Industry evolution, rational agents and the transition to sustainable electricity production
AbstractGuiding a transition to low carbon electricity requires a good understanding of the substitution of old by new technologies in the electricity industry. With the aim of explaining historical change from coal to gas in the British electricity industry, we develop a formal model of technological change, where energy technologies diffuse through the construction of new power plants. We considered two model versions: with rational and boundedly rational investors. In each model version, we look at the causal relations between price and output setting mechanisms, fuel and labour use, and investment decisions for different institutional arrangements. We quantify model parameters on data for the United Kingdom. We find that the version of the model with rational investors is capable of replicating well core features of UK electricity history. This includes a rapid diffusion of gas in electricity production, the evolution of the average size of newly installed plants, and a high percentage of electricity sales covered by (forward) contracts-for-difference. In this model setting, nuclear and renewable energies have no chance to diffuse on the market. In the version of the model with boundedly rational investors, nuclear power typically dominates electricity production. We discuss implications of our modelling results for making a transition to low carbon electricity in the future.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Energy Policy.
Volume (Year): 39 (2011)
Issue (Month): 10 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/enpol
Electricity Endogenous investments Low carbon economy;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Allaz, Blaise, 1992. "Oligopoly, uncertainty and strategic forward transactions," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 297-308, June.
- Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
- Frank A. Wolak & Robert H. Patrick, 2001. "The Impact of Market Rules and Market Structure on the Price Determination Process in the England and Wales Electricity Market," NBER Working Papers 8248, National Bureau of Economic Research, Inc.
- Andrew Atkeson & Patrick J. Kehoe, 2005.
"Modeling and Measuring Organization Capital,"
Journal of Political Economy,
University of Chicago Press, vol. 113(5), pages 1026-1053, October.
- Green, Richard & Newbery, David M G, 1991.
"Competition in the British Electricity Spot Market,"
CEPR Discussion Papers
557, C.E.P.R. Discussion Papers.
- Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October.
- von der Fehr, Nils-Henrik Morch & Harbord, David, 1993.
"Spot Market Competition in the UK Electricity Industry,"
Royal Economic Society, vol. 103(418), pages 531-46, May.
- Von der Fehr, N.H.M. & Harbord, D., 1992. "Spot Market Competition in the UK Electricity Industry," Memorandum 09/1992, Oslo University, Department of Economics.
- Roques, F.A. & Nuttall, W.J. & Newbery, D.M. & de Neufville, R., 2005.
"Nuclear Power: a Hedge against Uncertain Gas and Carbon Prices?,"
Cambridge Working Papers in Economics
0555, Faculty of Economics, University of Cambridge.
- Fabien A. Roques & William J. Nuttall & David M. Newbery & Richard de Neufville & Stephen Connors, 2006. "Nuclear Power: A Hedge against Uncertain Gas and Carbon Prices?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-24.
- Andrew Atkeson & Patrick J. Kehoe, 2006.
"Modeling the transition to a new economy: lessons from two technological revolutions,"
296, Federal Reserve Bank of Minneapolis.
- Andrew Atkeson & Patrick J. Kehoe, 2007. "Modeling the Transition to a New Economy: Lessons from Two Technological Revolutions," American Economic Review, American Economic Association, vol. 97(1), pages 64-88, March.
- Herguera, Inigo, 2000. "Bilateral contracts and the spot market for electricity: some observations on the British and the NordPool experiences," Utilities Policy, Elsevier, vol. 9(2), pages 73-80, June.
- Kira Markiewicz & Nancy L. Rose & Catherine Wolfram, 2004.
"Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency,"
NBER Working Papers
11001, National Bureau of Economic Research, Inc.
- Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
- Augusto Rupérez Micola & Albert Banal Estañol & Derek W. Bunn, 2006.
"Incentives and Coordination in Vertically Related Energy Markets,"
CIG Working Papers
SP II 2006-02, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Micola, Augusto Rupérez & Banal-Estañol, Albert & Bunn, Derek W., 2008. "Incentives and coordination in vertically related energy markets," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 381-393, August.
- Ventosa, Mariano & Baillo, Alvaro & Ramos, Andres & Rivier, Michel, 2005. "Electricity market modeling trends," Energy Policy, Elsevier, vol. 33(7), pages 897-913, May.
- Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo & Möst, Dominik, 2007. "Agent-based simulation of electricity markets: a literature review," Working Papers "Sustainability and Innovation" S5/2007, Fraunhofer Institute for Systems and Innovation Research (ISI).
- Koesrindartoto, Deddy P. & Sun, Junjie & Tesfatsion, Leigh, 2005.
"An Agent-Based Computational Laboratory for Testing the Economic Reliability of Wholesale Power Market Designs,"
Staff General Research Papers
12388, Iowa State University, Department of Economics.
- Deddy Koesrindartoto & Junjie Sun, 2005. "An Agent-Based Computational Laboratory for Testing the Economic Reliability of Wholesale Power Market Designs," Computing in Economics and Finance 2005 50, Society for Computational Economics.
- Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
- David M. Newbery, 2005.
"Electricity liberalization in Britain: The quest for a satisfactory wholesale market design,"
The Energy Journal,
International Association for Energy Economics, vol. 0(Special I), pages 43-70.
- Newbery, D., 2004. "Electricity Liberalisation in Britain: the quest for a satisfactory wholesale market design," Cambridge Working Papers in Economics 0469, Faculty of Economics, University of Cambridge.
- Watson, Jim, 2004. "Selection environments, flexibility and the success of the gas turbine," Research Policy, Elsevier, vol. 33(8), pages 1065-1080, October.
- Thomas, Steve, 2006. "The British Model in Britain: Failing slowly," Energy Policy, Elsevier, vol. 34(5), pages 583-600, March.
- Weidlich, Anke & Veit, Daniel, 2008. "A critical survey of agent-based wholesale electricity market models," Energy Economics, Elsevier, vol. 30(4), pages 1728-1759, July.
- Mitchell, Catherine & Connor, Peter, 2004. "Renewable energy policy in the UK 1990-2003," Energy Policy, Elsevier, vol. 32(17), pages 1935-1947, November.
- Tishler, Asher & Milstein, Irena & Woo, Chi-Keung, 2008. "Capacity commitment and price volatility in a competitive electricity market," Energy Economics, Elsevier, vol. 30(4), pages 1625-1647, July.
- Hewlett, James G., 2005. "De-regulated electric power markets and operating nuclear power plants: the case of British energy," Energy Policy, Elsevier, vol. 33(18), pages 2293-2297, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.