Electricity market design and production planning: Improving economic efficiency and supporting the integration of renewables

Abstract

This thesis investigates novel market designs and production planning. Its overarching goal is to improve the economic efficiency of electricity markets and support the integration of renewable electricity production. Hence, the thesis considers problems faced by multiple stakeholders, from regulators to individual producers, using a variety of methods, where equilibrium models and stochastic optimization are most prominent. Paper I proposes “flexible electricity bidding zones," an innovative market design that changes zonal configuration according to congestion patterns in the power system. This results in cost savings and a design that is more robust to largescale integration of renewables. Paper II examines oligopolistic wholesale electricity markets. It investigates inverse equilibrium models as a method to investigate market conditions. Paper III demonstrates how complete markets for risk, which allows market participants to hedge both locational and energy price risk, promote efficient investments. Specifically, it shows that extending the contract duration of financial transmission rights lower costs of capital for geographically remote projects, which large-scale renewables usually are. Finally, paper IV considers the cost of neglecting the co-movement between prices and inflows when establishing operational policies in hydro-dominated systems. It demonstrates modest cost savings and provides general insights on behaviors, like how a policy that considers co-movement values future water more.