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

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  • Milstein, Irena
  • Tishler, Asher

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.

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  • Milstein, Irena & Tishler, Asher, 2015. "Can price volatility enhance market power? The case of renewable technologies in competitive electricity markets," Resource and Energy Economics, Elsevier, vol. 41(C), pages 70-90.
    • Handle: RePEc:eee:resene:v:41:y:2015:i:c:p:70-90
    DOI: 10.1016/j.reseneeco.2015.04.001
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    7. Gal, Nurit & Milstein, Irena & Tishler, Asher & Woo, C.K., 2017. "Fuel cost uncertainty, capacity investment and price in a competitive electricity market," Energy Economics, Elsevier, vol. 61(C), pages 233-240.
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    12. Wagner, Johannes, 2016. "Grid Investment and Support Schemes for Renewable Electricity Generation," EWI Working Papers 2016-8, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), revised 10 Aug 2017.
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    19. Diego Aineto & Javier Iranzo-Sánchez & Lenin G. Lemus-Zúñiga & Eva Onaindia & Javier F. Urchueguía, 2019. "On the Influence of Renewable Energy Sources in Electricity Price Forecasting in the Iberian Market," Energies, MDPI, vol. 12(11), pages 1-20, May.
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    More about this item

    Keywords

    Price volatility; Market power; Electricity; Renewable technologies;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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