[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ces/ifowps/_362.html
   My bibliography  Save this paper

Investor Type Heterogeneity in Bottom-Up Optimization Models

Author

Listed:
  • Valeriya Azarova
  • Mathias Mier
Abstract
Bottom-up optimization models neglect the inclusion of investment behavior We introduce three investor types that differ in their investment cost specifications, financing costs, and discounting. This leads to a substantially different pace and rate of adoption for specific generation technologies. For the European power market, 2050 wind (nuclear, gas-CCS) capacity ranges from 624 to 1,113 GW (84 to 194 GW, 383 to 502 GW), depending on the respective investor type. Accounting for type heterogeneity leads to 2050 wind (nuclear, gas-CCS) capacity of 912 GW (140 GW, 428 GW). Technologyspecific financing cost increase 2050 wind (nuclear, gas-CCS) capacity even to 1,069 GW (80 GW, 449 GW). Hence, our results confirm that accounting for more differentiated picture of electricity market investment with heterogeneous investor types can provide a starting point for tailor-made energy policies, thereby increasing the efficiency and effectiveness of public policies fostering the decarbonization of power markets.

Suggested Citation

  • Valeriya Azarova & Mathias Mier, 2021. "Investor Type Heterogeneity in Bottom-Up Optimization Models," ifo Working Paper Series 362, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    • Handle: RePEc:ces:ifowps:_362
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/wp_2021_362-mier-azarova-investment-behavior.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Taubman, Paul & Wales, Terence J, 1969. "Impact of Investment Subsidies in a Neoclassical Growth Model," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 287-297, August.
    2. Alan Hochstein, 2018. "The Accelerator Theory in a Keynesian Framework Does Not Work," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(2), pages 199-200, May.
    3. Kozlova, Mariia, 2017. "Real option valuation in renewable energy literature: Research focus, trends and design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 180-196.
    4. Döring, Simon & Drobetz, Wolfgang & El Ghoul, Sadok & Guedhami, Omrane & Schröder, Henning, 2021. "Cross-country determinants of institutional investors’ investment horizons," Finance Research Letters, Elsevier, vol. 39(C).
    5. Clemens Gerbaulet & Casimir Lorenz, 2017. "dynELMOD: A Dynamic Investment and Dispatch Model for the Future European Electricity Market," Data Documentation 88, DIW Berlin, German Institute for Economic Research.
    6. M. S. Feldstein & J. S. Flemming, 1971. "Tax Policy, Corporate Saving and Investment Behaviour in Britain," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(4), pages 415-434.
    7. Hassett, Kevin A & Metcalf, Gilbert E, 1999. "Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," Economic Journal, Royal Economic Society, vol. 109(457), pages 372-393, July.
    8. Azarova, Valeriya & Mier, Mathias, 2021. "Market Stability Reserve under exogenous shock: The case of COVID-19 pandemic," Applied Energy, Elsevier, vol. 283(C).
    9. Jason G. Cummins & Kevin A. Hassett & Stephen D. Oliner, 2006. "Investment Behavior, Observable Expectations, and Internal Funds," American Economic Review, American Economic Association, vol. 96(3), pages 796-810, June.
    10. Mier, Mathias & Weissbart, Christoph, 2020. "Power markets in transition: Decarbonization, energy efficiency, and short-term demand response," Energy Economics, Elsevier, vol. 86(C).
    11. Dale Jorgenson, 1967. "The Theory of Investment Behavior," NBER Chapters, in: Determinants of Investment Behavior, pages 129-175, National Bureau of Economic Research, Inc.
    12. K. Farla, 2014. "Determinants of firms' investment behaviour: a multilevel approach," Applied Economics, Taylor & Francis Journals, vol. 46(34), pages 4231-4241, December.
    13. Valeriya Azarova & Mathias Mier, 2020. "MSR under Exogenous Shock: The Case of Covid-19 Pandemic," ifo Working Paper Series 338, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    14. Foley, A.M. & Ó Gallachóir, B.P. & Hur, J. & Baldick, R. & McKeogh, E.J., 2010. "A strategic review of electricity systems models," Energy, Elsevier, vol. 35(12), pages 4522-4530.
    15. Reuter, Wolf Heinrich & Szolgayová, Jana & Fuss, Sabine & Obersteiner, Michael, 2012. "Renewable energy investment: Policy and market impacts," Applied Energy, Elsevier, vol. 97(C), pages 249-254.
    16. Meinen, Philipp & Roehe, Oke, 2017. "On measuring uncertainty and its impact on investment: Cross-country evidence from the euro area," European Economic Review, Elsevier, vol. 92(C), pages 161-179.
    17. Christoph Weissbart, 2018. "Decarbonization of Power Markets under Stability and Fairness: Do They Influence Efficiency?," ifo Working Paper Series 270, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    18. Hess, Denis & Wetzel, Manuel & Cao, Karl-Kiên, 2018. "Representing node-internal transmission and distribution grids in energy system models," Renewable Energy, Elsevier, vol. 119(C), pages 874-890.
    19. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    20. Siala, Kais & Mier, Mathias & Schmidt, Lukas & Torralba-Díaz, Laura & Sheykhha, Siamak & Savvidis, Georgios, 2022. "Which model features matter? An experimental approach to evaluate power market modeling choices," Energy, Elsevier, vol. 245(C).
    21. Weissbart, Christoph, 2020. "Decarbonization of power markets under stability and fairness: Do they influence efficiency?," Energy Economics, Elsevier, vol. 85(C).
    22. Martínez-Gordón, R. & Morales-España, G. & Sijm, J. & Faaij, A.P.C., 2021. "A review of the role of spatial resolution in energy systems modelling: Lessons learned and applicability to the North Sea region," Renewable and Sustainable Energy Reviews, Elsevier, vol. 141(C).
    23. Ventosa, Mariano & Baillo, Alvaro & Ramos, Andres & Rivier, Michel, 2005. "Electricity market modeling trends," Energy Policy, Elsevier, vol. 33(7), pages 897-913, May.
    24. Kevin A. Hassett, 1999. "Tax Policy and Investment," Books, American Enterprise Institute, number 53049, September.
    25. Jorgenson, Dale W, 1971. "Econometric Studies of Investment Behavior: A Survey," Journal of Economic Literature, American Economic Association, vol. 9(4), pages 1111-1147, December.
    26. John Asker & Joan Farre-Mensa & Alexander Ljungqvist, 2011. "Comparing the Investment Behavior of Public and Private Firms," NBER Working Papers 17394, National Bureau of Economic Research, Inc.
    27. Gollier, Christian & Proult, David & Thais, Francoise & Walgenwitz, Gilles, 2005. "Choice of nuclear power investments under price uncertainty: Valuing modularity," Energy Economics, Elsevier, vol. 27(4), pages 667-685, July.
    28. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(2), pages 312-319.
    29. Eric Zwick & James Mahon, 2017. "Tax Policy and Heterogeneous Investment Behavior," American Economic Review, American Economic Association, vol. 107(1), pages 217-248, January.
    30. Broer, D. P. & van Leeuwen, G., 1994. "Investment behaviour of Dutch industrial firms: A panel data study," European Economic Review, Elsevier, vol. 38(8), pages 1555-1580, October.
    31. Steffen, Bjarne, 2020. "Estimating the cost of capital for renewable energy projects," Energy Economics, Elsevier, vol. 88(C).
    32. Mathias Mier & Kais Siala & Kristina Govorukha & Philip Mayer, 2020. "Costs and Benefits of Political and Physical Collaboration in the European Power Market," ifo Working Paper Series 343, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    33. Geoffrey J. Blanford & Christoph Weissbart, 2019. "A Framework for Modeling the Dynamics of Power Markets – The EU-REGEN Model," ifo Working Paper Series 307, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    34. Ringkjøb, Hans-Kristian & Haugan, Peter M. & Solbrekke, Ida Marie, 2018. "A review of modelling tools for energy and electricity systems with large shares of variable renewables," Renewable and Sustainable Energy Reviews, Elsevier, vol. 96(C), pages 440-459.
    35. Lopion, Peter & Markewitz, Peter & Robinius, Martin & Stolten, Detlef, 2018. "A review of current challenges and trends in energy systems modeling," Renewable and Sustainable Energy Reviews, Elsevier, vol. 96(C), pages 156-166.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mier, Mathias & Siala, Kais & Govorukha, Kristina & Mayer, Philip, 2023. "Collaboration, decarbonization, and distributional effects," Applied Energy, Elsevier, vol. 341(C).
    2. Mier, Mathias & Adelowo, Jacqueline & Weissbart, Christoph, 2024. "Complementary taxation of carbon emissions and local air pollution," Energy Economics, Elsevier, vol. 132(C).
    3. Mier, Mathias & Azarova, Valeriya, 2024. "Investment cost specifications revisited," Energy Policy, Elsevier, vol. 188(C).

    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. Mier, Mathias & Azarova, Valeriya, 2024. "Investment cost specifications revisited," Energy Policy, Elsevier, vol. 188(C).
    2. Mathias Mier & Valeriya Azarova, 2022. "Investment Cost Specifications Revisited," ifo Working Paper Series 376, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Jacqueline Adelowo & Mathias Mier & Christoph Weissbart, 2021. "Taxation of Carbon Emissions and Air Pollution in Intertemporal Optimization Frameworks with Social and Private Discount Rates," ifo Working Paper Series 360, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    4. Mier, Mathias & Adelowo, Jacqueline & Weissbart, Christoph, 2024. "Complementary taxation of carbon emissions and local air pollution," Energy Economics, Elsevier, vol. 132(C).
    5. Mathias Mier & Jacqueline Adelowo, 2022. "Taxation of Carbon Emissions with Social and Private Discount Rates," ifo Working Paper Series 374, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    6. Mathias Mier, 2023. "European Electricity Prices in Times of Multiple Crises," ifo Working Paper Series 394, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    7. Valeriya Azarova & Mathias Mier, 2021. "Unraveling the Black Box of Power Market Models," ifo Working Paper Series 357, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    8. Mathias Mier & Jacqueline Adelowo & Valeriya Azarova, 2022. "Endogenous Technological Change in Power Markets," ifo Working Paper Series 373, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    9. Mathias Mier & Jacqueline Adelowo & Christoph Weissbart, 2022. "Complementary Taxation of Carbon Emissions and Local Air Pollution," ifo Working Paper Series 375, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    10. Mier, Mathias & Siala, Kais & Govorukha, Kristina & Mayer, Philip, 2023. "Collaboration, decarbonization, and distributional effects," Applied Energy, Elsevier, vol. 341(C).
    11. Blanco, Herib & Leaver, Jonathan & Dodds, Paul E. & Dickinson, Robert & García-Gusano, Diego & Iribarren, Diego & Lind, Arne & Wang, Changlong & Danebergs, Janis & Baumann, Martin, 2022. "A taxonomy of models for investigating hydrogen energy systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 167(C).
    12. Haugen, Mari & Blaisdell-Pijuan, Paris L. & Botterud, Audun & Levin, Todd & Zhou, Zhi & Belsnes, Michael & Korpås, Magnus & Somani, Abhishek, 2024. "Power market models for the clean energy transition: State of the art and future research needs," Applied Energy, Elsevier, vol. 357(C).
    13. Md. Nasimul Islam Maruf, 2019. "Sector Coupling in the North Sea Region—A Review on the Energy System Modelling Perspective," Energies, MDPI, vol. 12(22), pages 1-35, November.
    14. Panagiotidis, Theodore & Printzis, Panagiotis, 2020. "What is the investment loss due to uncertainty?," Global Finance Journal, Elsevier, vol. 45(C).
    15. Sim, Jaehun & Kim, Chae-Soo, 2019. "The value of renewable energy research and development investments with default consideration," Renewable Energy, Elsevier, vol. 143(C), pages 530-539.
    16. Dibiasi, Andreas & Abberger, Klaus & Siegenthaler, Michael & Sturm, Jan-Egbert, 2018. "The effects of policy uncertainty on investment: Evidence from the unexpected acceptance of a far-reaching referendum in Switzerland," European Economic Review, Elsevier, vol. 104(C), pages 38-67.
    17. Charlotte Senkpiel & Audrey Dobbins & Christina Kockel & Jan Steinbach & Ulrich Fahl & Farina Wille & Joachim Globisch & Sandra Wassermann & Bert Droste-Franke & Wolfgang Hauser & Claudia Hofer & Lars, 2020. "Integrating Methods and Empirical Findings from Social and Behavioural Sciences into Energy System Models—Motivation and Possible Approaches," Energies, MDPI, vol. 13(18), pages 1-30, September.
    18. Gorman, Nicholas & MacGill, Iain & Bruce, Anna, 2024. "Re-dispatch simplification analysis: Confirmation holism and assessing the impact of simplifications on energy system model performance," Applied Energy, Elsevier, vol. 365(C).
    19. Kitzing, Lena & Juul, Nina & Drud, Michael & Boomsma, Trine Krogh, 2017. "A real options approach to analyse wind energy investments under different support schemes," Applied Energy, Elsevier, vol. 188(C), pages 83-96.
    20. Klemm, Christian & Vennemann, Peter, 2021. "Modeling and optimization of multi-energy systems in mixed-use districts: A review of existing methods and approaches," Renewable and Sustainable Energy Reviews, Elsevier, vol. 135(C).

    More about this item

    Keywords

    Investment behavior; investor type; investment cost; energy system model; bottom-up optimization model; power market model;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

    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:ces:ifowps:_362. 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: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/ifooode.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.