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Renewable support and strategic pricing in electricity markets

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  • Bohland, Moritz
  • Schwenen, Sebastian

Abstract

We show how policies to support clean technologies change price competition and market outcomes. 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. Contract-based output subsidies decrease firms’ mark-ups. In contrast, market-based 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 renewable subsidies significantly impacts pricing behavior of firms and policy costs for consumers.

Suggested Citation

  • Bohland, Moritz & Schwenen, Sebastian, 2022. "Renewable support and strategic pricing in electricity markets," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:indorg:v:80:y:2022:i:c:s0167718721000849
    DOI: 10.1016/j.ijindorg.2021.102792
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    Cited by:

    1. Jacqueline Adelowo & Moritz Bohland, 2022. "Redesigning Automated Market Power Mitigation in Electricity Markets," ifo Working Paper Series 387, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Hugo Algarvio, 2023. "The Economic Sustainability of Variable Renewable Energy Considering the Negotiation of Different Support Schemes," Sustainability, MDPI, vol. 15(5), pages 1-21, March.

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    More about this item

    Keywords

    Subsidies; Clean energy; Strategic pricing; Electricity;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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