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Methodological Advances in Energy Modelling: 1970-1990

James M. Griffin

Year: 1993
Volume: Volume 14
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No1-5
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Abstract:
Both the theory and practice of energy modelling have made phenomenal advances over the last 20 years. After providing a brief description of the state of energy modelling circa 1970, this paper identifies four major methodological advances profoundly affecting energy modelling. In the area of energy demand modelling, the translog and other generalized functional forms have proven readily adaptable to questions of interfuel substitution and energy/non-energy substitution. Additionally, discrete choice models, particularly the multinomial logit models, have provided a conceptually appealing framework within which to model appliance choice. The third advance has come in both the frequency and sophistication of use of panel data sets, which offer a much richer set of price and income variation. Finally, in the area of energy supply modelling, dynamic optimization models coupled with greater reliance on engineering information has lead to steady improvements in this area.



A Game Theoretic Model for Generation Capacity Adequacy: Comparison Between Investment Incentive Mechanisms in Electricity Markets

Mohamed Haikel Khalfallah

Year: 2011
Volume: Volume 32
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No4-7
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Abstract:
In this paper we study the problem of long-term capacity adequacy in electricity markets. We implement a dynamic model in which firms compete for investment and electricity production under imperfect Cournot competition. The main aim of this work is to compare three investment incentive mechanisms: reliability options, forward capacity market and capacity payments. Apart from the oligopoly case, we also analyze collusion and monopoly cases. Dynamic programming is used to deal with the stochastic environment of the market and mixed complementarity problem and variational inequality formulations are employed to find a solution to the game. The main finding of this study is that market-based mechanisms would be the most cost-efficient mechanism for assuring long-term system capacity adequacy. Moreover, generators would exert market power when introducing capacity payments. Finally, compared with a Cournot oligopoly, collusion and monopolistic situations lead to more installed capacities with market-based mechanisms and increase consumers' payments.



Cooperation on Climate Change under Economic Linkages: How the Inclusion of Macroeconomic Effects Affects Stability of a Global Climate Coalition

Jan Kersting, Vicki Duscha, and Matthias Weitzel

Year: 2017
Volume: Volume 38
Number: Number 4
DOI: 10.5547/01956574.38.4.jker
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Abstract:
Game-theoretic models of international cooperation on climate change come to very different results regarding the stability of the grand coalition of all countries, depending on the stability concept used. In particular, the core-stability concept produces an encouraging result that does not seem to be supported by reality. We extend the game-theoretic model based on this concept by introducing macroeconomic effects of emission reduction measures in multiple countries. The computable general equilibrium model DART and damage functions from the RICE model are used to quantify the theoretical model. Contrary to the classical model, we find that, under damages in the IPCC range, the core of the resulting cooperative game is empty and no stable global agreement exists. This is mainly due to fossil fuel exporting countries, which are negatively affected by lower fossil fuel prices resulting from emission reduction measures.



The Impact of Securing Alternative Energy Sources on Russian-European Natural Gas Pricing

Nathalie Hinchey

Year: 2018
Volume: Volume 39
Number: Number 2
DOI: 10.5547/01956574.39.2.nhin
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Abstract:
This paper examines the effects of procuring alternative sources of natural gas on Russian pricing in Europe. With the increasing presence of LNG import capability in European ports, this topic is growing in importance, especially for European policy makers. Theoretical results, stemming from an asymmetric Nash Bargaining model, suggest that Russian prices decrease as dependency on Russian gas decreases. The empirical results, obtained from the estimation of a correlated random effects model, corroborate this stipulation by finding a positive relationship between Russian pricing and average dependency on Russian supplied gas. These findings explain the recent phenomenon experienced in the Baltic Region where the presence of an LNG import terminal in Lithuania has secured access to non-Russian suppliers of gas and decreased prices from Gazprom.



A New Game Theoretical Approach for Modeling Export Energy Markets Equilibria

Ibrahim Abada and Andreas Ehrenmann

Year: 2018
Volume: Volume 39
Number: Number 5
DOI: 10.5547/01956574.39.5.iaba
View Abstract

Abstract:
For resource-based economies, regulating exports is crucial. Nevertheless, we observe different countries deploying different export policies. We explain this difference via strategic interactions by giving two competing countries the possibility to design their export markets and select the level of competition they exert. In a first step, we test standard models and find that they fail to explain the multitude of observed behaviors: under the closed loop Nash equilibrium paradigm, the equilibrium is reached when countries completely open their export market. The Stackelberg game on the other hand concentrates the market in a plausible way but is not symmetric since it appoints a leader and follower. In a second step, we let countries choose between being strategic or passive in their interaction and demonstrate that the competitive outcome that we find in the closed loop Nash game rarely occurs. Only this last setup complies with the commonly observed situations.Keywords: Game theory, Cournot models, Open/closed loop models, Stackelberg models, Divisionalization



A Mechanism for Allocating Benefits and Costs from Transmission Interconnections under Cooperation: A Case Study of the North Sea Offshore Grid

Martin Kristiansen, Francisco D. Muñoz, Shmuel Oren, and Magnus Korpås

Year: 2018
Volume: Volume 39
Number: Number 6
DOI: 10.5547/01956574.39.6.mkri
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Abstract:
We propose a generic mechanism for allocating the benefits and costs that result from the development of international transmission interconnections under a cooperative agreement. The mechanism is based on a planning model that considers generation investments as a response to transmission developments, and the Shapley Value from cooperative game theory. This method provides a unique allocation of benefits and costs considering each country's average incremental contribution to the cooperative agreement. The allocation satisfies an axiomatic definition of fairness. We demonstrate our results for three planned transmission interconnections in the North Sea and show that the proposed mechanism can be used as a basis for defining a set of Power Purchase Agreements among countries. This achieves the desired final distribution of economic benefits and costs from transmission interconnections as countries trade power over time. We also show that, in this case, the proposed allocation is stable.



On the Viability of Energy Communities

Ibrahim Abada, Andreas Ehrenmann, and Xavier Lambin

Year: 2020
Volume: Volume 41
Number: Number 1
DOI: 10.5547/01956574.41.1.iaba
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Abstract:
Following the development of decentralized production technologies, energy communities have become a topic of increased interest. While the potential benefits have been described, we use the framework of cooperative game theory to test the ability of such communities to adequately share the gains. Indeed, despite the potential value created by such coalitions, there is no guarantee that they will be viable: a subset of participants may find it profitable to exit the community and create another one of their own. We take the case of a neighborhood, having access to a limited resource - e.g. a shared roof or piece of land - which they can exploit if they invest in some renewable production capacity. By joining the community, participants also enjoy aggregation gains in the form of reduced network fees. We find conditions depending on the structure of renewable installation costs, on the magnitude of the aggregation effect and coordination costs and, most importantly, on the chosen sharing rule, under which the whole energy community is stable. In particular, we show that standard sharing rules often fail to enable communities to form and we suggest the adoption of slightly more sophisticated rules. Efficiency could require the intervention of a local planner or a change in network tariff structures.



Incumbent's Bane or Gain? Renewable Support and Strategic Behavior in Electricity Markets

Ali Darudi and Hannes Weigt

Year: 2020
Volume: Volume 41
Number: Special Issue
DOI: 10.5547/01956574.41.SI1.adar
View Abstract

Abstract:
Incumbent firms play a decisive role in the success of renewable support policies. Their investments in renewables as well as their operational strategies for their conventional CO2 emitting technologies affect the transition to a sustainable energy system. We use a game theoretical framework to analyze incumbents’ reactions to different renewable support policies, namely feed-in tariff (FIT), feed-in premium (FIP), and auction-based policies. We show that a regulator should choose a support scheme based on concerns about either market power or emission abatement: in FIP-based policies, the incumbent’s strategic behavior leads to lower CO2 emissions, but a higher market price compared to FIT-based policies. Furthermore, for FIP-based policies, the regulator might want to incentivize incumbents directly (to further reduce CO2 emissions) or newcomers (to further reduce market power). Particularly in FIP-based auctions, incumbents have the incentive to obtain all auctioned capacity, which could lead to an unchanged market price despite the entrance of new capacity into the market.



Reciprocal Dumping under Dichotomous Regulation

Sébastien Debia and Georges Zaccour

Year: 2022
Volume: Volume 43
Number: Number 5
DOI: 10.5547/01956574.43.5.sdeb
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Abstract:
An essential ingredient to net-zero-emissions policies is to regionally integrate electricity markets. But electricity cross-border trades are often assessed as inefficient. We explain this inefficiency by the presence of a dichotomous regulation: producers are highly regulated with regard to their local activities, but weakly regulated when it comes to their exports. Such a dichotomy in regulation can be generalized to every economic sector, with varying intensity. We develop a generic 2-player 2-stage game theoretical framework where producers anticipate the impact of their exports on the clearing of regulated local markets. We characterize the subgame-perfect Nash equilibrium of the game as a function of the relative price-elasticity between markets. Overall, dichotomous regulation leads producers to over-export in order to create scarcity in their home market. Hence, despite that local markets clear efficiently, the global equilibrium is inefficient. When the two jurisdictions are relatively symmetric, the equilibrium is Pareto-dominated by the first-best outcome. These results call for better coordination between regulators across different jurisdictions.



Coal-Biomass Co-firing within Renewable Portfolio Standards: Strategic Adoption by Heterogeneous Firms and Emissions Implications

Brayam Valqui, Mort D. Webster, Shanxia Sun, and Thomas W. Hertel

Year: 2023
Volume: Volume 44
Number: Number 5
DOI: 10.5547/01956574.44.4.bval
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Abstract:
As electricity from coal declines, co-firing coal plants with biomass has been proposed to extend coal unit life, increase production, and reduce carbon emissions. Previous studies reach conflicting conclusions on whether coal biomass co-firing would result in a net increase or decrease in carbon emissions. We explore whether biomass co-firing would decrease emissions using a novel framework that includes two critical features of electricity markets: strategic adoption decisions by firms and intertemporal constraints on power plant operations. We apply this framework to a case study based on the Midwestern U.S. electricity market and show that profit maximizing firms will retrofit mid-efficiency coal units, rather than the most or least efficient units. We demonstrate that, contrary to expectations, this strategy leads to a net increase in system-wide carbon emissions under high carbon prices because of the other generators displaced by co-firing units.




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