Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/235242
Authors: 
Mier, Mathias
Azarova, Valeriya
Year of Publication: 
2021
Series/Report no.: 
ifo Working Paper No. 357
Abstract: 
Detailed numerical models of power markets with millions of variables and equations are often perceived as black boxes, because differences in results cannot be traced back to single equations or assumptions, respectively. We unravel parts of those black box by determining the impact of different investment cost specifications including the role of varying discount and interest rates. We further expand our analysis to the impact of simplifications strategies (foresight, spatial resolution, temporal resolution) that are applied to contain numerical feasibility of such models. The choice of investment cost modeling (and related discount and interest rates) has the highest impact on results. Increasing or decreasing, respectively, complexity in turn, has only minor impacts. Our findings questions the current focus of the literature on complexity of power market models neglecting the most relevant factor, which is the choice of handling investment costs.
Subjects: 
Energy system modeling
Power market modeling
Investment behavior
Firm behavior
Spatial resolution
Temporal resolution
Decarbonization
JEL: 
C61
C68
Q40
Q41
Document Type: 
Working Paper

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