May a greener technology mix mitigate market power? Mixed vs private competition in the EU electric power market

Abstract

We investigate the extent to which a greener-oriented technology mix may affect collusion incentives among private electric power generators (PEGs). In our model, the government decides whether to privatize the state-owned electric power generator (SOG) or keep it under public hands. Overall, even though collusion is easier to sustain when the state maintains the SOG, the extra benefits from collusion and the negative effects on consumer surplus are lower. This effect is reinforced when greener inputs attain a higher share in the technology mix. Moreover, when the number of PEGs is low, keeping the SOG under public hands mitigates the negative effects of collusion. We run simulations with data from the electric power market of several EU country members to study the effect that rocketing prices of fossil inputs and the composition of the technology mix have in the ability to collude, and how consumer surplus is affected. Our findings suggest that the SOG and the presence of green energy inputs may protect consumers in two ways: (𝑖) the SOG acts as an output expanding agent enhancing consumer surplus, which decreases less when PEGs collude, and (𝑖𝑖) these effects are larger as the share of greener energy inputs increase in the technology mix.