IDEAS home Printed from https://ideas.repec.org/p/ekd/009007/9201.html
   My bibliography  Save this paper

Stochastic equilibrium modeling: The Impact of Uncertainty on the European Energy Market

Author

Listed:
  • Rolf Golombek
  • Kjell Arne Brekke
  • Michal Kaut
  • Sverre A.C. Kittelsen
  • Stein W. Wallace

Abstract

We present a simple approach to transform a deterministic numerical equilibrium model - where several agents simultaneously make decisions - into a stochastic equilibrium model. Our approach is used to build a large stochastic numerical equilibrium model of the Western European energy markets. We use the stochastic model to analyze the impact of economic uncertainty on the Western European energy markets; it is demonstrated that the equilibrium under uncertainty differs significantly from the deterministic outcome.

Suggested Citation

  • Rolf Golombek & Kjell Arne Brekke & Michal Kaut & Sverre A.C. Kittelsen & Stein W. Wallace, 2016. "Stochastic equilibrium modeling: The Impact of Uncertainty on the European Energy Market," EcoMod2016 9201, EcoMod.
    • Handle: RePEc:ekd:009007:9201
    as

    Download full text from publisher

    File URL: http://ecomod.net/system/files/StochasticScenarioMethod.17jun15.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kolstad, Charles D., 1996. "Learning and Stock Effects in Environmental Regulation: The Case of Greenhouse Gas Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 1-18, July.
    2. S. Gabriel & J. Fuller, 2010. "A Benders Decomposition Method for Solving Stochastic Complementarity Problems with an Application in Energy," Computational Economics, Springer;Society for Computational Economics, vol. 35(4), pages 301-329, April.
    3. Egging, Ruud, 2013. "Benders Decomposition for multi-stage stochastic mixed complementarity problems – Applied to a global natural gas market model," European Journal of Operational Research, Elsevier, vol. 226(2), pages 341-353.
    4. R. T. Rockafellar & Roger J.-B. Wets, 1991. "Scenarios and Policy Aggregation in Optimization Under Uncertainty," Mathematics of Operations Research, INFORMS, vol. 16(1), pages 119-147, February.
    5. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, April.
    6. Golombek, Rolf & Brekke, Kjell Arne & Kittelsen, Sverre A.C., 2013. "Is electricity more important than natural gas? Partial liberalizations of the Western European energy markets," Economic Modelling, Elsevier, vol. 35(C), pages 99-111.
    7. Golombek, Rolf & Kittelsen, Sverre A.C. & Rosendahl, Knut Einar, 2013. "Price and welfare effects of emission quota allocation," Energy Economics, Elsevier, vol. 36(C), pages 568-580.
    8. Stein W. Wallace, 2000. "Decision Making Under Uncertainty: Is Sensitivity Analysis of Any Use?," Operations Research, INFORMS, vol. 48(1), pages 20-25, February.
    9. Julia L. Higle & Stein W. Wallace, 2003. "Sensitivity Analysis and Uncertainty in Linear Programming," Interfaces, INFORMS, vol. 33(4), pages 53-60, August.
    10. EHRENMANN, Andreas & SMEERS, Yves, 2008. "Energy only, capacity market and security of supply. A stochastic equilibrium analysis," LIDAM Discussion Papers CORE 2008007, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. Rolf Golombek & Mads Greaker & Sverre A.C. Kittelsen & Ole Røgeberg & Finn Roar Aune, 2011. "Carbon Capture and Storage Technologies in the European Power Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 209-238.
    12. Finn Roar Aune & Rolf Golombek & Sverre A.C. Kittelsen & Knut Einar Rosendahl, 2008. "Liberalizing European Energy Markets," Books, Edward Elgar Publishing, number 3071.
    13. McNerney, James & Doyne Farmer, J. & Trancik, Jessika E., 2011. "Historical costs of coal-fired electricity and implications for the future," Energy Policy, Elsevier, vol. 39(6), pages 3042-3054, June.
    14. K. J. Arrow, 1964. "The Role of Securities in the Optimal Allocation of Risk-bearing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 31(2), pages 91-96.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brekke, Kjell Arne & Golombek, Rolf & Kaut, Michal & Kittelsen, Sverre A.C. & Wallace, Stein W., 2017. "Stochastic energy market equilibrium modeling with multiple agents," Energy, Elsevier, vol. 134(C), pages 984-990.
    2. Kjell Arne Brekke & Rolf Golombek & Michal Kaut & Sverre A.C. Kittelsen & Stein W. Wallace, 2013. "The Impact of Uncertainty on the European Energy Market: A Scenario Aggregation Approach," CESifo Working Paper Series 4500, CESifo.
    3. Egging, Ruud & Pichler, Alois & Kalvø, Øyvind Iversen & Walle–Hansen, Thomas Meyer, 2017. "Risk aversion in imperfect natural gas markets," European Journal of Operational Research, Elsevier, vol. 259(1), pages 367-383.
    4. Finn Roar Aune, Rolf Golombek , Arild Moe, Knut Einar Rosendahl and Hilde Hallre Le Tissier, 2015. "Liberalizing Russian Gas Markets - An Economic Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Adelman S).
    5. Huppmann, Daniel & Egging, Ruud, 2014. "Market power, fuel substitution and infrastructure – A large-scale equilibrium model of global energy markets," Energy, Elsevier, vol. 75(C), pages 483-500.
    6. Fatemeh Sarayloo & Teodor Gabriel Crainic & Walter Rei, 2021. "A Learning-Based Matheuristic for Stochastic Multicommodity Network Design," INFORMS Journal on Computing, INFORMS, vol. 33(2), pages 643-656, May.
    7. Lars M. Hvattum & Arne Løkketangen & Gilbert Laporte, 2006. "Solving a Dynamic and Stochastic Vehicle Routing Problem with a Sample Scenario Hedging Heuristic," Transportation Science, INFORMS, vol. 40(4), pages 421-438, November.
    8. Borgonovo, E., 2010. "Sensitivity analysis with finite changes: An application to modified EOQ models," European Journal of Operational Research, Elsevier, vol. 200(1), pages 127-138, January.
    9. Thapalia, Biju K. & Crainic, Teodor Gabriel & Kaut, Michal & Wallace, Stein W., 2012. "Single-commodity network design with random edge capacities," European Journal of Operational Research, Elsevier, vol. 220(2), pages 394-403.
    10. Lontzek, Thomas S. & Narita, Daiju, 2009. "The effect of uncertainty on decision making about climate change mitigation: a numerical approach of stochastic control," Kiel Working Papers 1539, Kiel Institute for the World Economy (IfW Kiel).
    11. Rosenberg, Joshua V. & Engle, Robert F., 2002. "Empirical pricing kernels," Journal of Financial Economics, Elsevier, vol. 64(3), pages 341-372, June.
    12. Julie Ann Stuart Williams & Randall Reid & Philip E. Billings & Natalie C. Belford, 2023. "Engaging Students in Optimization Modeling: Gaining Business Disruption Insights," INFORMS Transactions on Education, INFORMS, vol. 24(1), pages 85-94, September.
    13. Xin Wang & Teodor Gabriel Crainic & Stein W. Wallace, 2019. "Stochastic Network Design for Planning Scheduled Transportation Services: The Value of Deterministic Solutions," INFORMS Journal on Computing, INFORMS, vol. 31(1), pages 153-170, February.
    14. Hwang, In Chang & Reynès, Frédéric & Tol, Richard S.J., 2017. "The effect of learning on climate policy under fat-tailed risk," Resource and Energy Economics, Elsevier, vol. 48(C), pages 1-18.
    15. Leach, Andrew J., 2007. "The climate change learning curve," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1728-1752, May.
    16. E. Borgonovo & L. Peccati, 2011. "Managerial insights from service industry models: a new scenario decomposition method," Annals of Operations Research, Springer, vol. 185(1), pages 161-179, May.
    17. Xin Wang & Stein W. Wallace, 2016. "Stochastic scheduled service network design in the presence of a spot market for excess capacity," EURO Journal on Transportation and Logistics, Springer;EURO - The Association of European Operational Research Societies, vol. 5(4), pages 393-413, December.
    18. Arnt-Gunnar Lium & Teodor Gabriel Crainic & Stein W. Wallace, 2009. "A Study of Demand Stochasticity in Service Network Design," Transportation Science, INFORMS, vol. 43(2), pages 144-157, May.
    19. Egging, Ruud & Holz, Franziska, 2016. "Risks in global natural gas markets: Investment, hedging and trade," Energy Policy, Elsevier, vol. 94(C), pages 468-479.
    20. Julio Deride & Alejandro Jofré & Roger J-B Wets, 2019. "Solving Deterministic and Stochastic Equilibrium Problems via Augmented Walrasian," Computational Economics, Springer;Society for Computational Economics, vol. 53(1), pages 315-342, January.

    More about this item

    Keywords

    EU; Impact and scenario analysis; Agent-based modeling;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ekd:009007:9201. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Theresa Leary (email available below). General contact details of provider: https://edirc.repec.org/data/ecomoea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.