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How does renewables competition affect forward contracting in electricity markets?

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  • Robert A. Ritz

Abstract

Higher renewables penetration reduces the incentive of conventional electricity generators to make forward commitments via forward- or retail-market contracts. This can undermine the role of forward contracting in mitigating market power. More renewables raise wholesale electricity prices in states of the world where their capacity utilizaton is low due to intermittency.

Suggested Citation

  • Robert A. Ritz, 2016. "How does renewables competition affect forward contracting in electricity markets?," Cambridge Working Papers in Economics 1617, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1617
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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1617.pdf
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    References listed on IDEAS

    as
    1. Michael G. Pollitt and Karim L. Anaya, 2016. "Can current electricity markets cope with high shares of renewables? A comparison of approaches in Germany, the UK and the State of New York," The Energy Journal, International Association for Energy Economics, vol. 0(Bollino-M).
    2. Matti Liski & Iivo Vehviläinen, 2016. "Gone with the Wind? An Empirical Analysis of the Renewable Energy Rent Transfer," CESifo Working Paper Series 6250, CESifo Group Munich.
    3. Ausubel, Lawrence M. & Cramton, Peter, 2010. "Using forward markets to improve electricity market design," Utilities Policy, Elsevier, vol. 18(4), pages 195-200, December.
    4. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
    5. James Bushnell, 2007. "Oligopoly equilibria in electricity contract markets," Journal of Regulatory Economics, Springer, vol. 32(3), pages 225-245, December.
    6. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2008. "Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets," American Economic Review, American Economic Association, vol. 98(1), pages 237-266, March.
    7. Anderson, Edward J. & Hu, Xinin & Winchester, Donald, 2007. "Forward contracts in electricity markets: The Australian experience," Energy Policy, Elsevier, vol. 35(5), pages 3089-3103, May.
    8. Frank Wolak, 2000. "An Empirical Analysis of the Impact of Hedge Contracts on Bidding Behavior in a Competitive Electricity Market," International Economic Journal, Taylor & Francis Journals, vol. 14(2), pages 1-39.
    9. Meredith L. Fowlie, 2009. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 72-112, August.
    10. Severin Borenstein, 2012. "The Private and Public Economics of Renewable Electricity Generation," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 67-92, Winter.
    11. Blaise Allaz & Jean-Luc Vila, 1993. "Cournot Competition, Forward Markets and Efficiency," Post-Print hal-00511806, HAL.
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    Citations

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    Cited by:

    1. Matti Liski & Iivo Vehviläinen, 2016. "Gone with the Wind? An Empirical Analysis of the Renewable Energy Rent Transfer," CESifo Working Paper Series 6250, CESifo Group Munich.
    2. Marius Paschen, 2016. "The effect of intermittent renewable supply on the forward premium in German electricity markets," Working Papers V-397-16, University of Oldenburg, Department of Economics, revised Nov 2016.
    3. repec:eee:rensus:v:91:y:2018:i:c:p:695-707 is not listed on IDEAS
    4. Matti Liski & Iivo Vehviläinen, 2016. "Gone with the Wind? An Empirical Analysis of the Renewable Energy Rent Transfer," CESifo Working Paper Series 6250, CESifo Group Munich.
    5. Newbery, David & Pollitt, Michael G. & Ritz, Robert A. & Strielkowski, Wadim, 2018. "Market design for a high-renewables European electricity system," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 695-707.

    More about this item

    Keywords

    Electricity markets; renewable energy; forward contracting;

    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
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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