Can price volatility enhance market power? The case of renewable technologies in competitive electricity markets

Irena Milstein and Asher Tishler

Resource and Energy Economics, 2015, vol. 41, issue C, 70-90

Abstract: This paper develops a two-stage model with endogenous capacity and operations to assess the practicality of photovoltaic technology (PV) in competitive electricity markets. Applying our model to stylized data of California's electricity market we demonstrate that electricity price spikes are higher and more frequent the higher the PV capacity. Consequently, the average electricity price rises when construction costs of PV capacity decline due, for example, to technology improvements, bestowing market power and excessive profits on producers employing fossil-using technologies. We also show that an increase in the number of PV-using firms and higher CO2 tax reduce consumer surplus.

Keywords: Price volatility; Market power; Electricity; Renewable technologies (search for similar items in EconPapers)
JEL-codes: D24 D43 L11 L94 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:41:y:2015:i:c:p:70-90

DOI: 10.1016/j.reseneeco.2015.04.001

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