The role of expectations for market design – on structural regulatory uncertainty in electricity markets

Other publication type


Publication Details

Author(s): Ambrosius M, Egerer J, Grimm V, van der Weijde AH
Editor(s): University of Cambridge
Edition name or number: 1943
Title edited volumes: Cambridge Working Paper in Economics
Publication year: 2019


Abstract

Ongoing policy discussions on the reconfiguration of bidding zones in European electricity markets induce structural uncertainty about the future market design. This paper deals with the question of how this structural uncertainty affects market participants and their long-run investment decisions in generation and transmission capacity. We propose a stochastic multilevel model, which incorporates generation capacity investment, network expansion and redispatch, taking into account uncertainty about the future market design.
Using a stylized two-node network, we disentangle different effects that uncertainty has on market outcomes. Our results reveal that expectations about future market structures have an important effect on investment decisions. Unlike most parametric uncertainties, structural uncertainty about the future market design can have a positive effect on welfare, even if a market design change does not actually take place, although there are distributional effects. This also implies that the welfare gains of a change to a more efficient market design are lower if market participants already anticipate this change.


FAU Authors / FAU Editors

Ambrosius, Mirjam
Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie
Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie
Egerer, Jonas Dr.
Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie
Grimm, Veronika Prof. Dr.


External institutions
University of Edinburgh


How to cite

APA:
Ambrosius, M., Egerer, J., Grimm, V., & van der Weijde, A.H. (2019). The role of expectations for market design – on structural regulatory uncertainty in electricity markets.

MLA:
Ambrosius, Mirjam, et al. The role of expectations for market design – on structural regulatory uncertainty in electricity markets. 2019.

BibTeX: 

Last updated on 2019-15-05 at 05:08