Christiane Rosen

Effects of Temperature Uncertainty on the Valuation of Geothermal Projects: A Real Options Approach

In this paper we investigate the economic viability of geothermal district heating networks using both net present value (NPV) and real options analysis (ROA). We give an introduction to geothermal energy technologies and review the relevant ROA literature focusing on applications in similar fields, such as oil projects. The similarities and differences of oil and geothermal projects are discussed and summarized. The investment structure of geothermal projects is analyzed concerning costs and uncertainties in the different investment stages. We develop a method to assess the impact of temperature uncertainty with ROA. Investments in geothermal projects are evaluated applying a binomial and a trinomial lattice approach. A novel real options model for the evaluation of normally distributed uncertainty is developed for binomial lattices. Using data obtained from a Dutch project in The Hague, we find positive option values for both lattice approaches, compared to negative values for the common NPV calculation. Drilling and production costs are found to have a significant impact on the option value.

An Experimental Analysis of Single vs. Multiple Bids in Auctions of Divisible Goods

In this paper we report on an experimental examination of the comparison between multiple and single bids in a discriminatory-price procurement auction of divisible goods. Having been inspired by energy trading, sellers with a portfolio comprising several cost-quantity pairs bid into a market with a single buyer. Depending on the treatment, they are allowed to submit either one or two bids constructed from their endowments. The allocation rule has no rationing, i.e. marginal bids are completely accepted. We specified both a low and a high competition scenario to evaluate the effects of competitive forces on both bidding regimes. We find that multiple bids have a calming effect on the market, reducing volatility substantially. However, this comes at the cost of lower profits for bidders, whereas auctioneer’s revenue is maximized. At the same time, supply reduction, which is equivalent to demand reduction in demand auctions, is more pronounced in the multiple-bid setting. A reason for this might be that expensive units are driven out of the market more easily in the multi-bid setting and they can no longer be offered without causing loss of market efficiency during dispatch.

The Role of Information Feedback in Local Reserve Energy Auction Markets

In any market, the amount of feedback provided to its participants is one of the most important design choices. In the last couple of decades, several studies on feedback information in games and its role in learning have been conducted. Some of the most notable ones are the results in learning direction theory (Selten & Stoecker, 1986), impulse balance theory (Ockenfels & Selten, 2005), and the findings by Weber (2003). All these approaches have been validated experimentally in single-unit first price auctions (e.g. Dufwenberg & Gneezy, 2002). As the focus of previous studies has been on this specific type of auction, there is little research on information feedback in multi-unit or divisible good auctions. A natural extension to the current literature is to examine the effect of auction round feedback in the latter auction formats. We contribute to this field of research by conducting such a feedback information experiment with an energy market framing. Sellers are endowed with a portfolio of various quantities at different costs. The auctioneer is a single buyer who needs to procure a fixed quantity. We investigate two treatment variables: the strength of competition and, more importantly, the amount of information provided. With regard to previous findings from single-unit first price auctions, we can con firm the influence of feedback on learning and the change in bidder behavior for the divisible good auction case. However, the impact of the competitive situation was generally stronger than the feedback effect. Also, we observe significant differences for socio-demographic factors such as gender and educational background.

An auction mechanism for local energy markets: Results from theory and simulation

In this paper we develop an auction mechanism that is designed for a local energy market. It is aimed at enabling regional trading of ancillary services, but can also be used for administering negotiation processes in virtual power plants or microgrids. It takes into account that bidders are non-professionals and provides incentives for investments in distributed generation technologies. A wider spread of some of these technologies can help to save CO2 emissions, whereas the other part can be used to counter the fluctuations of energy from renewable sources, such as wind and solar power, thereby supporting the energy turnaround. In order to test the performance of the proposed auction mechanism, a simple multi-agent-based simulation program has been developed. We find that the theoretical predictions hold in fact and competition quickly leads to price convergence.

Regulatory Options for Local Reserve Energy Markets: Implications for Prosumers, Utilities, and other Stakeholders

While the share of fluctuating renewable energy resources is constantly increasing, the centralized, hierarchical organization of the current energy system cannot adequately accommodate such decentralized electricity generation. New ideas have been developed for improved integration, especially in the lead market Germany. One of these concepts is the microgrid, a grid within the grid. This paper presents a local reserve energy market, which can facilitate the operation and allow trading within the microgrid. Emphasis is put on the regulatory options and current market framework, mainly from a European and German perspective, which serve as a basis for implementing the local market.

An Option-Based Approach for the Fair Pricing of Flexible Electricity Supply

In this electricity market design paper, we investigate the value of flexibility of conventional power plants in todays electricity markets, and whether the current market conditions suffice for recouping the power plant operators investments and expenses for enhanced flexibility. We find that traditional option valuation methods are inadequate for sufficient compensation, and argue that a levelized cost of electricity (LCOE) approach for option valuation of flexible and non-flexible electrical energy is preferable. In a case study, we create three different flexibility cost scenarios (optimistic, realistic, pessimistic) in order to determine the LCOE and the option prices of the flexibility options studied. We find that flexibility offered in such a way is affordable and that prices are more reasonable than otherwise incurred balancing costs.