IDEAS home Printed from https://ideas.repec.org/p/cwl/cwldpp/2294.html
   My bibliography  Save this paper

Holding Up Green Energy

Author

Abstract

Green energy is produced by relationship-specific assets that are vulnerable to hold-up if contracts are not strictly enforced. I study the role of counterparty risk in the procurement of green energy using data on the universe of solar procurement auctions in India. The Indian context allows clean estimates of how risk affects procurement, because solar power plants set up in the same states, by the same firms, are procured in auctions variously intermediated by either risky states themselves or the central government. I find that: (i) the counterparty risk of an average state increases solar energy prices by 10%; (ii) the intermediation of the central government eliminates this risk premium; (iii) higher prices due to risk reduce investment, because state demand for green energy is elastic. The results suggest that the risk of hold-up places developing countries at a disadvantage in the procurement of green energy.

Suggested Citation

  • Nicholas Ryan, 2020. "Holding Up Green Energy," Cowles Foundation Discussion Papers 2294, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2294
    as

    Download full text from publisher

    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d22/d2294.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships and Informal Credit in Vietnam," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1285-1320.
    2. Catherine Wolfram & Orie Shelef & Paul Gertler, 2012. "How Will Energy Demand Develop in the Developing World?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 119-138, Winter.
    3. Christopher R. Knittel & Victor Stango, 2003. "Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards," American Economic Review, American Economic Association, vol. 93(5), pages 1703-1729, December.
    4. Vivek Bhattacharya & James W. Roberts & Andrew Sweeting, 2014. "Regulating bidder participation in auctions," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 675-704, December.
    5. Joskow, Paul L, 1988. "Asset Specificity and the Structure of Vertical Relationships: Empirical Evidence," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(1), pages 95-117, Spring.
    6. Gregory Lewis & Patrick Bajari, 2014. "Moral Hazard, Incentive Contracts, and Risk: Evidence from Procurement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(3), pages 1201-1228.
    7. Jacquelyn Pless & Arthur A. van Benthem, 2019. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies," American Economic Journal: Applied Economics, American Economic Association, vol. 11(4), pages 367-401, October.
    8. Rocco Macchiavello & Ameet Morjaria, 2015. "The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports," American Economic Review, American Economic Association, vol. 105(9), pages 2911-2945, September.
    9. Arthur Blouin & Rocco Macchiavello, 2019. "Strategic Default in the International Coffee Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 895-951.
    10. Elena Krasnokutskaya & Katja Seim, 2011. "Bid Preference Programs and Participation in Highway Procurement Auctions," American Economic Review, American Economic Association, vol. 101(6), pages 2653-2686, October.
    11. Shrimali, Gireesh & Konda, Charith & Farooquee, Arsalan Ali, 2016. "Designing renewable energy auctions for India: Managing risks to maximize deployment and cost-effectiveness," Renewable Energy, Elsevier, vol. 97(C), pages 656-670.
    12. Nicholas Ryan, 2020. "Contract Enforcement and Productive Efficiency: Evidence From the Bidding and Renegotiation of Power Contracts in India," Econometrica, Econometric Society, vol. 88(2), pages 383-424, March.
    13. Vivek Bhattacharya & Andrey Ordin & James W. Roberts, 2022. "Bidding and Drilling under Uncertainty: An Empirical Analysis of Contingent Payment Auctions," Journal of Political Economy, University of Chicago Press, vol. 130(5), pages 1319-1363.
    14. 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.
    15. Kumar, Alok & Chatterjee, Sushanta, 2012. "Electricity Sector in India: Policy and Regulation," OUP Catalogue, Oxford University Press, number 9780198082279.
    16. Abhijit V. Banerjee & Esther Duflo, 2000. "Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 989-1017.
    17. Tong Li & Xiaoyong Zheng, 2009. "Entry and Competition Effects in First-Price Auctions: Theory and Evidence from Procurement Auctions," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1397-1429.
    18. Steven Tadelis, 2009. "Auctions Versus Negotiations in Procurement: An Empirical Analysis," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 25(2), pages 372-399, October.
    19. Johannes Stroebel & Arthur van Benthem, 2013. "Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1622-1639, December.
    20. Gautam Gowrisankaran & Stanley S. Reynolds & Mario Samano, 2016. "Intermittency and the Value of Renewable Energy," Journal of Political Economy, University of Chicago Press, vol. 124(4), pages 1187-1234.
    21. James Bushnell & Kevin Novan, 2018. "Setting with the Sun: The Impacts of Renewable Energy on Wholesale Power Markets," NBER Working Papers 24980, National Bureau of Economic Research, Inc.
    22. Patrick Bajari & Stephanie Houghton & Steven Tadelis, 2014. "Bidding for Incomplete Contracts: An Empirical Analysis of Adaptation Costs," American Economic Review, American Economic Association, vol. 104(4), pages 1288-1319, April.
    23. Olivier Armantier & Jean-Pierre Florens & Jean-Francois Richard, 2008. "Approximation of Nash equilibria in Bayesian games," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(7), pages 965-981.
    24. Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," American Economic Review, American Economic Association, vol. 101(3), pages 238-241, May.
    25. Severin Borenstein, 2017. "Private Net Benefits of Residential Solar PV: The Role of Electricity Tariffs, Tax Incentives, and Rebates," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(S1), pages 85-122.
    26. Amrit Amirapu, 2021. "Justice Delayed Is Growth Denied: The Effect of Slow Courts on Relationship-Specific Industries in India," Economic Development and Cultural Change, University of Chicago Press, vol. 70(1), pages 415-451.
    27. Nakabayashi, Jun, 2013. "Small business set-asides in procurement auctions: An empirical analysis," Journal of Public Economics, Elsevier, vol. 100(C), pages 28-44.
    28. Kevin Novan, 2015. "Valuing the Wind: Renewable Energy Policies and Air Pollution Avoided," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 291-326, August.
    29. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 675-689.
    30. Bose, A.S. & Sarkar, S., 2019. "India's e-reverse auctions (2017–2018) for allocating renewable energy capacity: An evaluation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 112(C), pages 762-774.
    31. Ali Hortaçsu & David McAdams, 2010. "Mechanism Choice and Strategic Bidding in Divisible Good Auctions: An Empirical Analysis of the Turkish Treasury Auction Market," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 833-865.
    32. Boo‐Sung Kang & Steven L. Puller, 2008. "The Effect Of Auction Format On Efficiency And Revenue In Divisible Goods Auctions: A Test Using Korean Treasury Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 290-332, June.
    33. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-185, March.
    34. repec:hal:spmain:info:hdl:2441/3lt9cev6r09aqpj1a1248i83gg is not listed on IDEAS
    35. Nicholas Ryan, 2021. "The Competitive Effects of Transmission Infrastructure in the Indian Electricity Market," American Economic Journal: Microeconomics, American Economic Association, vol. 13(2), pages 202-242, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rodrigo Carril & Andres Gonzalez-Lira & Michael S. Walker, 2022. "Competition under Incomplete Contracts and the Design of Procurement Policies," Working Papers 1327, Barcelona School of Economics.
    2. Nicholas Ryan, 2019. "Contract Enforcement and Productive Efficiency: Evidence from the Bidding and Renegotiation of Power Contracts in India," Cowles Foundation Discussion Papers 2164R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2019.
    3. Nicholas Ryan, 2020. "Contract Enforcement and Productive Efficiency: Evidence From the Bidding and Renegotiation of Power Contracts in India," Econometrica, Econometric Society, vol. 88(2), pages 383-424, March.
    4. Leonardo M. Giuffrida & Gabriele Rovigatti, 2017. "Can the Private Sector Ensure the Public Interest? Evidence from Federal Procurement," CEIS Research Paper 411, Tor Vergata University, CEIS, revised 20 Jul 2017.
    5. Fabra, Natalia, 2021. "The energy transition: An industrial economics perspective," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    6. Ari Hyytinen & Sofia Lundberg & Otto Toivanen, 2018. "Design of public procurement auctions: evidence from cleaning contracts," RAND Journal of Economics, RAND Corporation, vol. 49(2), pages 398-426, June.
    7. Nicholas Ryan, 2019. "Contract Enforcement and Productive Efficiency: Evidence from the Bidding and Renegotiation of Power Contracts in India," Cowles Foundation Discussion Papers 2164, Cowles Foundation for Research in Economics, Yale University.
    8. Nicholas Ryan, 2019. "Contract Enforcement and Productive Efficiency: Evidence from the Bidding and Renegotiation of Power Contracts in India," NBER Working Papers 25547, National Bureau of Economic Research, Inc.
    9. Stefan Lamp & Mario Samano, 2023. "(Mis)allocation of Renewable Energy Sources," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(1), pages 195-229.
    10. Seres, G. & Pigon, Adam, 2019. "On the Competitive Effects of Screening in Procurement," Other publications TiSEM 3314c398-ea79-4f74-96f4-8, Tilburg University, School of Economics and Management.
    11. Pycia, Marek & Woodward, Kyle, 2021. "Auctions of Homogeneous Goods: A Case for Pay-as-Bid," CEPR Discussion Papers 15656, C.E.P.R. Discussion Papers.
    12. Sabrina Peng, 2020. "Selective Entry in Highway Procurement Auctions," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 48(4), pages 519-533, December.
    13. Bedri Kamil Onur Tas, 2020. "Effect of public procurement regulation on competition and cost-effectiveness," Journal of Regulatory Economics, Springer, vol. 58(1), pages 59-77, August.
    14. Bedri Kamil Onur Tas, 2020. "Effect of Public Procurement Regulation on Competition and Cost-Effectiveness," RSCAS Working Papers 2020/36, European University Institute.
    15. Rocco Macchiavello & Ameet Morjaria, 2021. "Competition and Relational Contracts in the Rwanda Coffee Chain," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(2), pages 1089-1143.
    16. Macchiavello, Rocco & Morjaria, Ameet, 2022. "Empirical approaches to trust and relational contracts," International Journal of Industrial Organization, Elsevier, vol. 84(C).
    17. Mar Reguant, 2018. "The Efficiency and Sectoral Distributional Implications of Large-Scale Renewable Policies," NBER Working Papers 24398, National Bureau of Economic Research, Inc.
    18. Daniel Prudencio, 2023. "Productivity in Procurement Auctions of Pavement Contracts in Mexico," Journal of Productivity Analysis, Springer, vol. 60(1), pages 63-85, August.
    19. Francesco Decarolis & Leonardo M Giuffrida & Elisabetta Iossa & Vincenzo Mollisi & Giancarlo Spagnolo, 2020. "Bureaucratic Competence and Procurement Outcomes [“Politics and Economics in Weak and Strong States]," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 36(3), pages 537-597.
    20. Wenzheng Gao & Daiqiang Zhang & Naibao Zhao, 2021. "Uncertainty In Procurement Contracting With Time Incentives," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(3), pages 1153-1197, August.

    More about this item

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cwl:cwldpp:2294. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Brittany Ladd (email available below). General contact details of provider: https://edirc.repec.org/data/cowleus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.