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Distributed energy generation techniques and the competitive fringe effect in electricity markets

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  • Mulder, Machiel
  • Petrikaitė, Vaiva
  • Scholtens, Bert

Abstract

We analyse the impact of two different generation techniques used by fringe suppliers on the intensity of competition in the electricity wholesale market. For that purpose, we derive a Cournot model of this market taking into account long-term contracts, international trade and fringe suppliers using different energy generating technologies. We apply this model to the Dutch market and estimate the impact of fringe supply on the Lerner index. We find that the fringe supply coming from both intermittent wind generation and combined heat and power (CHP) plants operated by horticultural farmers increases competition, which leads to lower prices in the electricity market. However, this impact is relatively small. The effect per unit of intermittent wind electricity generation on competition and, therefore, prices is stronger than that of the CHP technology.

Suggested Citation

  • Mulder, Machiel & Petrikaitė, Vaiva & Scholtens, Bert, 2015. "Distributed energy generation techniques and the competitive fringe effect in electricity markets," Resource and Energy Economics, Elsevier, vol. 42(C), pages 125-140.
    • Handle: RePEc:eee:resene:v:42:y:2015:i:c:p:125-140
    DOI: 10.1016/j.reseneeco.2015.07.004
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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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