Risk aversion in multilevel electricity market models with different congestion pricing regimes

Ambrosius M, Egerer J, Grimm V, van der Weijde AH (2022)

Publication Language: English

Publication Type: Journal article

Publication year: 2022

Journal

Energy Economics Elsevier

Series: Energy Economics

Book Volume: 105

Pages Range: 105701

URI: https://www.sciencedirect.com/science/article/pii/S0140988321005521

DOI: 10.1016/j.eneco.2021.105701

Abstract

Due to ongoing efforts for decarbonization, electricity markets worldwide are undergoing fundamental transitions, which result in increased uncertainty for all market participants. Against this background, we investigate the impact of risk aversion on investment and market operation in markets with different congestion pricing regimes and multi-level decision making. We develop a stochastic multi-level equilibrium model with risk-averse agents, which includes investment in transmission and generation capacity, market operation, and redispatch. The model can incorporate perfect, as well as imperfect locational price signals and different upper-level expectations about lower-level risk aversion. We apply our model to a stylized two-node example and compare the effects of risk aversion in a system with zonal and nodal pricing, respectively. Our results show that the effect of risk aversion is more pronounced in a market with nodal pricing, compared to a market with imperfect locational price signals. Furthermore, transmission planners that are ignorant about risk aversion of generation companies can induce substantial additional costs, especially in a nodal pricing market.

Authors with CRIS profile

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

Additional Organisation(s)

Energie-Campus Nürnberg (EnCN)

Related research project(s)

Energiemarktdesign (EMD) Energie Campus Nürnberg (EnCN2) Jan. 1, 2017 - Dec. 31, 2021

Involved external institutions

University of Edinburgh GB United Kingdom (GB)

How to cite

APA:

Ambrosius, M., Egerer, J., Grimm, V., & van der Weijde, A.H. (2022). Risk aversion in multilevel electricity market models with different congestion pricing regimes. Energy Economics, 105, 105701. https://doi.org/10.1016/j.eneco.2021.105701

MLA:

Ambrosius, Mirjam, et al. "Risk aversion in multilevel electricity market models with different congestion pricing regimes." Energy Economics 105 (2022): 105701.

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