Market Design for the Transition to Renewable Electricity Systems

Abstract

The research carried out in this thesis aims to shed light on the role of the European electricity market design in the transition to a target electricity system that combines sustainability, affordability, and reliability. While the ongoing expansion of fluctuating renewable electricity sources challenges the established structures and market mechanisms, governments across Europe have decided to phase-out certain conventional technologies like coal or nuclear power. Since traditional electricity systems rely on flexibility provided by controllable generation capacity, other flexibility options are needed to compensate for the decommissioned conventional power plants and support the system integration of renewables. Against this background, the dissertation extends an established large-scale agent-based electricity market model in order to account for the developments towards an integrated European electricity market and the characteristics of storage technologies. In particular, the representation of cross-border effects is enhanced by integrating approaches from the fields of operations research, non-cooperative game theory, and artificial intelligence in the simulation framework. The extended model is then applied in three case studies to analyze the diffusion of different flexibility options under varying regulatory settings. These case studies cover some central aspects of the European electricity market, most importantly capacity remuneration mechanisms, the interaction of day-ahead market and congestion management, and the role of regulation for residential self-consumption. Results of the case studies confirm that by designing the regulatory framework, policymakers and regulators can substantially affect quantity, composition, location, and operation of technologies – both, on the supply side and the demand side. At the same time, changes and amendments to market design are frequent and will continue to be so in the years ahead. Moreover, given the increasing level of market integration in Europe, the role of cross-border effects of national market designs will gain further in importance. In this context, agent-based simulation models are a valuable tool to better understand potential long-term effects of market designs in the interconnected European electricity system and can therefore support the European energy transition.