Imperfect Competition in Electricity Markets with Renewable Generation: The Role of Renewable Compensation Policies

David P. Brown and Andrew Eckert
Authors registered in the RePEc Author Service: David Paul Brown

The Energy Journal, 2020, vol. Volume 41, issue Number 4, 61-88

Abstract: We analyze the effects of commonly employed renewable compensation policies on firm behavior in an imperfectly competitive market. We consider a model where firms compete for renewable capacity in an auction prior to choosing their forward positions and competing in wholesale markets. We focus on fixed and premium-priced feed-in tariff (FIT) compensation policies. We demonstrate that compensation policies impact both the types of resources that win the auction and subsequent competition. While firms have stronger incentives to exercise market power under a premium-priced FIT, they also have increased incentives to sign pro-competitive forward contracts. In net firms have stronger incentives to exercise market power under the premium-priced policy. We find conditions under which renewable resources that are more correlated with market demand are procured under a premium-priced design, while the opposite occurs under a fixed-priced policy. If the cost efficiencies associated with the ýmore valuableý renewable resources are sufficiently large, then welfare is higher under the premium-priced policy despite the stronger market power incentives in the wholesale market.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.iaee.org/en/publications/ejarticle.aspx?id=3527 (text/html)
Access to full text is restricted to IAEE members and subscribers.

Related works:
Journal Article: Imperfect Competition in Electricity Markets with Renewable Generation: The Role of Renewable Compensation Policies (2020)
Working Paper: Imperfect Competition in Electricity Markets with Renewable Generation: The Role of Renewable Compensation Policies (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aen:journl:ej41-4-brown

Ordering information: This journal article can be ordered from
http://www.iaee.org/en/publications/ejsearch.aspx

Access Statistics for this article

More articles in The Energy Journal from International Association for Energy Economics Contact information at EDIRC.
Bibliographic data for series maintained by David Williams ().