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Market Power and Renewables: The Effects of Ownership Transfers

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  • Olivier Bahn
  • Mario Samano
  • Paul Sarkis

Abstract

Adding renewable energy sources (RES) to an electricity market has an ambiguous effect on wholesale prices. The merit order effect (MoE) has a downward pressure on prices while, with market power, higher inframarginal rents will tend to increase prices. We quantify the interaction of the two effects in the Ontario electricity market. We identify the market power effect by simulating transfers of RES capacity from the fringe to larger firms: these transfers increase prices by up to 24%. We then add RES capacity and allocate it to players with varying levels of market power. Following a net expansion of RES capacity of 5% relative to total capacity, prices decrease by 30% when new capacity is assigned to the fringe, but only by 7% when assigned to the largest firm. Our findings show that the MoE is largely mitigated by market power, hence the importance of the market structure in the design of uniform incentives for RES adoption.

Suggested Citation

  • Olivier Bahn & Mario Samano & Paul Sarkis, 2021. "Market Power and Renewables: The Effects of Ownership Transfers," The Energy Journal, , vol. 42(4), pages 195-225, July.
    • Handle: RePEc:sae:enejou:v:42:y:2021:i:4:p:195-225
    DOI: 10.5547/01956574.42.4.obah
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    References listed on IDEAS

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    Cited by:

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    2. R. Andrew Butters & Jackson Dorsey & Gautam Gowrisankaran, 2025. "Soaking up the Sun: Battery Investment, Renewable Energy, and Market Equilibrium," Econometrica, Econometric Society, vol. 93(3), pages 891-927, May.
    3. Harim Kim, 2025. "Cleaner but Volatile Energy? The Effect of Coal Plant Retirement on Market Competition in the Wholesale Electricity Market," Working papers 2025-08, University of Connecticut, Department of Economics.
    4. 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).
    5. Levitt, Clinton J. & Lovell, Skylar, 2025. "Market share, plant ownership, and the merit-order effect of renewable resources: Evidence from Australia’s National Electricity Market," Utilities Policy, Elsevier, vol. 96(C).

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