Germany has been ahead of the curve in terms of pushing the integration of renewable generation. Its so-called “energy revolution,” or Energiewende, is something it has been both heralded and criticized for over the years. In my opinion, the impacts of Energiewende on the energy industry have to a large extent been positive, since the investment has served to motivate and fund a lot of technological advances, especially for solar. However, Energiewende has certainly made some big mistakes over the years which, in a few cases, have threatened to hurt investment in renewables in other countries.
Over the last few years, I’ve gotten very interested in issues surrounding the incorporation of renewable energy into IT and, more generally, the smart grid. One of the issues that has particularly grabbed my attention is that of “market power.”
Now, market power is typically one of those fuzzy concepts that academics like to ignore — often with a phrase such as “we assume that agents are price-takers.” I’ve done this plenty of times myself, and often, this is an okay way to get insight about a problem. But, as I’ve gotten involved in electricity markets, it has become more and more clear that you can’t get away with ignoring market power issues in this context.
Unfortunately, quantifying (and even defining) market power is a tricky thing — and if done badly, it can lead to damaging regulatory problems. But, on the other hand, if it is ignored, the problems can be equally bad.