Authors: Barazza E., and Strachan N
Published in: Energy Research & Social Science Volume 65, July 2020, 101458 https://doi.org/10.1016/j.erss.2020.101458
Date Published: 12 February 2020
Abstract:
Achieving electricity sector transitions consistent with stringent climate change mitigation under the Paris Agreement requires a careful understanding both of the coordinating role of national governments and of its interactions with the heterogeneous market players who will make the low-carbon investments in the electricity sector. However, traditional energy models and scenarios generally assume exogenous policy targets and fail to capture this co-evolution between policy-makers and heterogeneous private and public investors. This paper uses BRAIN-Energy, a novel agent-based model of investment in electricity generation to simulate and contrast government and investor dynamics in the transition pathways of the UK, German and Italian electricity sectors. Key findings show that a successful transition – which achieves the energy policy “trilemma” (low carbon, secure, affordable) – requires the co-evolution of the policy dimension (strong and frequently updatable CO2 price, renewable subsidies and capacity market) with the strategies of the heterogeneous market players. If this dynamic balance is maintained then incentives are politically feasible and suppliers learn and evolve (in what we term a virtuous cycle). If either the incentives are too weak to drive learning or too expensive so the policy regime collapses, then the transition fails on one of its key dimensions (in what we term a vicious cycle). Getting this balance right is harder in risky markets that also have players with more pronounced bounded rationality and path dependence in how they make investments.
Keywords: Agent-based modelling; Co-evolution; Heterogeneity of actors; Governance; Electricity; Investment decisions
Insights for EnergyREV:
This paper uses BRAIN-Energy, a novel agent-based model of investment in electricity generation, to study the coordinating role of national governments and its interactions with the heterogeneous market investors (including SLES). Key findings show that a successful energy transition requires the co-evolution of the policy dimension (strong CO2 price, renewable subsidies and capacity market) with the strategies of the different market players. If this dynamic balance is maintained then incentives are politically feasible and suppliers learn and evolve (termed a virtuous cycle). If either the incentives are too weak to drive learning or too expensive so the policy regime collapses, then the transition fails on one of its key dimensions (termed a vicious cycle).