Market Power and Renewables: The Effects of Ownership Transfers

Olivier Bahn, Mario Samano, and Paul Sarkis
Authors registered in the RePEc Author Service: Mario Samano

The Energy Journal, 2021, vol. Volume 42, issue Number 4

Abstract: Adding renewable energy sources (RES) to an electricity market has an ambiguous effect on wholesale prices. The merit order effect (MoE) has a downward pressure on prices while, with market power, higher inframarginal rents will tend to increase prices. We quantify the interaction of the two effects in the Ontario electricity market. We identify the market power effect by simulating transfers of RES capacity from the fringe to larger firms: these transfers increase prices by up to 24%. We then add RES capacity and allocate it to players with varying levels of market power. Following a net expansion of RES capacity of 5% relative to total capacity, prices decrease by 30% when new capacity is assigned to the fringe, but only by 7% when assigned to the largest firm. Our findings show that the MoE is largely mitigated by market power, hence the importance of the market structure in the design of uniform incentives for RES adoption.

JEL-codes: L13 L94 Q42 Q48 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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