Who Should Own a Renewable Technology? Ownership Theory and an Application

Abstract

We investigate the market implications of ownership of a new low-cost production technology. We relate our theoretical findings to measure the impact of renewable energy penetration into electricity markets and examine how the ownership of renewable capacity changes market outcomes (prices, outputs, emissions). As the current public policies influence the renewable energy ownership, this research provides useful insights for policy makers. We show that ownership of renewable capacity will matter when there is market power in energy market. We apply our findings to a wholesale electricity market to analyze the impact of different ownership structures for wind capacity expansions. We show that consumers enjoy better air quality under the largest firm's ownership of new generation, but at the expense of higher prices. We find that market structure and the shape of generation cost functions are the key drivers explaining the impact of renewable ownership on market outcomes. Ex-post empirical analysis also supports our theoretical predictions.

Keywords: market structure, technology ownership, renewable energy, greenhouse gas emissions

JEL Classification: D4, L1, Q5, Q4, Q2