Researchers have studied Israel’s price-clearing scheme for PV tenders and raised considerations about its potential for long-term dominance. They study how abuse of energy and lack of know-how result in market inefficiencies, concluding {that a} duopoly is finest suited to the Israeli market.
Scientists from Ben-Gurion University of the Negev analyzed the PV market in Israel by three main tenders. They analyzed it by way of financial profit, specializing in inefficiencies attributable to market focus and technological inefficiencies from much less aggressive firms successful the tenders.
The Israel Electricity Authority (IEA) carried out three tenders in 2016, 2017, and 2019 utilizing the clearing worth technique. In this technique, bidders submit technology capacities and fixed-tariff affords per kilowatt-hour with out understanding the ultimate capability that the regulator will select.
“The smooth quota lastly determines the market clearing worth. Many firms submit bids providing completely different costs for the manufacturing of various quantities of output, however the remaining worth given to all of the winners firms are the identical, whatever the particular person costs they initially proposed,” the researchers mentioned. “The bids are ranked, and the businesses providing the bottom tariffs are chosen till the quota is met.”
The clearing worth process units a manufacturing quota of 235 MW with a tariff of ILS 0.199 ($0.053)/kWh within the first tender, 105 MW with ILS 0.1978/kWh within the second, and 220 MW with ILS 0.188/kWh within the third. Twelve firms gained the primary tender, whereas solely six participated within the second and third. The largest firm acquired 33.83% of the full quota of the three tenders.
“After the third tender, Firm A acquired 190 MW of quotas, Firm B 110 MW, Firm C 101 MW, and the opposite winners as much as 55 MW,” mentioned the teachers. “These findings could imply that if future tenders proceed to make use of the identical technique, the consequence shall be an oligopolistic market, which means a extra concentrated market. According to the financial literature, this market shall be extra environment friendly in manufacturing however will show to be a value to the financial well-being of the nation.
Using gentle penalties and an applicable demand curve, scientists use the Cournot oligopoly mannequin to calculate the speed of lack of financial welfare and simulate future eventualities within the Israeli market. The Cournot mannequin assumes that companies’ merchandise are good substitutes, and every agency’s technique includes selecting the manufacturing amount concurrently.
“The stability derived from the Cournot mannequin permits us to calculate measures of financial well-being, together with shopper surplus within the electrical energy sector, producer surplus, and the loss attributed to sustaining competitors by permitting the much less environment friendly companies to win within the smooth (ie, technological deficiencies) ,” mentioned the group. “Furthermore, we assess the discount in financial welfare attributable to market energy ensuing from the shortage of competitors ( ie, the calculated lack of financial profit relative to essentially the most environment friendly end result).”
The outcomes present that the lack of financial profit from the abuse of market energy is decrease than the lack of know-how. In the primary tender, market energy causes about 9% lack of welfare, 14% within the second, and 12% within the third. In distinction, the shortage of know-how led to the lack of profit in 41%, 37%, and 28% of every tender, respectively.
Scientists use the outcomes of the newest tender to evaluate the impression of additional shrinking the market, from the present six firms to a monopoly.
“The comparability reveals that because the market decreases by way of the variety of firms, the price of sustaining competitors (that’s, the manufacturing of much less environment friendly firms) imposes a discount within the financial burden,” say the scientists. “Surprisingly, the lack of financial profit is small with solely two successful firms. If just one firm is left, the price of electrical energy manufacturing is low, however the monopolistic participant will set up approx. which is 31% much less capability than obtained within the third tender.Thus, the monopoly firm will improve its revenue on the expense of the patron and the overall welfare of the society.
They introduced their ends in “Preserving competitiveness and financial well-being within the Israeli PV market,” which was not too long ago printed in Utility Policy.
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