Template-Type: ReDIF-Article 1.0
Author-Name:  Ali Darudi and Hannes Weigt
Title:  Incumbent's Bane or Gain? Renewable Support and Strategic Behavior in Electricity Markets
Classification-JEL: F0
Volume:  Volume 41
Issue:  Special Issue
Year:  2020
Abstract:  Incumbent firms play a decisive role in the success of renewable support policies. Their investments in renewables as well as their operational strategies for their conventional CO2 emitting technologies affect the transition to a sustainable energy system. We use a game theoretical framework to analyze incumbents' reactions to different renewable support policies, namely feed-in tariff (FIT), feed-in premium (FIP), and auction-based policies. We show that a regulator should choose a support scheme based on concerns about either market power or emission abatement: in FIP-based policies, the incumbent's strategic behavior leads to lower CO2 emissions, but a higher market price compared to FIT-based policies. Furthermore, for FIP-based policies, the regulator might want to incentivize incumbents directly (to further reduce CO2 emissions) or newcomers (to further reduce market power). Particularly in FIP-based auctions, incumbents have the incentive to obtain all auctioned capacity, which could lead to an unchanged market price despite the entrance of new capacity into the market. 

Handle: RePEc:aen:journl:ej41-si1-Darudi
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