Renewable Energy Policy Instruments and Market Power

Markets for green certificates allow generators with market power to squeeze the margins of their competitors, as a generator that is vertically integrated into network activities might do. We analyze this issue in a stylized electricity industry in which a dominant producer of both conventional and...

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Published inThe Scandinavian journal of economics Vol. 119; no. 2; pp. 312 - 345
Main Authors von der Fehr, Nils-Henrik M., Ropenus, Stephanie
Format Journal Article
LanguageEnglish
Published Oxford John Wiley & Sons Ltd 01.04.2017
Blackwell Publishing Ltd
Blackwell Publishers
Subjects
Alternative energy
Analysis
Certification
D42
Economic theory
Electric utilities
Energy industry
Energy policy
Environmental management
Feed‐in tariff
green certificates
Green marketing
L11
L41
L42
L94
market power
network regulation
renewable energy
Renewable resources
Studies
vertical relations
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Summary:Markets for green certificates allow generators with market power to squeeze the margins of their competitors, as a generator that is vertically integrated into network activities might do. We analyze this issue in a stylized electricity industry in which a dominant producer of both conventional and renewable energy is facing a competitive fringe of renewable-energy producers. We demonstrate that whether or not a dominant firm is vertically integrated into network activities, it can disadvantage the fringe producers by distorting certificates prices, thereby inducing cost inefficiency in the generation of renewable energy. We compare green certificates to a system of feed-in tariffs, where a similar margin squeeze is not possible.
Bibliography:We are grateful for useful comments on earlier versions of the paper from Stine Grenaa Jensen, Trine Krogh Kristoffersen, Tore Nilssen, Birgitte Sloth, and two anonymous referees, as well as seminar participants in Reykjavik and Paris. The project was initiated during S. Ropenus's stay at the University of Oslo and Statistics Norway, financed by the Nordic Energy Research program Nordic Energy, Environmental Constraints and Integration (NEECI). While carrying out the research N.‐H. von der Fehr has been associated with the Oslo Centre for Research on Environmentally friendly Energy (CREE), which is supported by the Research Council of Norway.
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NFR/209698
ISSN:0347-0520
1467-9442
DOI:10.1111/sjoe.12188