Miguel Vazquez

Cournot Equilibrium Calculation in Power Networks: An Optimization Approach With Price Response Computation

Since deregulated power markets are very often oligopolistic ones, efficient models that are able to describe strategic behavior of firms must be developed. In particular, transmission constraints can easily increase the opportunities of market players to exercise market power. This paper presents a model that describes the firms strategic interaction, based on Nash-Cournot equilibrium, when the power network is taken into account. Specifically, this paper introduces a new iterative algorithm, that explicitly considers how the production at a certain bus affects the whole network, and consequently models the opportunities for the firms of exercising market power, taking into account their ability to influence the composition of the set of constrained lines. The theoretical basis of the method as well as a case study based on the Central European network is included.

Designing the European Gas Market: More Liquid & Less Natural?

Designing a gas market is defining how the commodity, the transmission and ancillary services are traded. The European Union has built the commoditization of natural gas through the socialization of several costs of trade. This choice aims at obtaining more liquid markets through the creation of virtual hubs of trade. These virtual hubs ignore most of the network and of the physical gas flows by the creation of entry/exit market zones. Thus the definition of such market zones has tied EU markets inside virtual trading zones (national or sub-national). We show the consequences and the challenges of this European choice, especially at the cross-zone level (often at country cross-border). Once entry/exit trade arrangements are preferred, the use of market-based mechanisms for cross-zone decisions like network investments becomes less natural.

Building Competitive Gas Markets in the EU

This highly unique book focuses on market design issues common to most EU gas markets, particularly in the context of closer integration. It explores in detail the characteristics and requirements of national gas markets in Europe which are constructed as virtual hubs based on entry/exit schemes as a requirement of European law.

Gas Logistics Costs: Simulation of the Proposed Endesa/Gas Natural Merger

In September 5th, 2005 Gas Natural, the major natural gas Spanish incumbent, launched a bid for Endesa, the major electricity incumbent. The bid arises complex issues, because of potential horizontal and vertical anti-competitive effects analysis, as well as that of the proposed remedies. One particular effect is related to the increase in gas logistics costs that other companies than the merged ones could face. The paper address the reasons that could arise such as concern, as well as a model proposed in order to estimate the possible effect size.

Gas Network and Market: À La Carte?

The institutional setting of open gas networks and markets is revealing considerably diverse and diverging roads taken by the US, the EU or Australia. We will show that this is explained by key choices made in the liberalization process. This liberalization is based on a redefinition of the property rights associated with transmission grid usage. That leads to different systems for the transmission services, as well as for the gas commodity trade, which in turn depends on the network services to get any market deal actually implemented. Not only do those choices depend on the physical architecture of the network, but also the perceived difficulties and costs to coordinate the actual transmission services through certain market arrangements.

Representing the Effects of Oligopolistic Competition on Risk-Neutral Prices in Power Markets

Forward transactions are becoming increasingly important in most of electricity markets. In this view, this paper develops a methodology able to capture the complexities of power markets and incorporate them into the framework of risk-neutral probabilities. This is done by the statement of a model that split up the power price dynamics into two different components: on the one hand, a component aimed at representing costs and market power, which will be based on a static, non-cooperative game; on the other, a component representing short-term deviations from the static model.Most popular approaches for modeling electricity prices rely at present on microeconomics rationale. They aim to study the interaction between decisions of agents in the market, and usually represent the impact of uncertainty in such decisions in a simplified way. The usual methodology of microeconomics models is the study of the interaction between the profit-maximization problems faced by each of the firms. On the other hand, there is a growing literature that describes the power price dynamics from the financial standpoint, through the statement of a more or less complex stochastic process. However, this theoretical framework is based on the assumption of perfect competition, and therefore the stochastic process may not capture important features of price dynamics. In this paper, we suggest a mixed approach, in the sense that the price is thought of as the composition of a long-term component, where the strategic behavior is represented, and a short-term source of uncertainty that agents cannot take into account when deciding their strategies. The complex distributional implications of the oligopolistic behavior of market players are then given by the long-term-component dynamics, whereas the short-term component captures the uncertainty related to the operation of power systems. In addition, this modeling approach allows for a direct description of the long-term volatility of power markets, which is usually hard to estimate through statistical models.

The dynamics of institutional and organisational change in emergent industries: the case of electric vehicles

We consider the electric vehicle industry as a complex system within which firms choose among competing organisational architectures and regulatory institutions emerge from the interaction between firms choices and rule-makers beliefs. The main drivers to change regulatory institutions are the evaluative criteria applied to outcomes. Evaluative criteria are rule-makers simplified models against which outcomes are evaluated. We look at the emergence of dominant organisational structures, and point at the importance of the institutional design in such process. In particular, we analyse the interaction between policy choices: we consider policy makers that have two main dimensions upon which to act: they may facilitate cooperative strategies, or they may implement demand-side measures.

Who decides the rules for network use? A ‘common pool’ analysis of gas network regulation

Gas sector liberalization is based on opening networks to different players, so they become common pool resources. Different players using the same resources can give rise to “commons’ dilemmas†. To avoid them, rules must be established to constrain players’ use of the network. We build on the concept of commons pool resources to analyze the logic for and consequences of different institutional settings governing the use of gas pipelines. We show that rules based on regulation imply ex ante decisions that preclude players to choose the preferred output. This limitation may be removed by rules designed by market players. We also show that the mechanism to define the rules is based on the definition of network use property rights. The practical implications of our approach are stressed by comparing the US mechanism (negotiated rules) and the EU mechanism (regulated rules).

Short-Term Evolution of Forward Curves and Volatility in Illiquid Power Markets

We propose in this paper a model for the description of electricity spot prices, which we use to describe the dynamics of forward curves. The spot price model is based on a long-term/short-term decomposition, where the price is thought of as made up of two factors: A long-term equilibrium level and short-term movements around the equilibrium. We use a non-parametric approach to model the equilibrium level of power prices, and a mean-reverting process with GARCH volatility to describe the dynamics of the short-term component. Then, the model is used to derive the expression of the short-term dynamics of the forward curve implicit in spot prices. The rationale for the approach is that information concerning forward prices is not available in most of power markets, and the direct modeling of the forward curve is a difficult task. Moreover, power derivatives are typically written on forward contracts, and usually based on average prices of forward contracts. Then, it is difficult to obtain analytical expressions for the forward curves. The model of forward prices allows for the valuation of power derivatives, as well as the calculation of the volatilities and correlations required in risk management activities. Finally, the methodology is proven in the context of the Spanish wholesale market

The Role of Regulatory Learning in Energy Transition: The Case of Solar PV in Brazil

The analysis of institutional and technological dynamics is frequently tackled by defining several levels of nested decision�?making processes. Those representations typically deal with institutions and technology practice separately. In this paper, we use the Institutional Analysis and Development (IAD) framework to study the coevolution between regulatory institutions and technology practice. Specifically, we use the IAD to show that technological routines are designed to fit into regulatory institutions (‘rules shape technology’), but also that regulatory institutions adapt to changing technological routines (‘technology shapes rules’). We use the electricity sector to illustrate this process. In the IAD, the main drivers to change rules (in our case, regulatory institutions) are the ‘evaluative criteria’ applied to outcomes. To that end, we model the evolution of an electricity sector in the process of introducing decentralized production where regulators apply three kinds of evaluative criteria: i) whether electricity is produced by the cheapest available technology nowadays; ii) whether new technology is introduced by niche markets; and iii) whether adapting institutions is necessary to avoid technological lock�?in. Our simulations of a realistic power system show that, if evaluative criteria do not consider the dynamics of decentralized production, the electricity sector may be locked in to centralized technologies.