Impact of market power on price effects of the German feed-in tariff under the European emission trading system

Most models that are used to analyze support policy for renewable electricity neglect at least one of the following aspects of the European market which are taken into account in our analysis: oligopolistic market behavior, emission trading, and restricted transmission capacities. We apply a computable partial equilibrium model and study the impact of the German policy under market power on the producer and consumer price and compare the results with those we get under the assumption of price taking behavior. Furthermore, in order to check the sensitivity we change the elasticity of demand. Two major findings can be reported. Firstly, the feed-in tariff increases the consumer price and decreases the price on the producer market, irrespective of the assumed elasticity and competition scenario. Secondly, we find that market power shifts the burden of support for renewable energy from producers to consumers when compared with price taking behavior of all actors.