Linking electricity prices and costs in bottom-up top-down coupling under changing market environments
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Linking electricity prices and costs in bottom-up top-down coupling under changing market environments
- 1. Linking electricity prices and costs in bottom-up top-down coupling under changing market environments Sophie Maire, Frank Vöhringer 66th Semi-annual ETSAP meeting TIMES-CGE Workshop Copenhagen, November 19th 2014
- 2. 2 Do assumptions on future evolution of electricity market regulation have an impact on modeling results? Research question
- 3. 3 Structure • Electricity market regulation and wholesale electricity pricing • The ELECTRA framework • Scenarios • Results • Conclusion Electricity markets ELECTRA framework Scenarios Results Conclusion
- 4. 4 Costs vs prices • Coupling • Computable General Equilibrium (CGE) - prices • with a TIMES electricity supply model - costs • In the CGE model, prices drive the decisions of economic agents. Electricity markets ELECTRA framework Scenarios Results Conclusion
- 5. 5 Wholesale electricity pricing Traditionally regulated market Fully liberalized market Wholesale electricity pricing Incentive for new capacity addition Electricity markets ELECTRA framework Scenarios Results Conclusion
- 6. 5 Wholesale electricity pricing Traditionally regulated market Fully liberalized market Regulated prices: • cover generation costs • acceptable profit Wholesale electricity pricing Incentive for new capacity addition Electricity markets ELECTRA framework Scenarios Results Conclusion
- 7. 5 Wholesale electricity pricing Traditionally regulated market Fully liberalized market Regulated prices: • cover generation costs • acceptable profit Wholesale electricity pricing • guaranteed acceptable return on investments • subsidies (open or covert) Incentive for new capacity addition Electricity markets ELECTRA framework Scenarios Results Conclusion
- 8. 5 Wholesale electricity pricing Traditionally regulated market Fully liberalized market Regulated prices: • cover generation costs • acceptable profit Priced: • at marginal cost • including scarcity rents Wholesale electricity pricing • guaranteed acceptable return on investments • subsidies (open or covert) Incentive for new capacity addition Electricity markets ELECTRA framework Scenarios Results Conclusion
- 9. 5 Wholesale electricity pricing Traditionally regulated market Fully liberalized market Regulated prices: • cover generation costs • acceptable profit Priced: • at marginal cost • including scarcity rents Wholesale electricity pricing • guaranteed acceptable return on investments • subsidies (open or covert) Incentive for new capacity addition 3. Personal communication from Joe Bow 4. Samuelson (1973, 623) comes close to are the results of a natural scarcity.” His d definition of scarcity rent given here. 5. This is greater than short-run profit by ignored until Part 3. tive price equals that marginal co matter for the “simplified” diagr This book also will use the s vertical segments literally. Such up to the nominal “maximum” increase rapidly. If the supply cu generator’s marginal cost will b segment. When referring to such its marginal cost is $30 as is the c of a generator’s supply curve to termed its variable cost. This is n term’s normal usage which refer 1-6.6 SCARCITY RENT “Scarcity rent” has no meanings.4 Although to careful analysis. H close to the popular m minus variable cost.5 E rent. In the figure at th generators are produci either generator more produce more. In this rents. With demand reduc generators of type G2 h earn no scarcity rent; th tors of type G1 are stil to pay their variable variable cost of $1,00 $950/MWh because G commonly be seen as with an important concept of econ Electricity markets ELECTRA framework Scenarios Results Conclusion
- 10. 5 Wholesale electricity pricing Traditionally regulated market Fully liberalized market Regulated prices: • cover generation costs • acceptable profit Priced: • at marginal cost • including scarcity rents Wholesale electricity pricing • guaranteed acceptable return on investments • subsidies (open or covert) • scarcity rents reach the right level at equilibrium Incentive for new capacity addition 3. Personal communication from Joe Bow 4. Samuelson (1973, 623) comes close to are the results of a natural scarcity.” His d definition of scarcity rent given here. 5. This is greater than short-run profit by ignored until Part 3. tive price equals that marginal co matter for the “simplified” diagr This book also will use the s vertical segments literally. Such up to the nominal “maximum” increase rapidly. If the supply cu generator’s marginal cost will b segment. When referring to such its marginal cost is $30 as is the c of a generator’s supply curve to termed its variable cost. This is n term’s normal usage which refer 1-6.6 SCARCITY RENT “Scarcity rent” has no meanings.4 Although to careful analysis. H close to the popular m minus variable cost.5 E rent. In the figure at th generators are produci either generator more produce more. In this rents. With demand reduc generators of type G2 h earn no scarcity rent; th tors of type G1 are stil to pay their variable variable cost of $1,00 $950/MWh because G commonly be seen as with an important concept of econ Electricity markets ELECTRA framework Scenarios Results Conclusion
- 11. 5 Wholesale electricity pricing Traditionally regulated market Fully liberalized market Regulated prices: • cover generation costs • acceptable profit Priced: • at marginal cost • including scarcity rents Wholesale electricity pricing • guaranteed acceptable return on investments • subsidies (open or covert) • scarcity rents reach the right level at equilibrium Incentive for new capacity addition Modeling 3. Personal communication from Joe Bow 4. Samuelson (1973, 623) comes close to are the results of a natural scarcity.” His d definition of scarcity rent given here. 5. This is greater than short-run profit by ignored until Part 3. tive price equals that marginal co matter for the “simplified” diagr This book also will use the s vertical segments literally. Such up to the nominal “maximum” increase rapidly. If the supply cu generator’s marginal cost will b segment. When referring to such its marginal cost is $30 as is the c of a generator’s supply curve to termed its variable cost. This is n term’s normal usage which refer 1-6.6 SCARCITY RENT “Scarcity rent” has no meanings.4 Although to careful analysis. H close to the popular m minus variable cost.5 E rent. In the figure at th generators are produci either generator more produce more. In this rents. With demand reduc generators of type G2 h earn no scarcity rent; th tors of type G1 are stil to pay their variable variable cost of $1,00 $950/MWh because G commonly be seen as with an important concept of econ Electricity markets ELECTRA framework Scenarios Results Conclusion
- 12. 5 Wholesale electricity pricing Traditionally regulated market Fully liberalized market Regulated prices: • cover generation costs • acceptable profit Priced: • at marginal cost • including scarcity rents Wholesale electricity pricing • guaranteed acceptable return on investments • subsidies (open or covert) • scarcity rents reach the right level at equilibrium Incentive for new capacity addition price = AC + profitModeling 3. Personal communication from Joe Bow 4. Samuelson (1973, 623) comes close to are the results of a natural scarcity.” His d definition of scarcity rent given here. 5. This is greater than short-run profit by ignored until Part 3. tive price equals that marginal co matter for the “simplified” diagr This book also will use the s vertical segments literally. Such up to the nominal “maximum” increase rapidly. If the supply cu generator’s marginal cost will b segment. When referring to such its marginal cost is $30 as is the c of a generator’s supply curve to termed its variable cost. This is n term’s normal usage which refer 1-6.6 SCARCITY RENT “Scarcity rent” has no meanings.4 Although to careful analysis. H close to the popular m minus variable cost.5 E rent. In the figure at th generators are produci either generator more produce more. In this rents. With demand reduc generators of type G2 h earn no scarcity rent; th tors of type G1 are stil to pay their variable variable cost of $1,00 $950/MWh because G commonly be seen as with an important concept of econ Electricity markets ELECTRA framework Scenarios Results Conclusion
- 13. 5 Wholesale electricity pricing Traditionally regulated market Fully liberalized market Regulated prices: • cover generation costs • acceptable profit Priced: • at marginal cost • including scarcity rents Wholesale electricity pricing • guaranteed acceptable return on investments • subsidies (open or covert) • scarcity rents reach the right level at equilibrium Incentive for new capacity addition price = AC + profit price = long-term MCModeling 3. Personal communication from Joe Bow 4. Samuelson (1973, 623) comes close to are the results of a natural scarcity.” His d definition of scarcity rent given here. 5. This is greater than short-run profit by ignored until Part 3. tive price equals that marginal co matter for the “simplified” diagr This book also will use the s vertical segments literally. Such up to the nominal “maximum” increase rapidly. If the supply cu generator’s marginal cost will b segment. When referring to such its marginal cost is $30 as is the c of a generator’s supply curve to termed its variable cost. This is n term’s normal usage which refer 1-6.6 SCARCITY RENT “Scarcity rent” has no meanings.4 Although to careful analysis. H close to the popular m minus variable cost.5 E rent. In the figure at th generators are produci either generator more produce more. In this rents. With demand reduc generators of type G2 h earn no scarcity rent; th tors of type G1 are stil to pay their variable variable cost of $1,00 $950/MWh because G commonly be seen as with an important concept of econ Electricity markets ELECTRA framework Scenarios Results Conclusion
- 14. 6 European electricity market 2014 Largely liberalized market Situation of overcapacity ⇒ no scarcity ⇒ no scarcity rents ⇒ no incentive to build new capacity Electricity markets ELECTRA framework Scenarios Results Conclusion
- 15. 2050which evolution? 6 European electricity market 2014 Largely liberalized market Situation of overcapacity ⇒ no scarcity ⇒ no scarcity rents ⇒ no incentive to build new capacity Electricity markets ELECTRA framework Scenarios Results Conclusion
- 16. 2050which evolution? 6 European electricity market 2014 Largely liberalized market Situation of overcapacity ⇒ no scarcity ⇒ no scarcity rents ⇒ no incentive to build new capacity Fully liberalized? Electricity markets ELECTRA framework Scenarios Results Conclusion
- 17. 2050which evolution? 6 European electricity market 2014 Largely liberalized market Situation of overcapacity ⇒ no scarcity ⇒ no scarcity rents ⇒ no incentive to build new capacity Fully liberalized? Or a mix ? with capacity markets? Electricity markets ELECTRA framework Scenarios Results Conclusion
- 18. 7 ELECTRA • ELECTRA : Electricity markets and trade in Switzerland and its neighbouring countries • Project partners: • Econability, Bern (lead) Sophie Maire, Frank Vöhringer • EPFL, Ecole Polytechnique Fédérale de Lausanne Marc Vielle, Frédéric Babonneau, Philippe Thalmann • PSI, Paul Scherrer Institute, Villigen Rajesh Pattupara, Kannan Ramachandran, Hal Turton • Financed by the Swiss Federal Office of Energy Electricity markets ELECTRA framework Scenarios Results Conclusion
- 19. 8 Models CROSSTEM GENESwIS Electricity markets ELECTRA framework Scenarios Results Conclusion
- 20. 8 Models CROSSTEM GENESwIS Cross-border Swiss TIMES Electricity Model Electricity markets ELECTRA framework Scenarios Results Conclusion
- 21. 8 Models CROSSTEM GENESwIS Cross-border Swiss TIMES Electricity Model General equilibrium model (CGE) of the Swiss economy Electricity markets ELECTRA framework Scenarios Results Conclusion
- 22. 9 Coupling CROSSTEM GENESwIS Electricity markets ELECTRA framework Scenarios Results Conclusion
- 23. 9 Coupling CROSSTEM GENESwIS generation costs •average •marginal Electricity markets ELECTRA framework Scenarios Results Conclusion
- 24. 9 Coupling CROSSTEM GENESwIS generation costs •average •marginal export revenue & import cost Electricity markets ELECTRA framework Scenarios Results Conclusion
- 25. 9 Coupling CROSSTEM GENESwIS generation costs •average •marginal export revenue & import cost Electricity markets ELECTRA framework Scenarios Results Conclusion
- 26. 9 Coupling CROSSTEM GENESwIS generation costs •average •marginal export revenue & import cost input shares to electricity generation Electricity markets ELECTRA framework Scenarios Results Conclusion
- 27. 9 Coupling CROSSTEM GENESwIS generation costs •average •marginal export revenue & import cost input shares to electricity generation wholesale electricity price Electricity markets ELECTRA framework Scenarios Results Conclusion
- 28. 9 Coupling CROSSTEM GENESwIS generation costs •average •marginal export revenue & import cost input shares to electricity generation wholesale electricity price sectoral electricity demands Electricity markets ELECTRA framework Scenarios Results Conclusion
- 29. 9 Coupling CROSSTEM GENESwIS generation costs •average •marginal export revenue & import cost input shares to electricity generation wholesale electricity price sectoral electricity demands factor & intermediate input prices Electricity markets ELECTRA framework Scenarios Results Conclusion
- 30. 9 Coupling CROSSTEM GENESwIS generation costs •average •marginal export revenue & import cost input shares to electricity generation wholesale electricity price sectoral electricity demands factor & intermediate input prices Electricity markets ELECTRA framework Scenarios Results Conclusion
- 31. 9 Coupling CROSSTEM GENESwIS generation costs •average •marginal export revenue & import cost input shares to electricity generation wholesale electricity price sectoral electricity demands factor & intermediate input priceschanges to investment costs and operation and maintenance costs Electricity markets ELECTRA framework Scenarios Results Conclusion
- 32. 10 Scenarios Pricing scenariosPricing scenarios Regulated market Liberalized market Policy scenarios Baseline Policy scenarios Tax scenario BAU_REG BAU_LIB TAX_REG TAX_LIB Electricity markets ELECTRA framework Scenarios Results Conclusion
- 33. Pricing scenariosPricing scenarios Regulated market Liberalized market Policy scenarios Baseline Policy scenarios Tax scenario BAU_REG BAU_LIB TAX_REG TAX_LIB 11 Scenarios Electricity markets ELECTRA framework Scenarios Results Conclusion Swiss BAU scenario ETS scheme (linked with EU ETS) CO2 tax on heating fuels and gas
- 34. Pricing scenariosPricing scenarios Regulated market Liberalized market Policy scenarios Baseline Policy scenarios Tax scenario BAU_REG BAU_LIB TAX_REG TAX_LIB 11 Scenarios Electricity markets ELECTRA framework Scenarios Results Conclusion Swiss BAU scenario ETS scheme (linked with EU ETS) CO2 tax on heating fuels and gas Electricity tax (10% in 2020, 50% in 2050) Increase CO2 tax CO2 tax on transport fuels (from 2035)
- 35. 12 Scenarios Pricing scenariosPricing scenarios Regulated market Liberalized market Policy scenarios Baseline Policy scenarios Tax scenario BAU_REG BAU_LIB TAX_REG TAX_LIB Electricity markets ELECTRA framework Scenarios Results Conclusion
- 36. 12 Scenarios Pricing scenariosPricing scenarios Regulated market Liberalized market Policy scenarios Baseline Policy scenarios Tax scenario BAU_REG BAU_LIB TAX_REG TAX_LIB Electricity markets ELECTRA framework Scenarios Results Conclusion price = AC + profit
- 37. 12 Scenarios Pricing scenariosPricing scenarios Regulated market Liberalized market Policy scenarios Baseline Policy scenarios Tax scenario BAU_REG BAU_LIB TAX_REG TAX_LIB Electricity markets ELECTRA framework Scenarios Results Conclusion price = AC + profit price = MC (incl. scarcity rents)
- 38. 13 Costs and prices Wholesale electricity prices assumptions with regards to average and marginal cost from the CROSSTEM model. Electricity markets ELECTRA framework Scenarios Results Conclusion
- 39. 14 Costs and prices Regulated market: Price = AC + 2% profit Wholesale electricity prices assumptions with regards to average and marginal cost from the CROSSTEM model. Electricity markets ELECTRA framework Scenarios Results Conclusion
- 40. 15 Costs and prices Regulated market: Price = AC + 2% profit Liberalized market Price(>2025) = MC Liberalized market Price(<2025) = f(AC,MC) Wholesale electricity prices assumptions with regards to average and marginal cost from the CROSSTEM model. Electricity markets ELECTRA framework Scenarios Results Conclusion
- 41. 16 Variation btw scenarios&baselines Pricing scenariosPricing scenarios Regularized market Liberalized market Policy scenarios Baseline Policy scenarios Tax scenario BAU_REG BAU_LIB TAX_REG TAX_LIB Electricity markets ELECTRA framework Scenarios Results Conclusion
- 42. 16 Variation btw scenarios&baselines Pricing scenariosPricing scenarios Regularized market Liberalized market Policy scenarios Baseline Policy scenarios Tax scenario BAU_REG BAU_LIB TAX_REG TAX_LIB Electricity markets ELECTRA framework Scenarios Results Conclusion
- 43. 16 Variation btw scenarios&baselines Pricing scenariosPricing scenarios Regularized market Liberalized market Policy scenarios Baseline Policy scenarios Tax scenario BAU_REG BAU_LIB TAX_REG TAX_LIB Electricity markets ELECTRA framework Scenarios Results Conclusion •price for users ↑ •demand↓
- 44. 17 MC and AC variation MC Regulated market MC Liberalized market Percentage change of the marginal cost and average cost in the TAX scenarios for liberalized and regulated markets, relative to the respective baselines Electricity markets ELECTRA framework Scenarios Results Conclusion
- 45. 18 MC and AC variation MC Regulated market MC Liberalized market Percentage change of the marginal cost and average cost in the TAX scenarios for liberalized and regulated markets, relative to the respective baselines AC Regulated market AC Liberalized market Electricity markets ELECTRA framework Scenarios Results Conclusion
- 46. 19 Wholesale electricity prices variation Electricity price Liberalized market Percentage change of electricity generation price in the TAX scenarios for liberalized and regulated markets, relative to the respective baselines Electricity price Regulated market Electricity markets ELECTRA framework Scenarios Results Conclusion
- 47. 20 User prices variation User price of electricity Liberalized market Percentage change of the user price for electricity in the TAX scenarios for liberalized and regulated markets, relative to the respective baselines User price of electricity Regulated market Electricity markets ELECTRA framework Scenarios Results Conclusion TAX
- 48. 21 Electricity demand variation Electricity demand Liberalized market Percentage change of electricity demand for the TAX scenarios for liberalized and regulated markets, relative to the respective baselines Electricity demand Regulated market Electricity markets ELECTRA framework Scenarios Results Conclusion
- 49. 22 Conclusion • Assumptions on the future evolution of electricity market regulation have an impact on the modeling results. • In our simulations, the electricity demand reduction fostered by market based policies are stronger in a liberalized setting than for a regulated market. Electricity markets ELECTRA framework Scenarios Results Conclusion