Abstract:
This paper develops an analytical model of sequential electricity markets in which renewable and conventional producers compete in two stages. Building on previous work, we introduce risk-averse renewable producers and distinguish between competitive and oligopolistic renewable producers. The model captures strategic bidding behavior under uncertainty in renewable production and limited flexibility of conventional producers in the second stage. Our results show that risk aversion amplifies strategic withholding in oligopolistic settings, thereby increasing the forward premium. This effect intensifies when conventional producers are less flexible. While risk aversion has no impact on welfare under perfect competition or when conventional producers are fully flexible, its interaction with market power and supply-side inflexibility generates welfare losses. In a heterogeneous market structure of renewable producers, competitive producers benefit from higher prices caused by the withholding of oligopolistic producers, particularly when those producers are risk-averse.
