SWEEEP  Webinar Series
June 1st, 2022 | h. 04.30 pm CEST
Click on the following link for registration: https://bit.ly/Web0106

Speaker: Mar Reguant, Northwestern University

Moderator: Valentina Bosetti, Bocconi University and RFF-CMCC European Institute on Economics and the Environment, CMCC

We study the static and dynamic impacts of market integration on renewable energy expansion. Our theory highlights that statically, market integration improves allocative efficiency by gains from trade, and dynamically, it incentivizes new entry of renewable power plants. Using two recent grid expansions in the Chilean electricity market, we empirically test our theoretical predictions and show that commonly-used event study estimation underestimates the dynamic benefits if renewable investments occur in anticipation of market integration. We build a structural model of power plant entry and show how to correct for such bias. We find that market integration resulted in price convergence across regions, increases in renewable generation, and decreases in generation cost and pollution emissions. Furthermore, a substantial amount of renewable entry would not have occurred in the absence of market integration. We show that ignoring this dynamic effect would substantially understate the benefits of transmission investments.