Abstract for:How do regulatory priorities affect market performance?
Many countries aim to increase the share of renewables in their final energy consumption and it is the regulators’ responsibility to move the market in the direction set by the government, while ensuring the well-functioning of the market. However, this is not an easy task since the electricity markets are dynamic and complex. Moreover, regulators might be influenced by interest groups and are not always well informed. Therefore, understanding the regulatory decision making process is necessary for better regulatory decisions.
We develop a System Dynamics model with two generation technologies (thermal – traditional sources and green – intermittent renewables) in which the aim is to increase the share of green generation. Since the green investments are not profitable, regulators should give subsidies. We assume five different types of regulatory strategies with different priorities: (1) Minimizing pollution, (2) Minimizing the price, (3) Minimizing the blackout risk, (4) Minimizing the total cost of subsidies and (5) Minimizing a weighted average. Our preliminary results show that focusing only on a single criterion results in suboptimality and regulators need to consider the trade-offs when deciding. The next step will be analyzing the weights given to different criteria and combine these findings with laboratory experiments.