Competition among Renewables

Natalia Fabra (University of Carlos III - Madrid)

March 25, 2019, 14:00–15:30

Room MS 001

Industrial Organization seminar


We analyze an auction model in which firms’ production capacities are private information. The results shed light on the nature of the strategic interaction between renewable generators, whose available capacities are subject to random shocks. In equilibrium, firms bid above marginal costs, with markups decreasing in their realized capacities. Capacity withholding is not optimal, unless a single firm has excess capacity to cover total demand. Hence, supply functions shift out- wards and downwards at times when there is more renewable energy, with market prices smoothly converging towards marginal costs. We also analyze the effects of switching from a uniform to a discriminatory auction format, and the effects of fragmenting the market structure. (joint with Gerard Llobet)