Abstract
Given the critical role of renewable energies in current and future electricity markets, it is important to understand how they affect firms’ pricing incentives. We study whether the price-depressing effect of renewables depends on their degree of market price exposure. Paying renewables with fixed prices, rather than market-based prices, is more effective at curbing market power when the dominant firms own large shares of renewables, and vice versa. Our empirical short-lived changes to renewables regulation in the Spanish market and shows that switching from full-price exposure to fixed prices caused a 2–4 percent reduction in the average price-cost markup. (JEL L13, L94, L98, Q42, Q48)
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