Support schemes for renewable electricity in the European Union: Producer strategies and competition

Abstract

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 dierent price-based support schemes aect 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 dierent price-based support schemes: feed-in taris 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.

Renewable Support, Intermittency and Market Power: An Equilibrium Investment Approach

“…This finding is in line with Acemoglu et al (2017) which shows, that in a market-based approach, if all firms own both conventional and renewable capacity, market price becomes independent of total renewable investments. In contrast, Dressler (2016) predicts that, under FIP, for sufficiently high available renewable capacity and a sufficiently low feed-in rate, market price could become independent of renewable capacity. This independence is mainly driven by the assumption that renewable capacity is exogenously set.…”

“…nuclear or coal) would reduce available capacity in the market which potentially decreases competition. However, recent discussions regarding the reform in European renewable support policies mostly fail to consider certain risks of market power in electricity markets (Dressler (2016)).…”

Interaction between CO2 emissions trading and renewable energy subsidies under uncertainty: feed-in tariffs as a safety net against over-allocation

“…independent of the electricity price. A floating FIP, under which a variable subsidy complements the market price to guarantee a fixed remuneration, would be equivalent to a FIT (Dressler, 2014). 3 For a survey of ETSs covering greenhouse gases, see World Bank (2015 https://ieta.wildapricot.org/The-Worlds-Carbon-Markets or http://carbon-pulse.com/.…”

Technology Policy and Market Structure: Evidence from the Power Sector

“…Reguant (2019) investi-gates the interaction between carbon taxes, feed-in tariffs, and renewable portfolio standards in California, and shows trade-offs between efficiency and distributional concerns. Dressler (2016), Acemoglu et al (2017), and von der Fehr and Ropenus (2017) analyze the market impact of support mechanisms and costs to consumers theoretically. They propose oligopoly or dominant firm models to analyze pricing decisions when firms hold a portfolio of conventional and subsidized wind and solar capacity.…”