Description and contextualization of the subject

The Energy Markets course explores the theoretical and empirical perspectives on energy markets architecture, and public policies affecting these markets. It discusses mainly aspects of the electricity power sector although the analytical tools learnt can be extended to other energy markets (brent, coal, natural gas, emissions,...).



The course examines price regulation, deregulation and liberalization, renewable energy promotion, the role of interconnections and self generation. Students use microlevel data from different energy markets worldwide to analyze the effect of different policies on the market structure, the level of competition and perspectives for future development.



In the practical sessions, the course combines microeconomic analysisis (eg. Cournot vs. Supply Function Competition) with empirical approaches based on time series (eg unit root analysis, VAR, …). R and Stata softwares are mainly used.



The course takes place in the fourth block, just before the preparation of the Master's Thesis and after having completed the courses of Algebra (first block), Optimization (first block) and Microeconomics (second block), which represent the preliminary basis necessary to undertake the course successfully. Basic concepts about time series, acquired in the Quantitative Methods subject (second block), are also recommended.



The course is related to the Sustainable Development Goals (SDG) of the United Nations 2030 Agenda in the following dimensions:



- SDG 7. Affordable and non-polluting energy. The course focuses on the study of energy markets, with a particular focus on renewable energies (Topics 1, 2, 3, 4).

- SDG 9. Industry, innovation and infrastructure. The course presents modeling of the energy industry, for spot and futures markets (Topics 5, 6).

Ordinary call: orientations and renunciation

The first call exam will be announced at the end of the second block courses. The exam has a weight between 40% and 60% of the total grade depending on the performance of the students submitting the homeworks.



In case the student does not submit all the homeworks, the final exam will be 100% of the final grade and it could include more questions.



Under exceptional circumstances that prevent face-to-face teaching and exams, the teaching and evaluation modalities may be adapted.

Extraordinary call: orientations and renunciation

The second call exam will be announced at the end of the fourth block courses. The exam has a weight between 40% and 60% of the total grade depending on the performance of the students submitting the homeworks. Therefore, the grade of the homemorks still counts for the final grade.



In case the student does not submit all the homeworks, the final exam will be 100% of the final grade and it could include more questions.



Under exceptional circumstances that prevent face-to-face teaching and exams, the teaching and evaluation modalities may be adapted.

Temary

- Block 1: The electricity market



Topic 1: Electricity markets architecture.

1.1. Description of the Spanish Wholesale electricity market: OMIE.

1.2. Organization of other electricity markets: EPEX, NORDPOOL, JEPX, etc.



Topic 2: Incorporating renewable generation in power markets.

2.1. Feed-in tariffs to promote renewable generation.

2.2. Rate-of-return regulation to promote renewable generation.



Topic 3: Interconnections and market integration.

3.1. The role of interconnections to integrate electricity markets and alleviate market power problems.

3.2. The European Price Coupling of Regions initiative.



- Block 2: The future of energy markets



Topic 4: Developments in energy market regulation.

4.1. Developments in regulation in the electricity market.

4.2. Developments in regulation in the natural gas market and emissions markets.





- Block 3: Market power in electricity markets and forward contracting.



Topic 5: Market power in electricity markets

5.1. A Cournot model to explain market power in power markets.

5.2. A Supply Function Competition model to explain market power in power markets.

5.3. A multiplant oligopolistic competition model.



Topic 6: Forward contracting in electricity markets

6.1. Forward contracting.

Bibliography

Compulsory materials

Statistical softwares: Stata, Excel, R, Gretl and Python. The most preferred software is Stata.







Mathematical softwares: Mathematica.







Word processors: Word, Tex. The most preferred software is Tex.

Basic bibliography

- Allaz, B. and Vila, J.L. (1993). Cournot Competition, Forward Markets and Efficiency. Journal of Economic Theory 59(1), p. 1-16.

- Borenstein, S., Bushnell, J.B. and Wolak, F.A. (2002). Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market, American Economic Review 92(5), p. 1376-1405.

- Ciarreta, A. and Gutiérrez-Hita, C. (2006). Supply function vs. quantity competition in supergames. International Journal of Industrial Organization 24(4), p. 773-783.

- Ciarreta, A. and Espinosa, M. P. (2012). The Impact of Regulation on Pricing Behavior in the Spanish Electricity Market (2002-2005), Energy Economics 34(6), p. 2039-2045.

- Ciarreta, A., Espinosa, M. P. and Pizarro-Irizar, C. (2014). Is green energy expensive? Empirical evidence from the Spanish electricity market?. Energy Policy 69, p 205-215.

- Ciarreta, A. and Zarraga, A. (2016). Modeling realized volatility on the Spanish intra-day electricity market, Energy Economics 58, p 152-163.

- Ciarreta, A., Espinosa, M. P. and Pizarro-Irizar, C. (2017). Optimal regulation of renewable energy: A comparison of Feed-in Tariffs and Tradable Green Certificates in the Spanish electricity system. Energy Economics 67, p. 387-399.

- Ciarreta, A., Pizarro-Irizar, C. and Zarraga, A. (2020). Renewable energy regulation and structural breaks: An empirical analysis of Spanish electricity price volatility. Energy Economics 88, p. 104749.

- Fabra, N. (2003). Tacit Collusion in Repeated Auctions: Uniform versus Discriminatory, Journal of Industrial Economics 51, p. 271-294.

- Fabra, N., von der Fehr, N.-H. and Harbord, D. (2002). Modelling Electricity Auctions. The Electricity Journal, 15(7), p. 72-81.

- Fabra, N. and Reguant, M. (2014). Pass-Through of Emissions Costs in Electricity Markets. American Economic Review, 104(9), p. 2872-2899

- Klemperer P. and Meyer M. (1989). Supply Function Equilibria in Oligopoly Under Uncertainty. Econometrica 57(6), p. 1243-1277.

- Newbery, D. M. (2002). Problems of liberalizing the electricity industry. European Economic Review 46, p. 919-927.

- Powell, A. (1993). Trading Forward in an Imperfect Market: The Case of Electricity in Britain, Economic Journal 103 (March), p. 444-453.

- Reguant, M. (2014). Complementary Bidding Mechanisms and Startup Costs in Electricity Markets. Review of Economic Studies 81(4), p. 1708-1742.

- Wolfram, C. (1998). Strategic Bidding in a Multi-Unit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales. Rand Journal of Economics 29(4), p. 703-725.

- Wolfram, C. (1999). Measuring duopoly power in the British electricity spot market. American Economic Review 89(4), p. 805-827.

In-depth bibliography

- Stoft, Steven, Power System Economics: Designing Markets for Electricity. IEEE Press, 2002.



- Sioshansi, Fereidoon, Competitive Electricity Markets: Design, Implementation, Performance (Elsevier Global Energy Policy and Economics Series), 2013.

Journals

Generalist journals: American Economic Review, Econometrica, Economic Modelling, Journal of Regulatory Economics, ...







Field journals: Energy Economics, Energy Policy, Environmental and Resource Economics, Renewable and Sustainable Energy Reviews, Resource and Energy Economics, The Energy Journal, ...

Links

- OMIE Iberian daily market operator data: http://www.omel.es/files/flash/ResultadosMercado.swf



- OMIP Iberian futures market operator data: http://www.omip.pt/OMIP/tabid/62/language/es-ES/Default.aspx



- CNMC Spanish market regulator data: http://www.cne.es/cne/Home



- Ministry of Industry, Energy and Tourism; Secretary of Energy, market regulator data:http://www.minetur.gob.es/energia/es-ES/Paginas/index.aspx



- REE Spanish system operator data:http://www.ree.es/home.asp



- EPEX French, German/Austrian and Swiss market operator: https://www.epexspot.com/en/



- NORDPOOL Scandinavian market operator: https://www.nordpoolgroup.com/



- ENTSOE European Network of Transmission System Operators for Electricity: https://www.entsoe.eu/