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  Long-term issues with the Energy-Only Market design in the context of deep decarbonization

Lebeau, A., Petitet, M., Quemin, S., Saguan, M. (2024): Long-term issues with the Energy-Only Market design in the context of deep decarbonization. - Energy Economics, 132, 107418.
https://doi.org/10.1016/j.eneco.2024.107418

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 Creators:
Lebeau, Alexis1, Author
Petitet, Marie1, Author
Quemin, Simon2, Author              
Saguan, Marcelo1, Author
Affiliations:
1External Organizations, ou_persistent22              
2Potsdam Institute for Climate Impact Research, Potsdam, ou_persistent13              

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 Abstract: There has been fierce controversy in the literature over the long-run efficiency of the energy-only market (EOM) design ever since its inception. In this paper, we provide novel insights to illuminate this historical controversy, and we revisit it with a focus on contemporary issues and the profound changes brought about by the energy transition. Specifically, we develop an analytical and modeling framework to quantitatively investigate how EOM outcomes hinge on the underlying behavioral, informational and structural assumptions. We apply our framework to a case study calibrated on Californian fundamentals that captures the key features of energy systems under deep decarbonization. We characterize how EOM outcomes can substantially deviate from the long-run optimum as soon as one assumption is relaxed compared to theoretical requirements. This leads to pathways with higher electricity prices, lower security of supply and delayed decarbonization. In particular, we highlight how market price signals alone are prone to a dynamic entry-exit coordination problem between investment in low-carbon assets and the phaseout of fossil-fired assets. This calls for a market design reform to complement price signals that accounts for realistic assumptions.

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Language(s): eng - English
 Dates: 2024-02-232024-03-052024-03-01
 Publication Status: Finally published
 Pages: 24
 Publishing info: -
 Table of Contents: -
 Rev. Type: Peer
 Identifiers: Research topic keyword: Decarbonization
Research topic keyword: Economics
Research topic keyword: Energy
Model / method: Agent-based Models
PIKDOMAIN: RD3 - Transformation Pathways
Organisational keyword: RD3 - Transformation Pathways
MDB-ID: pending
OATYPE: Hybrid Open Access
DOI: 10.1016/j.eneco.2024.107418
 Degree: -

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Title: Energy Economics
Source Genre: Journal, SCI, Scopus
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Publ. Info: -
Pages: - Volume / Issue: 132 Sequence Number: 107418 Start / End Page: - Identifier: CoNE: https://publications.pik-potsdam.de/cone/journals/resource/energy-economics
Publisher: Elsevier