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Support Schemes for Renewable Electricity in the European Union: Producer Strategies and Competition

Listed author(s):
  • Luisa Dressler

Current discussion about how to reform European support schemes for renewable electricity neglects certain risks of market power in wholesale electricity markets. In a stylized Cournot model of interacting spot and forward electricity markets, I analyze how different price-based support schemes affect producer strategies and, ultimately, competition in the wholesale market. I compare the strategic behavior of renewable and conventional producers in terms of electricity production and forward market sales in the presence of two different price-based support schemes: feed-in tariffs and feed-in premiums. I show that the feed-in premium, which is the European Commission's current scheme of choice, may enhance market power and favor conventional electricity production. It may also reduce the likelihood of achieving the political objective to increase production from renewable energy sources.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2014-54.

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Length: 37 p.
Date of creation: Dec 2014
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/185672
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