Modeling Market Failures and Regulation in the Changing German Power Market: Dissertation

Abstract

The German power market is shaped by several distinctive trends. These include market restructuring, climate policy measures, renewable energy integration, and electric vehicles. In this thesis, I conduct in-depth model-based analyses of specific economic questions related to the aforementioned developments. More precisely, I examine selected market failures and the need for economic regulation. In doing so, the focus is on imperfect competition, natural monopolies, and CO2 regulation. The first chapter motivates the research questions and provides an introduction to important power market transformations. Chapter 2 analyzes the strategic utilization of electricity storage in the oligopolistic German power market, and the related implications for market outcomes. Chapter 3 extends this analysis by modeling the interactions of a hypothetical fleet of one million grid-connected electric vehicles with the imperfectly competitive German power market. Chapter 4 provides a comparative analysis of different regulatory approaches for transmission network expansion in the light of fluctuating demand and wind power. Chapter 5 examines the effect of different emission permit allocation schemes on the relative profitability of investments into hard coal and natural gas plants in Germany. The last chapter summarizes and concludes. It also includes a brief discussion of model limitations and perspectives for further research. This thesis contributes to the literature in several ways. To begin with, it includes an explicit model of the intricate interactions of strategic players' decisions on conventional power generation, storage discharging, and storage loading in an oligopolistic market environment. Likewise, this thesis provides the first analysis of the effects of plug-in electric vehicle fleets on the oligopolistic German power market. Furthermore, the relative performance of a new combined merchant-regulatory mechanism for transmission expansion is modeled with a level of detail that can not be found in the literature. Last, but not least, this thesis presents an innovative methodology for calculating the windfall profits related to emission permit allocation rules in Germany. Drawing on sensitivity analyses, investment distortions related to Germany's first National Allocation Plan are quantified with an accuracy previously not found in the literature.