New publication in Energy Economics: “Risk aversion and flexibility options in electricity markets”

Highlights:

• Large-scale stochastic transmission and generation expansion model.
• Analysing the effect of risk aversion on the investment decisions.
• Examining the individual effects of three flexibility elements on decision making.
• Flexibility elements considered: demand response, grid capacity and energy storage.
• Examining the interplay between flexibility elements.
• Publicly available dataset and source code for the entire project.

You can find the article at link

We are excited to welcome Diego Alejandro Prieto Melo to our academic team at the Energie-Innovationszentrum Cottbus (EIZ). Diego holds a M.Sc. from Brandenburgische Technische Universität Cottbus-Senftenberg in Environmental & Resource Management and transferred back to #Cottbus after working as a Research Assistant at the PIK - Potsdam Institute for Climate Impact Research. As part of the EECON | Energy Economics Lab his research focuses on analyzing and understanding the evolution of renewable energy generation capacity in Germany.

“I am thrilled to be part of the EECON Lab, as it gives me the opportunity to contribute to the energy transition in Germany through research in an interdisciplinary environment, working together with colleagues who are passionate about building a sustainable future.”

#energytransition #reaseach #boomtown

A sunny view of renewable and conventional energy sources on the #CottbuserBaltic Sea today at the #CDISummerSummit . We were able to take a look at the future Baltic Sea and the planned harbor district via #virtuellescottbus . More about this here: https://lnkd.in/eFzCwxJt

Thanks to Cluster Decarbonization of the Industry (CDI) for the organization and WHITESTAG - VR Filmproduktion for providing the VR scenario.

Energy Innovation Center Cottbus (EIZ)
#energy transition #decarbonization #cottbus #lausitz

In an interview with the newspaper Frankfurter Allgemeine, Prof. Felix Muesgens and Prof. Axel Ockenfels provided valuable insights into offshore wind energy

When it comes to restructuring the German electricity industry, policymakers rarely rely on the market. Too often, they get lost in a thicket of regulations and subsidies, miss their targets and drive up electricity prices for consumers. Occasionally, however, competitive elements come into play. One of these is purchasing auctions for renewable electricity: whoever offers the cheapest green power wins the bid. 
The latest success of the competitive process was seen in the recent wind offshore tenders in Germany. The rights to build 7,000 MW of offshore wind power were sold for €12.6 billion. Mind you, these are not subsidies for wind power, but payments by the companies for the right to produce offshore wind power. The grid connection is paid for by the state. The revenues from the auction are used to finance the grid connection, relieve the burden on electricity customers and protect the marine environment as best as possible. 

Despite this good news, there are voices who, in view of the surprisingly high price bids, want to change the tender rules and push competition back again. In particular, according to the proposal, the maximum level of auction prices should be limited in the future. The fear behind this is that wind power producers could demand high electricity prices on the wholesale market in response to high auction prices, so that their revenues are high enough to pay the auction price. However, this argument not only contradicts the logic of business management (companies do not seek to maximize profits only when costs are high), but is also based on a misunderstanding of how competitive electricity markets work (already "sunk" investment costs, which include auction expenses, do not play a role in price formation). More likely than rising wholesale prices as a result of the tender is that the additional feed-in from the new wind turbines will cause the wholesale price to fall in many hours. In addition, given the high revenues, it is conceivable that policymakers will now bring more offshore wind sites to the market more quickly and more often. Another argument against auction pricing is that the winning bidders may have been too optimistic in their assumptions (at least more optimistic than the losing bidders) and therefore their price bids were 'inflated' in the tender. This phenomenon is sometimes referred to as the 'winner's curse' and can indeed lead to problematic auction results. However, it is also true that investors can miscalculate in virtually any investment decision, from buying mobile spectrum in the telecommunications sector to buying stocks for retirement. Even if the state wanted to protect investors from such investment risks, a price cap in the auctions would be inappropriate for this purpose. The state cannot assess the market value of wind licenses any better than the companies. If it were otherwise, it would not need an auction to set the price and could instead set the selling price directly. Moreover, it remains unclear how the government should ration wind licenses if demand exceeds supply when the price cap is reached. In any case, a lottery or complex individual negotiations with suppliers are not attractive alternatives, as they may weaken competition, lead to inefficient allocation, increase electricity costs, and lead to increased lobbying.

Investors in power generation capacities are best protected by a stable and reliable energy policy. Risks, e.g. with regard to future electricity price developments, can be hedged on the electricity market. If the state wanted to assume the entrepreneurial risks (for which there are few reasons here), instruments suitable for competition would also be available for this, e.g. indexing auction payments to future electricity prices.
 However, there is also justified criticism. In wind auctions, the winners have to make only a small payment to the government compared to the size of the project if it is abandoned. But if the winners can get rid of their obligations at relatively low cost, financially strong bidders might see this as an invitation to consider wind licenses as an option rather than an obligation to build wind turbines: Only if the business and political conditions develop positively will investments then actually be made. As a result of auction obligations that are not very reliable, there is an increased risk that plants will not be realized and national climate plans will be put in jeopardy. Only recently, the Swedish utility Vattenfall announced its withdrawal from the development of the Norfolk Boreas offshore wind project with a capacity of more than 1,000 megawatts off the British coast, justifying this with the increased construction costs. However, these and other criticisms should not lead us to question competitive pricing altogether, as they can be addressed through smart auction design.

Find the news article here

In a webinar with VEE Sachsen e.V., Prof. Müsgens gave a presentation on the topic of green base load for industry. 
VEE Sachsen e.V. is a network with the aim to support the promotion of the use of renewable energies.
The presented findings are a result of a cooperation with 50Hertz and Fraunhofer IEG.

After the completion of this preliminary study, the main focus is now on the realization of a full-scale research project with industry partners. 

• The "10-Cent challenge" is in reach.

Watch the webinar here.

The paper overview, 

• a meta-analysis of 30 studies, providing a detailed database on supply costs and parametric assumptions.
• Our projections show that supply costs for all energy carriers could vary by 4x in 2030 and by 5x in 2050, primarily driven by production costs.
• Significant parameters for production costs were identified as the weighted average costs of capital and capital expenditures of electrolyzers and conversion.
• Transport costs were found to have a significant dependence on the choice of energy carrier and the weighted average costs of capital.

You can find the publication at Link

As part of a preliminary study commissioned by the transmission system operator 50Hertz, the results on the topic of "Green base load for industry" were presented by the BTU Cottbus-Senftenberg and the Fraunhofer Institute for Energy Infrastructures and Geothermal Energy. This was done during the Scientific Advisory & Project Board meeting on June 21, 2023. 50 Hertz spoke to various companies for the study. The tenor was clear: there is a high level of interest in the topic of "green base load". A crucial point for the companies is that the geographical areas from which the renewable electricity comes are not too narrow when implementing such a project. This increases flexibility and resilience, for example against storms," emphasizes Prof. Dr. Felix Müsgens from BTU Cottbus-Senftenberg.

The key findings of the study are:

• Aggregate RE capacity between 6.3 MW and 7.6 MW is needed to provide 1 MW of green baseload. Short- and long-term storage technologies, as well as sector coupling technologies, play a critical role in limiting the overbuilding of needed renewable generation capacity.
• The cost of 10 cents/kWh is achievable with a renewable share between 90-95% of electricity.

Follow this link to the press release.

The article 'Enhancing energy system models using better load forecasts' shows how energy system models can be improved by improving the input data. For this purpose, we develop time series models to improve the load forecast data of the transmission system operators and analyse how the increased data quality affects the quality of the results of an energy system model.

You can find the article link

The global climate targets require effective and efficient CO2-neutral management of all sectors. Linking the areas of electricity, heat, transport and industry in such a way that the fluctuating electricity generation from renewable energies can be used optimally is one of the goals of the scientists at BTU Cottbus-Senftenberg. More than 90 researchers from 14 disciplines are developing innovative technologies for a climate-neutral energy supply in a new research cluster in a total of six networked labs together with an interdisciplinary partner network. The Energy Innovation Center at BTU, which is funded by the German Federal Ministry of Education and Research (BMBF) with up to 28 million euros for its first phase, aims to provide global impetus in the networking of different energy systems and the associated global restructuring of the energy sector. Prof. Dr. Felix Müsgens, project manager of the Energy Innovation Center Cottbus (EIZ) and head of the BTU department #Energiewirtschaft: "In the Energy Innovation Center, we work on the scientific issues of the energy transition and make important contributions to both basic and application-oriented #Forschung . At the same time, we are strengthening innovation and start-up competence in the areas of sector coupling and digitalisation."More: https://lnkd.in/edTui62c

During a presentation at the International Energy Economics Conference 2023 (IEWT) in Vienna Prof. Müsgens spoke about the effects of the Ukraine war in the energy market. While the war will have a positive long-term impact on climate protection and the energy transition, in the short term, negative consequences of the conflict are still to be expected. The energy transition will be completed more quickly as a result of the event. On the one hand,  natura gas has lost its importance as a bridging technology and on the other, the acceptance of renewable energies and their expansion has risen sharply.

You can access the full article and presentation slides here.

On 3rd February 2023, a digital kick-off meeting for the FOCCSI2 project was held between the chair of Energy Economics at BTU and their associated partner TenneT.
The FOCCSI 2 project is a three-year research project funded by the Federal Ministry of Economics and Climate Protection (BMWK). 
In the project, we will develop "meta-forecasts" for both PV and wind feed-in based on weighted combinations of individual forecasts using AI and ML methods. The proposed methodology will be applied based on PV and Wind forecasts provided by TenneT data. 

Our new article “How CO2 prices accelerate decarbonisation – The case of coal-fired generation in Germany” provides new insights on how different instruments to reduce carbon emissions impact the development of coal phase-out. We compare instruments to reduce emissions and their impact in the German market. We find that with current CO2 prices, more coal may leave the system than regulation foresees. As a consequence, market forces may reduce employment even faster than planned in the regulation.

You can find the article here.

Some highlights from the publication "Evaluating the German onshore wind auction programme: An analysis based on individual bids" published in EnergyPolicy's special issue on "Renewable energy auctions - past, present, and future":

- Realisation rates have been low so far – below 50% of awarded projects have been built.
- Secondary objectives (such as acteur diversity) are difficult to translate into design elements, making them even more difficult to achieve.
- A lack of competition has played a major role in keeping subsidy levels high.
- The auction design has reinforced the advantages of large developers.

You can find the article here.

On Tuesday, 15 November, the kick-off of the Energy Economics (EECON) Lab took place. The EECON Lab is one of six labs in the new Energy Innovation Centre (EIZ) of the BTU. Together with the partners Fraunhofer IEG, 50Hertz Transmission GmbH, LEAG, Emis Electrics GmbH and the Fachagentur Windenergie, and with the support of the Brandenburg State Chancellery, the EECON Lab is investigating, for example, the acceptance of and participation in renewable energies, as well as preparing market and competition analyses for companies from the Lusatian energy industry.

The Chair of Energy Economics is pleased to announce that on 19.07.22 our external PhD student Thorsten Engelhorn has successfully defended his dissertation "On the value of the wind's infeed and the costs of capacity built-up: a bottom-up modelling for the German market" . We wish Dr. Engelhorn all the best for his upcoming tasks and a successful career.

Some highlights from the publication “What drives the accuracy of PV output forecasts?” include:

• Combining methodologies (hybrid models) achieve the lowest errors.
• ML models do not show a robust performance but have the fastest improvement.
• Using data processing techniques reduces forecast errors.
• Forecast horizon and test set length positively correlate with forecast errors.
• The possibility of “cherry picking” in reporting errors is observed.

You can find the article here

The chair of Energy Economics is pleased to announce that on 23.06.22 our colleague Iegor Riepin succesfully defended his PhD Thesis "Modeling challenges of modern energy markets: studies on uncertainty, complexity, and constant change". We wish Dr. Riepin all the best for his upcoming work commitments and a successful career.

Some highlights from the publication “Policy choices and outcomes for offshore wind auctions globally” published in Energy Policy include:

- Global stock-taking of offshore wind auctions through statistical analysis.
- Auctions expected to dominate procurement in future, with estimated share of 97%.
- Describing auction designs and outcomes for most of the 53.4 GW auctioned to date.
- Auction designs show a wide range of policy choices, embedded in regional contexts.
- Revenue stabilisation is a key procurement feature, especially in nascent markets.

You can find the article here

At the Energy Day of the State of Brandenburg at the BTU in Cottbus, Brandenburg's Energy Minister Jörg Steinbach, Jürgen Fuchs (Chairman of the Board of BASF Schwarzheide), Rüdiger Kuhn (Chairman of the Board of CEMEX), Olaf Höhn (Managing Director Florida Eis Manufaktur), Prof. Dr Felix Muesgens (BTU Cottbus-Senftenberg) and LEAG board member Thorsten Kramer on ways to transform Brandenburg's economy in a climate-friendly way - while ensuring security of supply and moving away from Russian gas and oil imports. 

Some highlights from the publication “Solar and wind power generation forecasts using elastic net in time-varying forecast combinations” include:

• The used methodology (dynamic elastic net) combined with advanced, professional forecasts yields low errors (benchmarked extensively against the literature)
• Dynamic data preprocessing is an important step deserving more attention (and transparency)
• Forecast quality increased greatly over time
• New research should analyze other regions and systems

You can find the article here

Using a stylized electricity market model, the authors analyze market equilibria under different levels of renwable energy. In the short-term the merit order effect is unambiguously negative: adding RES lowers prices. However, in the long-term, the merit order effect is zero – assuming base load remains in the system and competition is perfect. 
The paper was mainly written while Prof. Müsgens was visiting professor at UBC Sauder School of Business, hosted by his co-author Werner Werner Antweiler.

you can find the paper here.

The authors focus on seasonal demand swings in the European natural gas market. They quantify the role of different flexibility options (domestic production, gas storage, and pipeline and LNG imports) that are used to cover European demand fluctuations. This work contributes to the existing literature on seasonal flexibility by addressing the problem with a mathematical gas market optimization model. The paper provides valuable empirical insights into the decline of gas production in northwestern Europe. Furthermore, the authors propose a new metric to quantify the importance of supply sources for seasonal flexibility provision.

You can find the article here: The Energy Journal, Vol. 43, No. 1. 2022. An executive summary is available on this link. The applied GAMS code and associated input data are available in a public GitHub repository.