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Regulation of the power sector in times of the Energy transition. Four contributions on price incentives reflecting the cost of the transmission system

  • Governments use regulation to affect the behavior of market participants such that welfare is maximized. Good regulation in the electricity sector aims to achieve an affordable, sustainable, and secure supply of electricity. However, the energy transition fundamentally changes the way electrical energy is produced and consumed. Consequently, market rules and regulatory interventions need to be adjusted to cope with these new political targets, technological innovations, and societal trends. This cumulative dissertation contributes to the academic literature on regulatory incentives in the electricity sector with four scientific articles. At the core of this dissertation are incentives for participants of the electricity market that result from the market design and other regulatory interventions. I study how such incentives can be designed to minimize the cost of expanding and operating the transmission network. The transmission system is confronted with several new challenges resulting from the energy transition, including an increasing distance between generators and consumers, power flows that quickly change over time, and declining share of dispatchable generators that complicates frequency stability. The first three articles of this dissertation study incentives for market participants to account for the cost of operating and expanding the transmission network in their investment and dispatch decisions. The first article introduces a conceptual framework for categorizing and analyzing locational signals that result from the market design and from other regulatory interventions. It classifies, quantifies, and discusses locational instruments in twelve jurisdictions. It finds that all reviewed systems apply regulatory locational instruments, and many systems even combine multiple instruments. Only few instruments result in economic incentives that are strong enough to affect investment decisions. The second article focuses on one key market design: nodal pricing. It identifies and assesses the main arguments against the concept of nodal pricing based on the experience made in US power markets. It shows that most of the perceived drawbacks of the concept in the European debate are misconceived and can be sufficiently addressed as it is done in systems that already implemented a nodal market. The third article studies the long-run effects of optimal administratively determined locational signals. To do so, it introduces a complementary power market model. Applying the model to a sample case study reveals characteristics of such signals and highlights their potential welfare gains. The fourth article is dedicated to the balancing mechanism, which maintains the grid frequency by balancing the feed-in of electricity into the network and its withdrawal. This is another source of cost that arise in the transmission system. The article analyses the economic incentives resulting from the design of the balancing mechanism. It quantifies the price response of balancing responsible parties to the imbalance price and finds a significant effect. This finding is politically delicate because such a price responsiveness is forbidden by the regulator. With these four articles, the dissertation provides insights how the regulator can affect the behavior of market participants through economic incentives, which is of interest for researchers and policy makers alike. It adds to the literature by proposing new frameworks and models, and by drawing from experiences in other jurisdictions. Thereby, it contributes to adapting the regulation of the power sector in times of the energy transition.

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Metadaten
Document Type:Doctoral Thesis
Language:English
Author(s):Anselm Eicke
Advisor:Lion Hirth, Felix Müsgens, Carlos Batlle
Hertie Collections (Serial Number):Dissertations submitted to the Hertie School (08/2022)
Publication year:2022
Publishing Institution:Hertie School
Granting Institution:Hertie School
Thesis date:2022/07/20
Release Date:2022/08/03
Notes:
All papers have been published and are openly accessible here:

Eicke, A., Khanna, T., & Hirth, L. (2020). Locational Investment Signals: How to Steer the Siting of New Generation Capacity in Power Systems? The Energy Journal, 41(6). https://doi.org/10.5547/01956574.41.6.aeic

Eicke, A., & Schittekatte, T. (2022). Fighting the wrong battle? A critical assessment of arguments against nodal electricity prices in the European debate. Energy Policy, 170, 113220. https://doi.org/10.1016/j.enpol.2022.113220

Eicke, A. (2022). Where should generators be built in a zonal electricity market? A numerical analysis of administratively determined investment signals. ZBW – Leibniz Information Centre for Economics. http://hdl.handle.net/10419/261346

Eicke, A., Ruhnau, O., & Hirth, L. (2021). Electricity balancing as a market equilibrium: An instrument-based estimation of supply and demand for imbalance energy. Energy Economics, 102, 105455. https://doi.org/10.1016/j.eneco.2021.105455

Print copy of the dissertation is available at the Hertie Library.
Notes:
Shelf mark: 2022D008 + 2022D008+1
Hertie School Research:Publications PhD Researchers
Licence of document (German):Metadaten / metadata
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