Competition in electricity markets : retailers, generators and technologies.

Summary This thesis aims to answer three questions raised by the wave of reforms in the electricity sectors: Has the liberalization of electricity supply achieved its objectives in the European Union? How do renewable and non-renewable producers compete in the liberalized market? What is the impact of the increase in electricity generation from renewable sources on grid congestion and zonal price differences in Italy? The first chapter provides a mid-term assessment of the liberalization of electricity supply in Europe. A comprehensive theory of supply liberalization is proposed and its consistency with practice in the European Union is tested. The analysis highlights the persistence of an oligopolistic structure in supply, low customer commitment and asymmetries in the rate and speed of transfer of supply costs into contract prices. Auctioning services by default and as a last resort seems to be the best solution to foster the development of competition. In the second chapter, we study the strategic interactions between a traditional generation technology and a renewable characterized by random capacity. We employ a modified version of Dixit's model of strategic entry deterrence investments with two configurations for post-entry competition: Cournot-style competition in a two-stage game and the dominant firm-competitive fringe framework in a three-stage game. In both cases, the analysis suggests that the renewable producer exploits the merit order to replace the output of its rival. In the third chapter, we analyze the impact of renewable generation on congestion and zonal price differences in Italy. Using a single database, we estimate two econometric models on five pairs of zones: a multinomial logit model for the occurrence and direction of congestion and an OLS model for the size of price differences. The analysis shows that in an importing region the effect of increasing local renewable generation is to decrease (increase) the probability of congestion caused by the bordering region (caused to the bordering region). The increase in renewable energy production seems to have a significant impact on island areas, by decreasing (increasing) the level of positive (negative) price differences.