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Electricity Markets in Transition: A Multi-Decade Micro-Model of Entry and Exit in Advanced Wholesale Markets

Author

Listed:
  • Peter Cramton

    (University of Cologne, Cologne, Germany 50923)

  • Emmanuele Bobbio

    (University of Cologne, Cologne, Germany 50923)

  • David Malec

    (University of Maryland, College Park MD 20742)

  • Pat Sujarittanonta

    (Chulalongkorn University, Bangkok, Thailand 10400)

Abstract

"Electricity markets worldwide are undergoing a many‐decade transition in the way electricity is generated and consumed. The success of this transition depends critically on climate policy and market design. We model the most advanced electricity markets in the world to evaluate the impact of alternative policies on electricity market outcomes over the next 40 years, including costs, profits, social welfare, risks, and reliability. Each year, investors decide which resources enter and exit given forward‐looking consistent expectations about energy profits, prices, and costs. The model is unique in modeling investment decisions at the individual unit level based on precisely calculated profits from energy, reserves, and capacity markets. These profits depend critically on the resource structure, which changes each year with investor decisions. New and essential elements of electricity markets, such as battery storage and price responsive demand are fully integrated. The model provides detailed insights into how policies such as carbon pricing impact the transition to renewable energy."

Suggested Citation

  • Peter Cramton & Emmanuele Bobbio & David Malec & Pat Sujarittanonta, 2022. "Electricity Markets in Transition: A Multi-Decade Micro-Model of Entry and Exit in Advanced Wholesale Markets," ECONtribute Discussion Papers Series 183, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:183
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_183_2022.pdf
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    References listed on IDEAS

    as
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    6. Jacob Mays & David P. Morton & Richard P. O’Neill, 2019. "Asymmetric risk and fuel neutrality in electricity capacity markets," Nature Energy, Nature, vol. 4(11), pages 948-956, November.
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    Full references (including those not matched with items on IDEAS)

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