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An integrated electricity market model

Development of an integrated electricity market model for Western Europe

The objective of this research project commissioned by EC’s DG JRC-IPTS is to develop a comparative static model of the electricity markets of seven EU member states namely Portugal, Spain, France, Germany, Belgium, the Netherlands, and Luxembourg, considering explicitly the cross-border interconnections between those countries.

The model will be used to carry out oligopolistic welfare analyses depending on exogenously assumed scenario settings defining explicitly:

  • installed power generation capacity,
  • availability/capacity factors,
  • country-dependent fuel prices,
  • share of bilateral/spot electricity trading,
  • international transmission capacities and tariffs,
  • mergers and acquisitions (also demergers),
  • renewable electricity support schemes (namely feed-in tariffs and green certificate markets),
  • renewable electricity targets,
  • emission limits.

The consortium (TML, MEERI, and TECNALIA) will build a model based on the use of the game theory-based Cournot approach with inclusion of Conjectural Variations (CV), since:

  • market agents adapt outputs in response to the actions of other agents,
  • the methodology is able to produce more plausible and realistic results, in terms of quantities and prices, than other modelling alternatives,
  • the approach allows representing a wide range of market structures (ranging from full competitive markets to oligopolies and cartels).

The model will be formulated as a Mixed Complementarity Problem (MCP). This provides a general mathematical framework particularly well-suited to model energy markets: the equations governing the equilibrium in those markets are defined by the Karush-Kuhn-Tucker (KKT, defining the conditions for profit maximisation) and market-clearing (supply equal to demand) conditions, plus the conditions representing other constraints (such as emission limits, renewable electricity targets, capacity limits, et cetera).

reports

No report available yet

period

2011-2012

funded by

European Commission, DG Joint Research Centre, Institute for Prospective Technological Studies (IPTS)

partners

MEERI (Poland), TECNALIA (Spain)

contact

Kris Vanherle

+32 16 31.77.38