Horizontal subcontracting and intermittent power generation

Horizontal Subcontracting and Intermittent Power Generation

Intermittent power sources enable firms to reduce costs by horizontally subcontracting generation. Dispatchable units serve as a strategic device, even when never used, since their availability credibly limits the price paid for subcontracting. Security of supply measures motivated by too low plant profitability therefore underestimate firms’ unilateral incentive to install dispatchable units.