CE05 - Une énergie durable, propre, sûre et efficace

Economic Sustainability of the Future Highly Renewable European Energy System – EcoREES

Submission summary

The European energy sector is undergoing a major transition towards a carbon-free system. According to International Energy Agency, to limit the global temperature increase to 1.75°C by 2100 (Paris Agreement range midpoint), the energy sector must reach carbon neutrality by 2060. This can only be achieved through massive deployment of renewable energy at the scale not sustainable within the present structure of electricity markets, networks and incentives. On the one hand, such massive deployment will put excessive strain on the state budgets. On the other hand, the near-zero marginal cost of electricity from renewable sources will drive down electricity prices pushing conventional producers vital for system stability out of the market.

At the same time, new market mechanisms are introduced in Europe to guarantee network security under the conditions of increased penetration of renewable energy and multiplication of new electricity use patterns. These new opportunities create feedback effects on market prices affecting the business models of the agents and, in fine, the network security and the renewable penetration.

In this context, the EcoREES project is a multidisciplinary research partnership involving economists, applied mathematicians, statisticians and research engineers from the industry. The consortium includes Centre de Recherche en Economie et Statistique of ENSAE (CREST), Laboratoire d’Economie de Dauphine (LEDa), Centre de Mathématiques Appliquées of Ecole Polytechnique (CMAP), Laboratoire de Signaux et Systèmes of Centrale-Supélec (L2S) and the OSIRIS research department of Electricité de France. Out aim is to build game-theoretical models for simulating future electricity markets; use these models to understand the effect of market structure and incentives on the behavior of agents; and find optimal designs of market mechanisms and the optimal policies of the regulator achieving specific objectives in terms of CO2 emissions, renewable penetration and system stability in the future, highly renewable, European energy system.

To this end we shall (i) evaluate the business models and determine the strategies of individual agents in the new multi-market environment; (ii) understand the price formation as a result of interaction between agents; (iii) validate the model predictions through empirical analysis of electricity markets; (iv) create the first building blocks of an integrated modeling framework for simulating the prices and energy production, depending on the structure of markets and incentives. Unlike the models of agent-based computational economics based on full scale simulations of the economic system, we will adopt a semi-analytic framework of mean-field games, sufficiently complex to allow for realistic interactions between agents yet sufficiently tractable to allow for mathematical analysis of the model and fast computations.

The main innovations of the proposed project are : (i) Taking into account the very large dimension of the optimization problems faced by the players of the energy industry (probabilistic forecasts, multiple markets), in particular through the machine learning approaches; (ii) Integrated approach linking electricity price, renewable penetration and CO2 emission scenarios to operational strategies and entry/exit decisions of individual agents through game-theoretical models (mean-field games) taking into account the interactions between players; (iii) Systematic approach to define optimal subsidies/market design via principal-agent models and (iv) Econometric study of the effect of existing subsidies/market designs on industry dynamics.

The project results will be disseminated to energy sector stakeholders and policy makers via policy papers and specialized workshops.

Project coordination

Peter Tankov (Centre de Recherche en Economie et Stastistique - CREST)

The author of this summary is the project coordinator, who is responsible for the content of this summary. The ANR declines any responsibility as for its contents.

Partner

CRAN Centre de Recherche en Automatique de Nancy (CRAN)
CNRS - CREST Centre de Recherche en Economie et Stastistique - CREST
LEDA LABORATOIRE D'ECONOMIE DE DAUPHINE
ELECTRICITE DE FRANCE
CMAP Centre de mathématiques appliquées

Help of the ANR 399,957 euros
Beginning and duration of the scientific project: November 2019 - 48 Months

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