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Stochastic equilibrium modeling: The Impact of Uncertainty on the European Energy Market

Author

Listed:
  • Rolf Golombek
  • Kjell Arne Brekke
  • Michal Kaut
  • Sverre A.C. Kittelsen
  • Stein W. Wallace

Abstract

We present a simple approach to transform a deterministic numerical equilibrium model - where several agents simultaneously make decisions - into a stochastic equilibrium model. Our approach is used to build a large stochastic numerical equilibrium model of the Western European energy markets. We use the stochastic model to analyze the impact of economic uncertainty on the Western European energy markets; it is demonstrated that the equilibrium under uncertainty differs significantly from the deterministic outcome.

Suggested Citation

  • Rolf Golombek & Kjell Arne Brekke & Michal Kaut & Sverre A.C. Kittelsen & Stein W. Wallace, 2016. "Stochastic equilibrium modeling: The Impact of Uncertainty on the European Energy Market," EcoMod2016 9201, EcoMod.
  • Handle: RePEc:ekd:009007:9201
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    File URL: http://ecomod.net/system/files/StochasticScenarioMethod.17jun15.pdf
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    References listed on IDEAS

    as
    1. Kolstad, Charles D., 1996. "Learning and Stock Effects in Environmental Regulation: The Case of Greenhouse Gas Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 1-18, July.
    2. S. Gabriel & J. Fuller, 2010. "A Benders Decomposition Method for Solving Stochastic Complementarity Problems with an Application in Energy," Computational Economics, Springer;Society for Computational Economics, vol. 35(4), pages 301-329, April.
    3. Egging, Ruud, 2013. "Benders Decomposition for multi-stage stochastic mixed complementarity problems – Applied to a global natural gas market model," European Journal of Operational Research, Elsevier, vol. 226(2), pages 341-353.
    4. R. T. Rockafellar & Roger J.-B. Wets, 1991. "Scenarios and Policy Aggregation in Optimization Under Uncertainty," Mathematics of Operations Research, INFORMS, vol. 16(1), pages 119-147, February.
    5. Golombek, Rolf & Brekke, Kjell Arne & Kittelsen, Sverre A.C., 2013. "Is electricity more important than natural gas? Partial liberalizations of the Western European energy markets," Economic Modelling, Elsevier, vol. 35(C), pages 99-111.
    6. Golombek, Rolf & Kittelsen, Sverre A.C. & Rosendahl, Knut Einar, 2013. "Price and welfare effects of emission quota allocation," Energy Economics, Elsevier, vol. 36(C), pages 568-580.
    7. Stein W. Wallace, 2000. "Decision Making Under Uncertainty: Is Sensitivity Analysis of Any Use?," Operations Research, INFORMS, vol. 48(1), pages 20-25, February.
    8. Julia L. Higle & Stein W. Wallace, 2003. "Sensitivity Analysis and Uncertainty in Linear Programming," Interfaces, INFORMS, vol. 33(4), pages 53-60, August.
    9. Rolf Golombek & Mads Greaker & Sverre A.C. Kittelsen & Ole Røgeberg & Finn Roar Aune, 2011. "Carbon Capture and Storage Technologies in the European Power Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 209-238.
    10. Finn Roar Aune & Rolf Golombek & Sverre A.C. Kittelsen & Knut Einar Rosendahl, 2008. "Liberalizing European Energy Markets," Books, Edward Elgar Publishing, number 3071.
    11. K. J. Arrow, 1964. "The Role of Securities in the Optimal Allocation of Risk-bearing," Review of Economic Studies, Oxford University Press, vol. 31(2), pages 91-96.
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    Keywords

    EU; Impact and scenario analysis; Agent-based modeling;

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