Does wind energy mitigate market power in deregulated electricity markets?

Ben-Moshe, Ori; Rubin, Ofir D.

doi:10.1016/j.energy.2015.03.069

Cited by 17 publications

(6 citation statements)

References 20 publications

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“…17. This effect has been highlighted in other studies (e.g., Ben-Moshe and Rubin, 2015;Acemoglu et al, 2017). 18.…”

Section: Spot Market Equilibriumsupporting

confidence: 69%

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

Brown¹,

Eckert²

2020

The Energy Journal

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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 "more valuable" renewable resources are sufficiently large, then welfare is higher under the premium-priced policy despite the stronger market power incentives in the wholesale market.

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“…17. This effect has been highlighted in other studies (e.g., Ben-Moshe and Rubin, 2015;Acemoglu et al, 2017). 18.…”

Section: Spot Market Equilibriumsupporting

confidence: 69%

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

Brown¹,

Eckert²

2020

The Energy Journal

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“…The direct effect of renewables on wholesale prices (the merit order effect) is typically negative as they provide generation at very low or zero marginal cost and displace more costly generation. Renewables can also decrease prices indirectly by lowering market power in systems where generators bid strategically, as highlighted by Browne et al (2015) and Ben-Moshe and Rubin (2015). At the same time, integrating generation that is intermittent and difficult to predict has costs.…”

mentioning

confidence: 99%

Wind, Storage, Interconnection and the Cost of Electricity Generation

Cosmo

Valeri

2017

SSRN Journal

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We evaluate how increasing wind generation affects wholesale electricity prices, balancing payments and the cost of subsidies using the Irish Single Electricity Market (SEM) as a test system, with hourly data from 1 January 2008 to 28 August 2012. We model the spot market using a system of seemingly unrelated regressions (SUR) where the regressions are the 24 hours of the day. Wind has a negative impact on the system marginal price, with every MWh increase in wind generation (equal to about 0.2% of the average wind generation in our sample) leading to a decrease of the system marginal price of €0.018/MWh, or about 0.3% of its average value. We use time series models to analyse the balancing market and show that wind generation increases balancing payments, as do the forecast errors of demand and wind. Every MWh of additional wind generation is associated with an increase in constraint payments of €3.2, or about 0.01%. Lack of storage increases the impact of wind on balancing payments whereas the lack of interconnection has no effect. Overall, wind decreases costs through its effect on the electricity price more than it increases constraint payments, even when storage is on outage. The effect of wind remains positive after including the cost of subsidies given to wind generation.

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“…If market power is exerted, both power generation and storage capacity are used differently than under perfect competition. In effect, producers would withhold production to increase prices and profits (Milstein and Tishler, 2015;Browne et al, 2015;Ben-Moshe and Rubin, 2015). Producers with market power would also use storage capacity less than socially optimal to avoid decreasing their surplus due to the price-smoothing effect (Bushnell, 2003;Schill and Kemfert, 2011), and their actions may reverse flows in the transmission network (Virasjoki et al, 2016).…”

Section: Introductionmentioning

confidence: 99%

“…Past research on the relationship between VRE and market power has investigated how market power with dispatchable generation affects VRE producers (Twomey and Neuhoff, 2010), or how a higher market share of VRE affects market power when generators have a portfolio of dispatchable and VRE generation (Ben-Moshe and Rubin, 2015;Browne et al, 2015;Milstein and Tishler, 2015;Acemoglu et al, 2017). Electricity storage is often seen as a key component in high VRE systems.…”

Section: Introductionmentioning

confidence: 99%

Pricing and Competition with 100% Variable Renewable Energy and Storage

Ekholm

Virasjoki²

2020

The Energy Journal

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Electricity production is a key sector in global decarbonization efforts, and variable renewable energy (VRE) technologies are a primary way to produce carbon-free electricity. We study an electricity market where generation is 100% VRE, while storage and elastic demand resolve temporal supply-demand imbalances. We model hourly market equilibrium to analyze price formation and imperfect, Cournot-type competition with varying levels of ownership concentration. Market power is exerted either with storage-only or with both VRE and storage. In such a system, prices are determined dynamically by demand and intertemporal storage decisions, breaking the static logic of “merit order” with dispatch-able generation. The numerical results indicate that market power with storage has a relatively moderate effect on prices and market efficiency. However, market power exerted with VRE has far larger welfare impacts, resulting from curtailed generation. However, such actions could be more readily observed by a regulator via monitoring.

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Does wind energy mitigate market power in deregulated electricity markets?

Cited by 17 publications

References 20 publications

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

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

Wind, Storage, Interconnection and the Cost of Electricity Generation

Pricing and Competition with 100% Variable Renewable Energy and Storage

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