Support schemes for renewable electricity in the European Union: Producer strategies and competition |
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| Affiliation: | 1. EMD International A/S, Niels Jernes Vej 10, 9220 Aalborg Ø, Denmark;2. Aalborg University, Rendsburggade 14, 9000 Aalborg, Denmark;1. School of Electrical and Electronic Engineering, The University of Manchester, M13 9PL, Manchester, UK;2. Queen Mary University of London, Mile End Road, London E1 4NS, UK;3. Electricity North West Ltd, Hartington Road (3rd Floor), Preston PR1 8AF, UK;1. Energy, Environment and Water Research Center, The Cyprus Institute, P.O. Box 27456, Nicosia 1645, Cyprus;2. School of Engineering and Applied Sciences, Frederick University, 7, Y. Friderickou Str., 1036 Nicosia, Cyprus |
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| Abstract: | Current discussion about how to reform European support schemes for renewable electricity neglects certain risks of market power in wholesale electricity markets. In a stylized Cournot model of interacting spot and forward electricity markets, I analyze how different price-based support schemes affect producer strategies and, ultimately, competition in the wholesale market. I compare the strategic behavior of renewable and conventional producers in terms of electricity production and forward market sales in the presence of two different price-based support schemes: feed-in tariffs and feed-in premiums. I show that the feed-in premium, which is the European Commission's current scheme of choice, may enhance market power and favor conventional electricity production. It may also reduce the likelihood of achieving the political objective to increase production from renewable energy sources. |
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