Has renewable energy induced competitive behavior in the Spanish electricity market?

Ciarreta, A., Espinosa, M.P., Pizarro-Irizar, C. 2017.
Energy Policy, Volume 104, 171-182.

Recent energy policy has favored a massive introduction of Renewable Energy Sources on electricity markets,
which has greatly impacted their performance. First, the electricity price has decreased as a consequence of the
so-called merit-order effect. Another relevant effect is associated to the intermittent nature of Renewable
Energy, which has increased the cost of ancillary services. A third and important aspect, less addressed in the
literature, is the induced change in the strategic behavior of the conventional electricity producers. In principle,
the entry of new generators in a concentrated market would make it more competitive and change the strategic
behavior of the incumbents. We test this hypothesis for the Spanish wholesale market. While we find no
significant change in behavior for Nuclear, Hydropower and Coal, a change is observed in Combined Cycle
bidding strategies after the entry of renewable generators. Our analysis shows that the massive entry of
Renewable Energy Sources made other generators' behavior more competitive in the short run, but the effect
was not persistent.

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