The impact of energy market mergers on “green†producers' cost efficiency incentives: some preliminary results

Employing a highly stylized model of an energy oligopoly, we examine the cost efficiency incentives facing renewable energy (RE) (i.e., green) producers under a RE quota implemented via a Feed-in Tariff. In addition, we examine some implications of these incentives. We show that under Cournot competition, green producers have limited incentives to exploit learning-by-doing cost savings, but that a merger between the green producer and a fossil-fuel based (“black†) producer can fully restore these incentives. As expected, the merger leads to higher consumer prices ceteris paribus. However, the enhanced post-merger incentives to exploit cost reduction potential in the green technology leads to lower consumer prices. Policy makers should consider these potential impacts when assessing the potential costs and benefits of mergers between green and black energy producers.