Economics of Energy Markets
Crédits ECTS :
3
Heures de cours :
18
Heures de TD :
0
Langue :
Anglais
Modalité d'examen :
mém.
Objectif
Introduction This course presents institutional, theoretical and empirical aspects of the economics of energy markets, with a particular emphasis on electricity markets. Energy consumption is an essential driver of economic activity and the main source of polluting emissions. While energy industries are strongly driven by fundamental economic forces, regulation is an important safeguard to ensure their well-functioning. This course addresses both the supply and demand sides, as well as power grids and the challenges created by the development of renewables. The course presents the main issues of the energy market both with simple micro-economic models and with empirical works. The last part of the course is devoted to the energy efficiency gap with a special focus on home retrofit programs.
Main concepts: Topics covered include: competitive and noncompetitive rents in electricity markets, externalities, regulation, retail markets, wholesale markets, royalty auctions, multi-unit auctions, risk-sharing contracts, financial arbitrage, gaming, long-term contracts, peak-load pricing, real-time pricing, capacity mechanisms, negative prices, energy transition, energy efficiency gap, rebound effect, behavioral biases, consumers’ myopia, carbon tax.
Objectives: This course aims at: 1) developing an understanding of the functioning of energy markets, through the presentation of a variety of relevant concepts and applications; and 2) providing microeconomic and econometric tools of analysis that are useful across many industries beyond energy markets. The course delivers useful background for public and private sector roles in the energy and environmental industries, regulation, research, trading, investment, think tanks, or consultancies.
Evaluation: Enrolled students are expected to actively participate in class. The evaluation is composed of:
• 45% of final grade: A final written exam with simple questions on the mandatory readings (one or two papers are associated to each class as indicated below);
• 45% of final grade: A short note (about 3-5 pages) on an empirical exercise with groups composed of 4-5 students. The data to be used (e.g. based on the ENTSO-E Transparency Platform) and the empirical questions (students will be able to make suggestions) will be specified at the beginning of the course.
• 10% of the final grade: active participation during the class, in particular regarding the mandatory and optional references. At the end of the class, the students must: 1) have acquired knowledge about the functioning of energy markets, 2) understand the main challenges about energy and environmental policies, 3) have a good understanding of the microeconomic and econometric methods of analysis presented in class, and more generally, 4) be more familiar with the research on relevant topics related to energy economics and policy.
Plan
Outline: The course is organized in 6 sessions of 3h, over 2 months.
• Lecture 1 (Lamy). Introduction on the deregulation of electricity markets Introduction to the short-term and long-term efficiency issues and the architecture of power markets. On the presumed pros and cons of deregulation. Various illustrations of the pitfalls, in particular with the California crisis.
• Lecture 2 (Astier). Electricity markets in theory: peak-load and spot pricing of electricity Derivation of the first-best benchmark in the electricity industry. Discussion of how it is (un)changed with very flexible demand, renewables, grid constraints.
• Lecture 3 (Astier). Electricity markets in practice: implementation challenges Discussion of some the main market failures encountered in practice: imperfect market design, (lack of) demand response, market power, generation adequacy.
• Lecture 4 (Lamy). Contract and auction design for energy markets. Some theory on the trade-off between allocative efficiency, rent minimization and risk-sharing. Two applications in energy: 1) Public policies to promote energy from renewable sources ? Why and how. 2) Contingent auctions for oil and gas tracts
• Lecture 5 (Giraudet). The Energy Efficiency Gap The main determinants of energy demand, the rebound effect, the market failures deterring energy efficiency investment.
• Lecture 6 (Giraudet). Energy efficiency policies A review of subsidies, taxes and regulations for energy efficiency investment, with a focus on home energy retrofits.