PPI Seminar: Fighting the Contagion of Subsidies - Daniel Breslau

The paper draws on tools from economic sociology and market studies to ask how the politics of renewable energy intersects with the politics of electricity markets.  It examines a 15-year long dispute over a provision known as the Minimum Offer Pricing Rule, or MOPR (pronounced "moper"), in the capacity market of the largest electricity wholesale market in North America, PJM.  The rule was intended to mitigate "buyer-side market power," the ability of large organized buyers of capacity to suppress prices by offering their own capacity into the market below cost. If an offer into the market fails a test for buyer-side market power, it is replaced with a calculation of what the offer was predicted to be in a competitive market. For many resources, application of the MOPR has the effect of pricing them out of the market. But the tests for market power, and who they single out for MOPR sanction has been the focus of intense dispute. Certain actors in the market, particularly incumbent owners of fossil-fuel powered generators, pushed for a broad MOPR that would treat any resources supported by out-of-market subsidies as exercisers of buyer-side market power and therefore subject to repricing. States, environmental groups, and consumer advocates argued for a narrower MOPR that would not apply to most state programs to promote specific technologies or even specific power plants. Each of these groups aligns with a different network of economic experts and opposed definitions of the market and its boundaries. The case shows how the definition, detection, and sanctioning of anticompetitive behavior – the performance of market manipulation – is subject to the politics of renewables, and has been transformed in a way that normalizes state policies to support renewable energy outside of the wholesale market.