Working Paper: CEPR ID: DP15705
Authors: Natalia Fabra
Abstract: Addressing climate change requires full decarbonization of our economies. Whether this objective is achieved at least cost for society hinges on good policy design. In turn, this calls for a thorough understanding of firms’ and consumers’ incentives in the presence of asymmetric information, the determinants of strategic interaction, and the impact of market design and market structure on the intensity of competition. Industrial Economics thus has much to contribute towards a successful Energy Transition, while benefiting from the exciting research opportunities it brings. In this paper, I survey some of the recent developments in this area. My focus is on the power sector, and in particular, on the regulatory and market design challenges triggered by the expansion of intermittent renewables with almost zero marginal costs. I conclude with some questions that merit further research.
Keywords: carbon emissions; energy; competition; market power; market design; auctions; investment; dynamic pricing; storage
JEL Codes: L94; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| expansion of intermittent renewables (Q42) | market prices (P22) |
| market prices (P22) | investment decisions in renewables (G31) |
| design of electricity markets (D47) | competition in renewable energy sources (Q42) |
| design of electricity markets (D47) | investment in renewable energy sources (Q42) |
| introduction of intermittent renewables (Q42) | average market price falls below average costs of renewables (Q21) |
| auction mechanisms for renewable investments (D44) | efficient investment decisions (G11) |
| effective market design (D47) | sufficient investment in renewables (Q42) |