Market share, plant ownership, and the merit-order effect of renewable resources: Evidence from Australia’s National Electricity Market

The increasing reliance on wind and solar generation motivates the need to continue investigating their impact on electricity markets. Complications continue to arise because of the ongoing concern about the potential of dominant firms to exert significant market power in electricity markets. This paper aims to empirically investigate whether market power has a mitigating effect on the merit-order effect (MOE) of solar and wind generation and to determine whether changes to pricing policies worked to alleviate any of the mitigating effects. We analyse the New South Wales (NSW) wholesale electricity by analysing market outcomes for each five-minute dispatch auction from 2019 to 2022. Our main conclusion is that there is no substantial empirical evidence supporting the hypothesis that the market power of the dominant firm mitigated the MOE of wind generation over the sample period. The only significant evidence of a mitigating effect was in dispatch intervals in which the dominant firm was a pivotal supplier. Our analysis provides evidence that the dominant firm internalised the potential loss in revenue from coal generation due to the MOE from its wind generation.