White certificates in an oligopoly market: closer to reality?

In this paper we depart from neoclassical assumptions of fully competitive energy markets, and attempt to represent an oligopolistic market, which is closer to reality given the reconsolidation tendencies of energy companies. We focus mainly on the effects of energy policies for energy efficiency improvement, namely on White Certificates. In particular we examine in a Cournot and Stackelberg model, electricity suppliers with White Certificate obligations. The behaviour of each market actor is based on a detailed decision tree, which determines the optimal move given the expectation on the competitor’s behaviour. According to our preliminary findings, the price of electricity is always higher under the symmetric Cournot model but the introduction of white certificate obligations should encompass larger increases in the electricity prices in a Stackelberg game. In order to test our theoretical findings we make use of a typical oligopolistic market in Italy, where we depict that a leader company can serve the main part of electricity and energy efficiency projects, through financing them with White Certificates, while the residual demand is more expensive and must be covered at a high cost from follower companies.