Simulating the effects of low-carbon investments in electricity markets

Introduction

NextENERGEIA plans to develop and test a proof-of-concept prototype of an analytical tool for simulating the social and private impact on power markets of low-carbon investments (renewable energies, energy storage, electric vehicles, and hydrogen production).

Purpose of the Tool

The tool would shed light on issues central to the energy transition’s success, making it precious for:

• Regulators
• Policymakers
• Energy-intensive consumers
• Energy firms

In particular, the tool would be instrumental in informing the current policy debate on the electricity market reform.

Methodology

The tool would build on state-of-the-art game-theoretical models developed by the PI through her ERC Consolidator Grant ELECTRIC CHALLENGES. These models provide the basis to simulate firms’ competitive and strategic behavior in electricity markets with large shares of renewable energies and energy storage.

Impact Assessment

Those models also serve to assess the low-carbon investments’ impact on several metrics reflecting electricity market outcomes, including:

1. Prices
2. Market shares
3. Emissions
4. Firms’ financial profitability (pay-back period, NPV, IRR, etc.)

Technical Development

The algorithm would be programmed in Python, and an internet-based interface would be developed for ease of use. Data from the Spanish electricity market would be used to test the tool, which would be further extended to other European power markets.

Stakeholder Engagement

Relevant stakeholders in the sector have already shown their support and willingness to participate in the training and testing stages.

Team Composition

The team comprises:

• The PI (Natalia Fabra)
• Postdocs at EnergyEcoLab (the research lab she created under her ERC grant)
• Software programmers who would carry out the programming activities

The team combines a deep knowledge of the power sector and the energy transition policies, a deep understanding of the relevant economic questions, and a deep command of the methods for modeling and quantifying the performance of electricity markets.