Universität zu Köln

Lencz, Dominic (2024). Essays on Market Design and Regulation Energy Economics. PhD thesis, Universität zu Köln.

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Abstract

This thesis presents four essays on market design and regulation in energy economics. The first essay analyses the spatial allocation of variable renewable electricity (VRE) capacity for the market designs nodal and uniform pricing using a highly stylised theoretical model. Under nodal pricing, three ranges of spatial allocation are identified. Depending on the range, marginal VRE capacity is either allocated to the node with the highest availability, split between the nodes, or fully allocated to the node with the lower average availability. Which of the ranges applies depends on system characteristics such as VRE penetration or transmission capacity. Under uniform pricing, it is found that too much capacity is allocated to the node with high availability when VRE penetration exceeds a certain threshold. The second essay assesses the welfare effects of Carbon Contracts for Differences (CCfDs). In the model, a regulator can offer CCfDs to risk-averse firms that decide upon irreversible investments in an emission-free technology in the presence of risk. Risk arises from environmental damage or from the variable costs of the emission-free technology. On the one hand, through their hedging effect, CCfDs motivate firms to invest more in low-emission technologies, thereby increasing welfare. On the other hand, hedging through CCfDs carries the risk of artificially keeping inefficient production processes in the market at a later stage, which reduces welfare. The third essay examines the effects of multipliers in the pricing of short-term gas transmission capacity, as is the case in the European Union (EU) gas transmission system. Using a stylised theoretical framework, the analysis shows that higher multipliers can lead to increased storage utilisation and more uniform use of transport capacity. Higher multipliers are also found to lead to higher total system costs and lower total welfare. Nevertheless, such higher multipliers might increase consumer surplus compared to the welfare-maximising multipliers. The fourth essay builds on the theoretical findings of the third essay and analyses the internal and external effects of multipliers in the EU in a real-world setting. Using a numerical simulation model depicting the gas dispatch in the EU, the analysis identifies the internal effects of multipliers in the regions. The analysis shows that individual consumer surplus-maximising multipliers differ across regions. Furthermore, due to externalities, individual consumer surplus-maximising multipliers are unlikely to lead to a common optimum.

Item Type:	Thesis (PhD thesis)
Creators:	Creators Email ORCID ORCID Put Code Lencz, Dominic UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-724976
Date:	2024
Language:	English
Faculty:	Faculty of Management, Economy and Social Sciences
Divisions:	Faculty of Management, Economics and Social Sciences > Economics > Microeconomics, Institutions and markets > Professorship for Energy and Environmental Economics
Subjects:	Economics
Uncontrolled Keywords:	Keywords Language Gas Transmission Networks English Entry-Exit Tariffs English Multipliers English Carbon pricing English Carbon Contracts for Difference English Nodal pricing English Uniform pricing English Curtailment English Market design English Regulation English
Date of oral exam:	27 June 2023
Referee:	Name Academic Title Bettzüge, Marc Oliver Prof. Dr. Tode, Christian Prof. Dr.
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/72497