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

Author

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  • Natalia Fabra
  • Imelda

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, 2023. "Market Power and Price Exposure: Learning from Changes in Renewable Energy Regulation," American Economic Journal: Economic Policy, American Economic Association, vol. 15(4), pages 323-358, November.
    • Handle: RePEc:aea:aejpol:v:15:y:2023:i:4:p:323-58
    DOI: 10.1257/pol.20210221
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    Cited by:

    1. Sirin, Selahattin Murat & Elshurafa, Amro M. & Cakmak, Nurullah, 2025. "The impact of variable renewables on price dynamics within wholesale electricity markets," Utilities Policy, Elsevier, vol. 95(C).
    2. Hugo Algarvio & Vivian Sousa, 2025. "Strategic Bidding to Increase the Market Value of Variable Renewable Generators in New Electricity Market Designs," Energies, MDPI, vol. 18(11), pages 1-18, May.
    3. Bistuer-Talavera, Cristobal & Llobet-Dalmases, Joan & Plana-Erta, Dolors & Uribe, Jorge M., 2024. "Capital structure decisions in the energy transition: Insights from Spain," Utilities Policy, Elsevier, vol. 91(C).
    4. Jessica Coria & Jūratė Jaraitė, 2024. "Vertical Integration in Tradable Green Certificate Markets," CESifo Working Paper Series 11079, CESifo.
    5. Anas Abuzayed, 2025. "From model optimality to market reality: do electricity markets support renewable investments?," Working Papers EPRG2521, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    6. Vivian Sousa & Hugo Algarvio, 2025. "Strategic Bidding to Increase the Market Value of Variable Renewable Generators in Electricity Markets," Energies, MDPI, vol. 18(7), pages 1-22, March.
    7. Johanndeiter, Silke & Bertsch, Valentin, 2024. "Bidding zero? An analysis of solar power plants’ price bids in the electricity day-ahead market," Applied Energy, Elsevier, vol. 371(C).
    8. Natalia Fabra & Clément Leblanc & Mateus Souza, 2025. "Unpacking the Distributional Implications of the Energy Crisis Lessons from the Iberian Electricity Market," CRC TR 224 Discussion Paper Series crctr224_2025_716, University of Bonn and University of Mannheim, Germany.
    9. Hugo Algarvio & Vivian Sousa, 2025. "Strategies to Incentivize the Participation of Variable Renewable Energy Generators in Balancing Markets," Energies, MDPI, vol. 18(11), pages 1-23, May.
    10. Peio Alcorta & Maria Paz Espinosa & Cristina Pizarro-Irizar, 2024. "Right and Duty: Investment Risk Under Different Renewable Energy Support Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(12), pages 3163-3204, December.
    11. Bryan, Calvin & Donovan, Pierce & Kacker, Kanishka & Pham, Linh, 2025. "A Comment on "Market Power and Price Exposure: Learning from Changes in Renewable Energy Regulation"," I4R Discussion Paper Series 258, The Institute for Replication (I4R).
    12. Abuzayed, A., 2025. "From Model Optimality to Market Reality: Do Electricity Markets Support Renewable Investments?," Cambridge Working Papers in Economics 2558, Faculty of Economics, University of Cambridge.
    13. Md Motinur Rahman & Saikot Hossain Dadon & Miao He & Michael Giesselmann & Md Mahmudul Hasan, 2024. "An Overview of Power System Flexibility: High Renewable Energy Penetration Scenarios," Energies, MDPI, vol. 17(24), pages 1-31, December.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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