Competition in Electricity Markets with Renewable Energy Sources
Daron Acemoglu, Ali Kakhbod, Asuman Ozdaglar

Citation
Daron Acemoglu, Ali Kakhbod, Asuman Ozdaglar. "Competition in Electricity Markets with Renewable Energy Sources". submitted for publication, 2015.

Abstract
This paper studies the effects of the diversification of energy portfolios on the merit order effect in an oligopolistic energy market. The merit order effect describes the negative impact of renewable energy, typically supplied at the low marginal cost, to the electricity market. We show when thermal generators have a diverse energy portfolio, meaning that they also control some or all of the renewable supplies, they offset the price declines due to the merit order effect because they strategically reduce their conventional energy supplies when renewable supply is high. In particular, when all renewable supply generates profits for only thermal power generators this offset is complete — meaning that the merit order effect is totally neutralized. As a consequence, diversified energy portfolios may be welfare reducing. These results are robust to the presence of forward contracts and incomplete information (with or without correlated types). We further use our full model with incomplete information to study the volatility of energy prices in the presence of intermittent and uncertain renewable supplies.

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  • HTML
    Daron Acemoglu, Ali Kakhbod, Asuman Ozdaglar. <a
    href="http://www.cps-forces.org/pubs/138.html"
    >Competition in Electricity Markets with Renewable Energy
    Sources</a>, <i>submitted for
    publication</i>,  2015.
  • Plain text
    Daron Acemoglu, Ali Kakhbod, Asuman Ozdaglar.
    "Competition in Electricity Markets with Renewable
    Energy Sources". <i>submitted for
    publication</i>,  2015.
  • BibTeX
    @article{AcemogluKakhbodOzdaglar15_CompetitionInElectricityMarketsWithRenewableEnergySources,
        author = {Daron Acemoglu and Ali Kakhbod and Asuman Ozdaglar},
        title = {Competition in Electricity Markets with Renewable
                  Energy Sources},
        journal = {submitted for publication},
        year = {2015},
        abstract = {This paper studies the effects of the
                  diversification of energy portfolios on the merit
                  order effect in an oligopolistic energy market.
                  The merit order effect describes the negative
                  impact of renewable energy, typically supplied at
                  the low marginal cost, to the electricity market.
                  We show when thermal generators have a diverse
                  energy portfolio, meaning that they also control
                  some or all of the renewable supplies, they offset
                  the price declines due to the merit order effect
                  because they strategically reduce their
                  conventional energy supplies when renewable supply
                  is high. In particular, when all renewable supply
                  generates profits for only thermal power
                  generators this offset is complete â meaning
                  that the merit order effect is totally
                  neutralized. As a consequence, diversified energy
                  portfolios may be welfare reducing. These results
                  are robust to the presence of forward contracts
                  and incomplete information (with or without
                  correlated types). We further use our full model
                  with incomplete information to study the
                  volatility of energy prices in the presence of
                  intermittent and uncertain renewable supplies.},
        URL = {http://cps-forces.org/pubs/138.html}
    }
    

Posted by Saurabh Amin on 16 Apr 2016.
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