White certificates in the Italian energy oligopoly market

Abstract

In this article we deviate from neoclassical assumptions of fully competitive energy markets and represent a more realistic oligopolistic market, given the reconsolidation tendencies of energy companies. We focus on policies for energy efficiency improvement for electricity suppliers, namely on white certificates. The behavior of each supplier is based on a detailed decision tree, which determines the optimal move given the expectation on the competitor's behavior. According to our preliminary findings, the introduction of white certificate obligations should encompass larger increases in the electricity prices. 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. Copyright © Taylor & Francis Group, LLC.