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Market and Welfare Effects of Renewable Portfolio Standard in the U.S. Compliance and Voluntary Green Power Markets

Suparna Bhattacharya, University of Nebraska - Lincoln

Abstract

Renewable Portfolio Standard (RPS) has been one of the popular policy instruments adopted by many states in the U.S. to combat climate change, emissions and higher energy prices. This paper develops an applied-theoretic model to analyze the economic effects of RPS while considering the empirically relevant (i) interaction of compliance with voluntary green power markets, (ii) differences in consumer preferences, and (iii) imperfect competition among the electricity suppliers. The market and welfare effects of RPS are shown to be case-specific and dependent on the relative magnitude of the associated cost and utility effects of RPS, the strength of consumer preference for green energy, the suppliers' costs before RPS, and the market power of the suppliers in compliance and voluntary markets. Simulation results indicate that regular power prices increase while green power prices decrease in NERC regions. The demand for regular and green power increase/decrease depending on the specific cases examined in the study. While welfare gains of green power consumers are evident from the study, welfare of regular power consumers is case sensitive and can increase/decrease with the policy. Green power suppliers (with/without market power) are always losers from the policy. Profits of regular power suppliers with market power are case dependent and likely to increase with higher consumer preference for regular power. Public utility firms, competitive firms or firms having Bertrand price competition, who are unable to exercise market power in the compliance market are likely to be losers from this policy. Voluntary market participation can increase with RPS. The higher the cost of the regular power with RPS, the higher is the likelihood that consumers will purchase green power and realize welfare gains from reduced price in the voluntary market.^

Subject Area

Economics, Agricultural|Energy

Recommended Citation

Bhattacharya, Suparna, "Market and Welfare Effects of Renewable Portfolio Standard in the U.S. Compliance and Voluntary Green Power Markets" (2014). ETD collection for University of Nebraska - Lincoln. AAI3632711.
http://digitalcommons.unl.edu/dissertations/AAI3632711

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