Español
Valencià
The promotion of investment in renewable energy relies on Purchasing Power Agreements (PPAs). PPAs are contracts between electricity generators and their customers which establish a long-term price for the energy they trade. However, there is a concern that markets fail to provide enough liquidity for these long-term contracts. In this paper, we propose a model for this market and characterize its main features. We show that the buyers’ counterparty risk enlarges the probability of default on the contract, giving rise to under-investment in renewable energy. We also study the effects on the performance of the electricity market and investment incentives of proposed market interventions, such as public support for long-term contracting, public guarantees, regulatory-backed contracts, and buyers’ obligations to enter into long-term contracts.