What is the Strategic Value of Investments in Alternative Local Energy Supply?

Abstract

This paper studies strategic incentives to invest in electricity generation capacity using a local fuel like renewables or coal. It shows that investing in this capacity, even if not used, improves the bargaining position of a power producing firm that also imports another fuel such as gas. When several importers are considered, the paper finds that investment has a positive strategic effect on all other importers' bargaining position. A government energy policy that forces utilities to invest in capacity based on particular fuels can be justified not only for environmental but also for strategic reasons.

Trade Quotas and Buyer Power, With an Application to the E.U. Natural Gas Market

“…Relatedly, in a recent paper Kupper () shows that an electricity generator's investments in renewable energy production can have positive spill‐over effects on other electricity firms' bargaining positions in the gas market.…”