Beschreibung:
This paper explores the role of markets in facilitating the transition to renewable energy sources. In particular, it investigates the effectiveness of a gross pool wholesale market design, where all electricity is traded in the spot market, in providing price signals that encourage investments in renewable generation and storage during this transition. To do this, we develop a model that represents a two-period electricity sector, distinguishing between daytime and nighttime, where a traditional fossil fuel generator competes with a renewable generator that has zero marginal cost during the daytime. In the absence of storage, we analyze the impact of price caps or competition on incentivizing investments in renewable generation. We then introduce the concept of storing electricity during the daytime to supply it during nighttime, considering both an independent operator and an integrated renewables-storage operator. Our key finding is that incorporating storage for renewable generators leads to larger initial investments in renewable generation and substitution of fossil fuel generation by (stored) renewable generation at nighttime