewables regulation in the Spanish market and shows that switching from full-price exposure to fixed prices caused a 2–4 percent reduction in the average price-cost markup.

JEL-codes: L13 L94 L98 Q42 Q48 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Working Paper: Market Power and Price Exposure- Learning from Changes in Renewable Energy Regulation (2022)
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DOI: 10.1257/pol.20210221

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