University of Chicago
The Dynamic Impact of Market Integration: Evidence from Renewable Energy Expansion in Chile
November 14, 2022 – 05:15 – 06:30 PM (CET)
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We study the static and dynamic impacts of market integration on renewable energy expansion. Our theory highlights that statically, market integration improves allocative efficiency by gains from trade, and dynamically, it incentivizes new entry of renewable power plants. Using two recent grid expansions in the Chilean electricity market, we em- pirically test our theoretical predictions and show that commonly-used event study estimation underestimates the dynamic benefits if renewable investments occur in anticipation of market integration. We build a structural model of power plant entry and show how to correct for such bias. We find that market integration resulted in price con- vergence across regions, increases in renewable generation, and decreases in generation cost and pollution emissions. Furthermore, a substantial amount of renewable entry would not have occurred in the absence of market integration. We show that ignoring this dynamic effect would substantially understate the benefits of transmission investments.
The corresponding paper can be found here.
Koichiro Ito is an Associate Professor at the University of Chicago Harris School of Public Policy. He received a BA from Kyoto University, an MA from University of British Columbia, and a PhD from the University of California, Berkeley. Prior to joining the University of Chicago, he was a SIEPR Postdoctoral Fellow at Stanford University and an Assistant Professor at Boston University.
His research interests lie at the intersection of environmental and energy economics, industrial organization, and public economics. These include analyses of how consumers respond to nonlinear pricing, dynamic pricing, and rebate programs in electricity markets, how intrinsic and extrinsic motivation affects their economics decisions, how firms strategically react to attribute-based regulation such as fuel economy standards, and how firms respond to dynamic incentives in sequential forward markets in wholesale electricity markets. His research uses randomized field experiments and quasi-experimental designs to address policy relevant questions in energy and environmental policy.
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