Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247668 
Year of Publication: 
2021
Series/Report no.: 
Working Paper Series in Production and Energy No. 62
Publisher: 
Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP), Karlsruhe
Abstract: 
Investment decisions in competitive power markets are based upon thorough profitability assessments. Thereby, investors typically show a high degree of risk aversion, which is the main argument for capacity mechanisms being implemented around the world. In order to investigate the interdependencies between investors' risk aversion and market design, we extend the agent-based electricity market model PowerACE to account for long-term uncertainties. This allows us to model capacity expansion planning from an agent perspective and with different risk preferences. The enhanced model is then applied in a multi-country case study of the European electricity market. Our results show that assuming risk-averse rather than risk-neutral investors leads to slightly reduced investments in dispatchable capacity, higher wholesale electricity prices, and reduced levels of resource adequacy. These effects are more pronounced in an energy-only market than under a capacity mechanism. Moreover, uncoordinated changes in market design may also lead to negative cross-border effects.
Subjects: 
Agent-based simulation
Capacity expansion planning
Risk aversion
Electricity market design
Energy-only market
Capacity mechanism
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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