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The Rise of Third Parties and the Fall of Incumbents Driven by Large-Scale Integration of Renewable Energies: The Case of Germany

Gert Brunekreeft, Marius Buchmann, and Roland Meyer

Year: 2016
Volume: Volume 37
Number: Bollino-Madlener Special Issue
DOI: 10.5547/01956574.37.SI2.gbru
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The energy transition is dramatically changing the electricity supply industry in Germany implying two big trends. First, significant market entry by third parties (i.e., non-incumbents). Based on empirical evidence, we argue that the emergence of third parties is the immediate result of the large-scale integration of renewable energy sources. The electricity supply industry is changing quickly from a top-down, single-firm game to a decentralized multiple-player system, with far-reaching consequences for the governance and regulatory structure. Second, the incumbent players are facing disruptive challenges: under pressure of the energy transition, conventional centralized generation is losing profit margins very quickly. We analyze the disruptive challenges and sketch how the incumbents respond by splitting their activities into an old business, which is likely to be phased-out, and a new, future-oriented business: renewable energies, the distribution business, and customer-oriented solutions.

Incumbent's Bane or Gain? Renewable Support and Strategic Behavior in Electricity Markets

Ali Darudi and Hannes Weigt

Year: 2020
Volume: Volume 41
Number: Special Issue
DOI: 10.5547/01956574.41.SI1.adar
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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.

Auctions for Renewables: Does the Choice of the Remuneration Scheme Matter?

Ali Darudi

Year: 2023
Volume: Volume 44
Number: Number 6
DOI: 10.5547/01956574.44.6.adar
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Auctions are increasingly used to support renewable energy sources (RES). The choice of the remuneration scheme is one of the major design challenges policymakers face. This paper analyzes the effects of remuneration schemes on RES auctions’ success in markets with imperfect competition. I develop a game-theoretical auction/operation framework to model the feedback effects between the spot market’s strategic behavior and the auction stage’s bidding behavior. The analysis indicates that policymakers concerned about true-cost bidding, allocative efficiency, spot price, total payments to RES, and non-realization risk may prefer feed-in-tariff (FIT) remuneration. However, feed-in-premium (FIP) remunerations may outperform FIT ones from a social welfare perspective, particularly in markets with dirty technologies at the margin. A machine-learning-based simulation strategy is also presented, indicating that, for an auction for 14 GW of onshore wind in France, FIP auction with a winning incumbent leads to 1.40% higher prices than FIT ones.

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