Multiple equilibria in oligopolistic power markets with feed-in tariff incentives for renewable energy generation

Abstract

Different policies have been implemented to incentivize the development of renewable energy generation. One of these policies is the feed-in tariff mechanism. When evaluating this policy, the typical approach is to look at the social welfare and the carbon emission reductions obtained in the optimal dispatch solution. However, in the context of oligopolistic competition in power markets, multiple market equilibria may take place. Under such a paradigm, there is generally no information about the consequences of actually occurring an equilibrium that is different than the one obtained from the optimization algorithm. Thus, a relevant question is whether the implementation of a feed-in-tariff policy decreases social welfare for all possible market equilibria or not. This paper analyzes the existence of multiple equilibria within the context of oligopolistic competition in power markets and studies the social welfare resulting in each one of them. We find that there may be equilibria for which the feed-in tariff policy increases social welfare, but also there may be equilibria for which this policy reduces social welfare. Moreover, carbon emission reductions vary from equilibrium to equilibrium, significantly varying the cost-effectiveness of the feed-in-tariff policy in reducing emissions.