Joint MSM-MGSOG-UNU Merit Seminar: The Delicate Art of Regulating the Development of Generation from Renewables

Caterina Miriello, Institute for Advanced Studies, Lucca, Italy and until 2010 Visiting scholar at the Energy Markets Group, London Business School.

The paper discusses on the most efficient market structure to enhance the investment in renewable energies and how progressive renewable penetration in the electricity market affects generation firms’ ability to make profits. In this analysis an agent-based model is utilised that represents a semi-stylised wholesale electricity market of an average Western European country, characterised by a number of firms that compete through a uniform auction under different scenarios. It assumes a progressive substitution of the high operating costs technology (fossil fuels) with renewable energy, and evaluates the impact on the internal rate of returns of firms. Furthermore, the model accounts for the possibility of firms to act strategically by withholding some of their capacity to artificially increase prices, and analyses how the results are affected by this circumstance. The paper finds evidence that support policies to enhance renewables are essential in the first stages of the investment in new plants and in markets that are very competitive, but, under certain conditions, they appear no longer necessary and their amount should be progressively reduced. In addition to this, evidence is found that small increases of renewable capacity are more effective in terms of firms’ ability to recover investment with respect to big increases; hence, since EU strictly mandates the share of energy that must be generated by renewable sources, postponing the investment in renewables is costly, because implies larger and less performing investments in the future.

About the speaker
Dr. Caterina Miriello holds a PhD in Economics from IMT – Institute for Advanced Studies in Lucca, Italy. Her dissertation was on “Regulating the development of renewable energy: a model-based analysis of electricity utilities in Europe”. During her PhD course, she spent a visiting period at London Business School, working in the Energy Markets Group with Professor Derek Bunn. Her main research interests include economics of regulation, energy and climate change policy, applied economics.

Venue: Room 225, Maastricht School of Management, 150 Endepolsdomein, Maastricht, The Netherlands

Date: 08 December 2011

Time: 13:30 - 14:30  CET