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Power markets in transition: Decarbonization, energy efficiency, and short-term demand response

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  • Mier, Mathias
  • Weissbart, Christoph

Abstract

Energy efficiency and short-term demand response are key issues in the decarbonization of power markets. However, their interaction and combined impact on market prices as well as on the supply side, is yet to be understood. We develop a framework to implement short-term demand response and investments in energy efficiency in detailed partial equilibrium power market models. We quantify our results using the EU-REGEN model for the European power market. Under an 80% emission reduction target, energy efficiency contributes only 11% of carbon emission reductions. Intermittent renewable energies such as wind and solar power account for the major share of 53%. In comparison to a scenario without short-term demand response and energy efficiency investments, 70 GW gas power is decommissioned immediately and 180 GW less gas capacity is needed in 2050, which underlines the need for immediate action by policy makers to avoid locking the EU power market into an inefficient path.

Suggested Citation

  • Mier, Mathias & Weissbart, Christoph, 2020. "Power markets in transition: Decarbonization, energy efficiency, and short-term demand response," Munich Reprints in Economics 84730, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:84730
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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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