ELECTRIC CHALLENGES is an ERC Consolidator grant funded project led by Natalia Fabra at Universidad Carlos III de Madrid. Its main objective is to analyze regulatory and market-based solutions aimed at achieving the energy transition at least cost.

The fight against climate change is among Europe’s main policy priorities. In this project, we propose to push out the frontier in the area of Energy and Environmental Economics by carrying out policy-relevant research on the design of optimal regulatory and market-based solutions to achieve the low-carbon transition at least cost.

The European experience provides unique natural experiments with which to test some of the most contentious issues that arise in the context of electricity markets. These include the potential to change households’ 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 auctions for renewable support. The objective is to shed light on such policy issues through the lens of state-of-the-art methodologies.

We 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.

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.

The research team is composed of a group of first-class economists and PhD students. The output of the project will be regularly released through seminars and publications.

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ENERGEIA SIMULA is a windows-based simulation tool that computes equilibrium outcomes in electricity wholesale markets.

The simulations performed by energeia simula are based on an oligopoly model that reflects most important features of electricity markets. This model has been published in a leading journal in economics:

De Frutos, M.A. and Fabra, N. (2012) “How to Allocate Forward Contracts: the case of electricity markets” European Economic Review 56(3), 451-469.

Energeia simula is capable of predicting (static) equilibrium bidding behavior among generators under various scenarios.

It allows to assessing the effects of (among others):

  • Changes in market structure: mergers, divestitures, plant closures, investment in new technologies, entry of new firms, etc.
  • Changes in input costs: gas, coal and CO2 prices
  • Changes in market rules: contract obligations, emissions regulation, etc.

A sample of analyses performed with Energeia can be found here.