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Energy efficiency and renewables policies: Promoting efficiency or facilitating monopsony?

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  • Brennan, Timothy J.

Abstract

The cliché in the electricity sector, the "cheapest power plant is the one we don't build," neglects the benefits of the energy that plant would generate. That economy-wide perspective need not apply in considering benefits to only consumers if not building that plant was the exercise of monopsony power. A regulator maximizing consumer welfare may need to avoid rationing demand at monopsony prices. Subsidizing energy efficiency to reduce electricity demand at the margin can solve that problem, if energy efficiency and electricity use are substitutes. Renewable energy subsidies, percentage use standards, or feed in tariffs may also serve monopsony as well with sufficient inelasticity in fossil fuel electricity supply. We may not observe these effects if the regulator can set price as well as quantity, lacks buyer-side market power, or is legally precluded from denying generators a reasonable return on capital. Nevertheless, the possibility of monopsony remains significant in light of the debate as to whether antitrust enforcement should maximize consumer welfare or total welfare.

Suggested Citation

  • Brennan, Timothy J., 2011. "Energy efficiency and renewables policies: Promoting efficiency or facilitating monopsony?," Energy Policy, Elsevier, vol. 39(7), pages 3954-3965, July.
    • Handle: RePEc:eee:enepol:v:39:y:2011:i:7:p:3954-3965
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    References listed on IDEAS

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    Cited by:

    1. Laura Abrardi, 2019. "Behavioral barriers and the energy efficiency gap: a survey of the literature," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(1), pages 25-43, March.
    2. Brennan, Timothy J., 2011. "Energy Efficiency Policy: Surveying the Puzzles," RFF Working Paper Series dp-11-27, Resources for the Future.
    3. Brennan, Timothy J. & Palmer, Karen L., 2013. "Energy efficiency resource standards: Economics and policy," Utilities Policy, Elsevier, vol. 25(C), pages 58-68.
    4. Timothy J. Brennan, 2013. "Energy Efficiency Policy Puzzles," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).

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