@techreport{29761,
  abstract     = {{We study the abilities of competitive markets to produce sufficient energy capacities to
meet a fixed energy demand. Renewable energy producers with stochastic outputs and no
variable costs compete against conventional energy producers with deterministic, pollutant
outputs and increasing marginal costs. We find that either market forces are strong enough
to serve the entire demand, or they are too weak such that the market fails and nothing is
produced. This crucially depends on the relative cost of renewable energy investments, such
that relatively cheap renewable energy causes the market to fail. Welfare analyses show that
with increasing levels of conventional energy pollution the ability of the market to produce
an ecient outcome further declines. As a policy implication, our findings refute the use of
a strategic reserve as a blackout backstop solution. Instead, a capacity mechanism consisting
of a tax-and-subsidy scheme can align the market outcome with the eficient solution for all
pollution levels and relative costs of renewable energy capacities.}},
  author       = {{Block, Lukas and Westbrock, Bastian}},
  keywords     = {{Renewable versus conventional energy, capacity mechanisms, strategic reserves, capacity payments}},
  title        = {{{Capacity investments in a competitive energy market}}},
  year         = {{2022}},
}