An Integrated Electricity Market Model

Development of an integrated electricity market model for Western Europe

The objective of this research project commissioned by the EC’s DG JRC-IPTS was 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, explicitly considering the cross-border interconnections between those countries.

The model can be used to conduct oligopolistic welfare analyses depending on exogenously assumed scenario settings that explicitly define:

  • 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 built 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
  • in terms of quantities and prices, the methodology is able to produce more plausible and realistic results than other modelling alternatives
  • the approach allows a wide range of market structures (ranging from full competitive markets to oligopolies and cartels) to be presented

The model is 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

The report is confidential

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 74.51.29
reference: 11.18