Research

Electricity markets are prone to the abuse of market power. Several U.S. markets employ algorithms to monitor and mitigate market power abuse in real-time. The performance of automated mitigation procedures is contingent on precise estimates of firms’ marginal production costs. Currently, marginal cost is inferred from the past offers of a plant. We present new estimation approaches and compare them to the currently applied benchmark method. We test the performance of all approaches on auction data from the Iberian power market. The results show that our novel approaches outperform the benchmark approach significantly, reducing the mean (median) absolute estimation error from 11.53 (6.08) € /MWh in the benchmark to 4.03 (2.64) € /MWh for our preferred approach. This approach also performs best in our subsequent simulation of mitigation procedures. Here we find large welfare transfers from supplier to buyer surplus as well as a robust overall welfare gain, stemming from both productive and allocative efficiency gains. Our research contributes to accurate monitoring of market power and improved automated mitigation. Although we focus on power markets, our findings are applicable to monitoring of renewable energy tenders or market power surveillance in rail and air traffic.

Presented at: EARIE 2022 – European Association for Research in Industrial Economics, MCEE 2022 – Mannheim Conference on Energy and the Environment, ISEFI 2022 – International Symposium on Environment & Energy Finance Issues

Current decarbonization policies neglect damages from local air pollutants. We analyze the trade-off between complementary taxation of carbon emissions and local air pollution. We quantify results for the European power market until 2050. Taxing only air pollution results in system cost of 6,475 billion € and fosters nuclear deployment. Additional external cost accumulate to 5,890 billion €. Taxing only carbon yields system (external) cost of 8,263 (717) billion € and promotes carbon-capture-and-storage deployment. Taxing both yields (external) cost of 7,697 (1,118) billion €. Moderate carbon taxation can be complementary to a primary policy of air pollution abatement. On the contrary, a primary policy of decarbonization stands in trade-off with air pollution abatement in the long-term.

Presented at: EAERE 2023 – European Association of Environmental and Resource Economists ,  EEA  2023 – European Economic Association, USAEE 2022 – United States Association for Energy Economics 

Decarbonization requires the transformation of power markets towards renewable energies and investment costs are decisive for the deployed technologies. Exogenous cost assumptions cannot fully reflect the underlying dynamics of technological change. We implement divergent learning-by-doing specifications in a multi-region power market model by means of mixed-integer programming to approximate non-linear investment costs. We consider European learning, regional learning, and three different ways to depreciate experience stocks within the European learning metric: perfect recall, continuous forgetting, and lifetime forgetting. Learning generally yields earlier investments. European learning fosters the deployment of solar PV and wind onshore, whereas regional learning leads to more wind offshore deployment in regions with high wind offshore quality. Perfect recall fosters solar PV and wind onshore expansion, whereas lifetime forgetting fosters wind offshore usage. Results for continuous forgetting are in between those of perfect recall and lifetime forgetting. Generally, learning leads to the earlier deployment of learning technologies but regional patterns are different across learning specifications and also deviate significantly from this general pattern of preponing investments. 

Presented at: IEW 2022 – International Energy Workshop, IAEE 2021 – Internaional Association for Energy Economics, EAERE PhD Summer School 2021

Energy system and power market models refrain from distinguishing between private and social discount rates. We devise a strategy to account for diverging private and social discount rates in intertemporal optimization frameworks, resulting in an optimal carbon tax above the marginal damage when private discount rates exceed the social one. We quantify results for the European power market until 2050. Not distinguishing between private and social discount rates yields carbon emissions of 0.83 Gt in 2050 with rising trend from 2020 onwards. Distinguishing between private and social discount rates achieves full decarbonization (–0.15 Gt in 2050) and avoids damages of 1,386 billion € until 2050. Results explain missing investments of firms and suggest that policymakers should announce high future carbon prices to incentivize sufficient investments into clean technologies. 

Presented at: VfS 2023 – Verein für Socialpolitik, USAEE 2022 – United States Association for Energy Economics