ERC Project

Current Tools and Policy Challenges in Electricity Markets

In 2017, I have been awarded an ERC Consolidator Grant for a five year period, Sept 2018-2023.

Main research question:

I propose to push out the frontier in the area of Energy and Environmental Economics by carrying out policy-relevant research on a pressing issue: how to design optimal regulatory and market-based solutions to achieve the low-carbon transition at least cost.

Main research topics:

The European experience provides unique natural experiments with which to test some of the most contentious policy issues that arise in the context of electricity markets. These include the potential to change households’ electricity demand patterns through dynamic pricing, the scope for renewables to mitigate market power and depress wholesale market prices, and the design and performance of the contracts and auctions for renewable support.

Methodology:

I will rely on cutting-edge theoretical, empirical, and simulation tools to disentangle these topics, while at the same time providing key economic insights that are relevant beyond electricity markets. On the theory front, I propose to develop new models that incorporate the unpredictability of renewables to characterize strategic behavior and optimal bidding in these markets. This is a key, yet broadly omitted ingredient in previous analyses. In turn, my models will provide structure and testable predictions for my empirical and simulation analyses, for which I will rely both on traditional econometrics for causal inference as well as on state-of-the-art machine learning methods to construct counterfactual scenarios.

Contribution:

As a source of rich and highly disaggregated data, electricity markets open up exciting opportunities to explore issues that, while being of general interest, cannot be studied in other sectors in such a great detail. My research will also provide methodological contributions for other areas – particularly those related to policy design and policy evaluation. The aim is to provide sound policy answers through the lens of state-of-the-art methodologies.

The conclusions of this research should prove valuable for academics, as well as to policy makers to assess the impact of environmental and energy policies and redefine them where necessary.

Team:

I will count with the support of a team of other first-class economists. Notably, my current co-authors Gerard Llobet (cemfi), Juan Pablo Montero (PUC-Chile), Mar Reguant (Northwestern), David Rapson (UC Davis). Imelda has joined the team in September 2018 as a post-doc. The team will further consist of 2 PhD students and visits by senior faculty.

In this article at the EAERE magazine, I discuss some initial questions of the project.

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