Can price volatility enhance market power? The case of renewable technologies in competitive electricity markets

Irena Milstein, Asher Tishler

Research output: Contribution to journalArticlepeer-review

Abstract

This paper develops a two-stage model with endogenous capacity and operations to assess the practicality of photovoltaic technology (PV) in competitive electricity markets. Applying our model to stylized data of California's electricity market we demonstrate that electricity price spikes are higher and more frequent the higher the PV capacity. Consequently, the average electricity price rises when construction costs of PV capacity decline due, for example, to technology improvements, bestowing market power and excessive profits on producers employing fossil-using technologies. We also show that an increase in the number of PV-using firms and higher CO2 tax reduce consumer surplus.

Original languageEnglish
Pages (from-to)70-90
Number of pages21
JournalResources and Energy Economics
Volume41
DOIs
StatePublished - 1 Aug 2015

Keywords

  • Electricity
  • Market power
  • Price volatility
  • Renewable technologies

Fingerprint

Dive into the research topics of 'Can price volatility enhance market power? The case of renewable technologies in competitive electricity markets'. Together they form a unique fingerprint.

Cite this