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Market Power and Price Exposure- Learning from Changes in Renewable Energy Regulation

Author

Listed:
  • Natalia Fabra

    (Universidad Carlos III de Madrid)

  • Imelda

    (IHEID, Graduate Institute of International and Development Studies, Geneva)

Abstract

Given the critical role of renewable energies in current and future electricity markets, it is important to understand how they affect firms’ pricing incentives. We study whether the price-depressing effect of renewables depends on their degree of market price exposure. Paying renewables with fixed prices, rather than market-based prices, is more effective at curbing market power when the dominant firms own large shares of renewables, and vice-versa. Our empirical analysis leverages several short-lived changes to renewables regulation in the Spanish market and shows that switching from full-price exposure to fixed prices caused a 2-4 percent reduction in the average price-cost markup.

Suggested Citation

  • Natalia Fabra & Imelda, 2022. "Market Power and Price Exposure- Learning from Changes in Renewable Energy Regulation," IHEID Working Papers 31-2022, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp31-2022
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    Keywords

    Market power; Forward contracts; Arbitrage; Renewables;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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