Counterfactual analysis reveals heightened market power during coal-to-gas transitions, indicating competitive outcomes depend on which firms invest in replacement capacity.
The energy transition from coal to gas is reshaping the power sector to rely more on gas generation, which is cleaner but has more variable input costs. Using counterfactual analysis, I study the competitive effects of this transition, by considering several transition paths that differ in the types of firms involved in retiring coal plants and investing in gas plants. I show that the variable nature of the marginal cost of gas generation creates an environment in which market power could increase after the transition. However, the transition's impact on competition depends on the characteristics of the firms investing in new gas generation; the adverse impact is mitigated under a well‐planned transition that leads to a more competitive industry structure.
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Harim Kim (2026) studied this question.
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