The regulation of energy supply sets the framework conditions for the market behavior of the various actors and serves to achieve energy policy goals while at the same time correcting market failures. We model and analyze regulation and market design from an economic perspective. This includes:
We address the increasing complexity of energy market design through detailed economic analyses of the interdependencies between volatile generation and system stability. One focus is on the spatial dimension of electricity price formation. Here, we evaluate the welfare effects of a bidding zone split as well as its effects on neighboring European markets. The central question is to what extent locally differentiated price signals can set efficient incentives for the siting of generators and loads in order to minimize redispatch needs in the long term.
Capacity mechanisms are also coming into focus: here, we examine the incentive effects on investments in firm capacity and flexibility.
In the area of electricity grid regulation, we are involved in several research projects (e.g., Quirinus Control). These deal, for example, with how distribution and transmission system operators are regulated. In doing so, we work out both theoretically how this regulation could be concretely designed and quantitatively what effects a change in regulation would have. These findings are also relevant for policymakers and industry, for example how incentive regulation can be adjusted. A particular focus around infrastructure regulation lies in the integrated consideration of energy infrastructures. Due to sector coupling, these should increasingly be understood as parts of a holistic energy system. Research on regulation suited to this enables the targeted expansion and new construction of energy infrastructures in order to allow an efficient supply of energy carriers.
We support the European Union’s transformation process toward climate neutrality through in-depth analyses of central climate protection instruments. One focus is on emissions trading with allowances for greenhouse gas emissions (European Union Emissions Trading System, EU ETS). Here, we examine in particular the effects of allowance prices on the marginal costs of electricity generation. In addition, the effectiveness of relief mechanisms such as electricity price compensation is evaluated in order to assess the international competitiveness of energy-intensive industries.
For the buildings and transport sectors, we analyze the transition from national pricing systems to the new EU ETS 2. Using the model DIMENSION, for example, the marginal abatement costs in these end-use sectors as well as potential distributional effects within Europe can be determined.
In the context of the energy transition, decentralized technologies with relevant flexibility potential are increasingly becoming part of the energy system. For example, electric vehicles or heat pumps can in principle adjust their electricity demand to a certain extent, enabling a more cost-effective electricity supply. Industrial companies, too, sometimes have flexible or flexibilizable processes.
In addition to price signals from the (wholesale) electricity market, a consistent incentive system through an appropriate design of grid fees also contributes to a system-beneficial use of existing and emerging flexibility. In this context, we examine design options for such decentralized coordination measures, for example local flexibility markets, in order to reduce the grid expansion needs caused by the simultaneous charging of electric vehicles. In addition, we examine various research projects to what extent adjustments to the grid regulatory framework can help to better incentivize grid operators to use the flexibility potential.
Together with the Electricity research area, market design questions in the electricity sector are investigated, among other things through the use of quantitative models. Using EWI’s own model DIMENSION, we can, for example, model the effects of national and European climate policy on the energy supply system. Various bidding zone configurations in the context of European flow-based market coupling can be investigated using EWI’s own model SPIDER. Together with the Energy Commodities research area, we examine, among other things, the effect of hydrogen regulation on the ramp-up of this market. For example, various support mechanisms are analyzed, or the system-optimal siting of electrolyzers is examined.
Within the Integrated Electricity Market Design research program, EWI – funded by the Gesellschaft zur Förderung des EWI e.V. – addresses comprehensive questions on the efficient design of the energy transition. Since the expansion of renewable energy and power grids requires high investments, it is investigated how a suitable market design can optimize investment and operating decisions.
