Risk aversion in electricity markets: Implications for electricity transmission and generation expansion
DTU Elektro and DTU Compute have the pleasure to host Dr. Harry van der Weijde (webpage) from the University of Edinburgh during the 17th and the 18th of March. Harry will give a seminar on the 17th of March at 1pm at DTU Lyngby campus, Building 329, Room 005 (control room). Please find the details of his talk and his short bio below, and feel free to share the information with your colleagues.
Abstract: In this talk, I will discuss the importance of understanding and accurately modelling risk aversion in electricity markets, focusing primarily on transmission and generation investment. First, I will show an example of the effects of risk aversion for the individual investors. Using data from a commercial offshore wind farm and a simple Monte Carlo simulation, this analysis considers the benefit, both in terms of expected returns and of risk, of installing additional turbines on a wind farm with a fixed export connection. The results illustrate how risk aversion can affect optimal choices for individual investors, and incentivise wind farms with a more stable output. I will then look at the effects of risk aversion in energy market more generally, using a stochastic multi-level equilibrium model with risk averse agents, which includes investment in transmission and generation capacity, market operation, and redispatch. The model can incorporate perfect, as well as imperfect locational price signals and different upper-level expectations about lower-level risk aversion. The results from this analysis show that, as expected, risk aversion has a significant effect on investment levels, but more importantly, that this interacts with market design. In particular, risk aversion has a more pronounced effect in a market with nodal pricing, compared to a market with imperfect locational price signals. Furthermore, transmission planners that are ignorant about risk aversion of generation companies can induce substantial additional costs, especially in a market with more locational price signals.
Biography: Dr Harry van der Weijde is an interdisciplinary energy economist working at the intersection between economics, operations research and engineering. His recent research focuses on techno-economic energy systems analysis, including modelling risk and uncertainty in generation and transmission infrastructure investment. Harry holds an BA in Liberal Arts & Sciences from the University of Utrecht, an MSc in Economics from the University of Edinburgh and a PhD in Spatial Economics from the Vrije Universiteit Amsterdam. He is currently Lecturer and Head of Management & Economics Teaching in the School of Engineering at the University of Edinburgh and Turing Fellow at the Alan Turing Institute for Data Science, having previously worked at the University of Cambridge. He is involved in a number of large research consortia, including the UK National Centre for Energy Systems Integration and the EU-funded Energy Systems in Transition training network, as well as industrial and policy research, most recently through work with the Scottish Government on the Scottish Electricity Dispatch Model and with EDF on stochastic modelling of offshore wind investment.