American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Market Power and Price Exposure: Learning from Changes in Renewable Energy Regulation
American Economic Journal: Economic Policy
vol. 15,
no. 4, November 2023
(pp. 323–58)
Abstract
Given the critical role of renewable energies in current and future electricity markets, it is important to understand how they affect firms' pricing incentives. We study whether the price-depressing effect of renewables depends on their degree of market price exposure. Paying renewables with fixed prices, rather than market-based prices, is more effective at curbing market power when the dominant firms own large shares of renewables, and vice versa. Our empirical analysis leverages several short-lived changes to renewables regulation in the Spanish market and shows that switching from full-price exposure to fixed prices caused a 2–4 percent reduction in the average price-cost markup.Citation
Fabra, Natalia, and Imelda. 2023. "Market Power and Price Exposure: Learning from Changes in Renewable Energy Regulation." American Economic Journal: Economic Policy, 15 (4): 323–58. DOI: 10.1257/pol.20210221Additional Materials
JEL Classification
- L13 Oligopoly and Other Imperfect Markets
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- Q42 Alternative Energy Sources
- Q48 Energy: Government Policy
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