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Technology Policy and Market Structure: Evidence from the Power Sector

Moritz Bohland and Sebastian Schwenen

No 1856, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We show how policies to trigger clean technologies change price competition and market structure. We present evidence from electricity markets, where regulators have implemented different policies to subsidize clean energy. Building on a multi-unit auction model, we show that currently applied subsidy designs either foster or attenuate competition. Fixed, price-independent output subsidies decrease firms’ mark-ups. In contrast, designs that subsidize clean output via a regulatory premium on the market price lead to higher mark-ups. We confirm this finding empirically using auction data from the Spanish power market. Our empirical results show that the design choice for technology subsidies significantly impacts pricing behavior of firms and policy costs for consumers

Keywords: Subsidies; Clean Energy; Pricing; Electricity (search for similar items in EconPapers)
JEL-codes: D22 D44 D47 (search for similar items in EconPapers)
Pages: 30 p.
Date: 2020
New Economics Papers: this item is included in nep-com, nep-ene, nep-eur and nep-ind
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