Input data and source code for the paper "Risk aversion in flexible electricity markets"

Thomas Möbius, Iegor Riepin, Felix Müsgens, Adriaan H. van der Weijde (2021). in review.

Flexibility options, such as demand response, energy storage and interconnection, have the potential to reduce variation in electricity prices between different future scenarios, therefore reducing investment risk. Moreover, investment in flexibility options can lower the need for generation capacity. However, there are complex interactions between different flexibility options. In this paper, we investigate the interactions between flexibility and investment risk in electricity markets. We employ a large-scale stochastic transmission and generation expansion model of the European electricity system. Using this model, we first investigate the effect of risk aversion on the investment decisions. We find that the interplay of parameters leads to (i) more investment in a less emission-intensive energy system if planners are risk averse (hedging against CO2 price uncertainty) and (ii) constant total installed capacity, regardless of the level of risk aversion (planners do not hedge against demand and RES deployment uncertainties). Second, we investigate the individual effects of three flexibility elements on optimal investment levels under different levels of risk aversion: demand response, investment in additional interconnection capacity and investment in additional energy storage. We find that that flexible technologies have a higher value for risk-averse decision-makers, although the effects are nonlinear. Finally, we investigate the interactions between the flexibility elements. We find that risk-averse decision-makers show a strong preference for transmission grid expansion once flexibility is available at low cost levels.

Keywords:

Risk aversion, Energy storage, Interconnection, Demand response, Investment

Links:

Working paper at arXiv.org

The code reproduces the benchmarks from the paper

Note that model output files are not uploaded to github due to limits on individual file size and on repository size in general.

Citing IntEG

The model published in this repository is free: you can access, modify and share it under the terms of the Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. This model is shared in the hope that it will be useful for further research on topics of risk-aversion, investments, flexibility and uncertainty in ectricity markets but without any warranty of merchantability or fitness for a particular purpose.

If you use the model or its components for your research, we would appreciate it if you would cite us as follows:

This paper is in review. The reference to the working paper version is as follows:

@misc{möbius2021risk,
      title={Risk aversion in flexible electricity markets}, 
      author={Thomas Möbius and Iegor Riepin and Felix Müsgens and Adriaan H. van der Weijde},
      year={2021},
      eprint={2110.04088},
      archivePrefix={arXiv},
      primaryClass={econ.GN},
      url={https://arxiv.org/abs/2110.04088}
}