Energy economics paper wins prize for practical relevance
Researcher Derck Koolen from Rotterdam School of Management, Erasmus University (RSM) won the Best Paper Award at the International Association for Energy Economics Conference in Groningen, the Netherlands on 10-13 June 2018. The paper investigates strategic trading and the value of flexibility in electricity markets with increasing renewable supply.
Koolen’s paper discusses the impact of a large increase of renewable energy on pricing in power markets and what it means for risk and strategy related behaviour of market participants. His work paves the way for policy makers and major energy players to examine the implications on existing power market structures and their participants' strategic space. It considers alternative market designs both from market and individual perspectives in order to not only integrate large shares of renewable energy in existing electricity markets but also achieve it in a sustainable manner.
For his research, Derck Koolen works with Professor Wolf Ketter (RSM) and Dr Ronald Huisman (Erasmus School of Economics). The major part of the work for the winning paper, also co-authored with Professor Alok Gupta (University of Minnesota), was done during a research visit at the Haas School of Business at the University of California Berkeley.
Koolen’s paper was nominated by a jury panel consisting of academic experts from all over the world among four other papers. The finalists presented their work in a competitive session at the conference to convince the jury of the merits of their work. The jury chose Koolen’s work as the winner during a gala diner in the iconic Martini Church in Groningen as part of the energy economics conference.
One of the reasons the paper won was because of its practical relevance. Koolen’s work can have large policy implications for market design, enhancing a sustainable transformation to very high shares of renewable energy as well as indicating practical relevance for strategic market trading in renewable markets.
“The energy business is going through a series of swift and radical transformations to meet the growing demands for sustainable energy,” Koolen says, adding that this growing share of sustainable energy sources means that electricity markets experience increasing uncertainty and volatility.
Commodity trading and market prices
Koolen: “The various operational characteristics of producer technologies affect commodity trading and thereby affect market prices, often not desirable from a sustainable efficient market point of view.” He said that key in the transition process is to ensure that markets provide adequate price signals for assets and investments, ensuring security of supply in an efficient and sustainable way. “Future market design must be inherently robust, as markets and financial stakeholders may create instabilities, potentially leading to huge losses and black-outs, while the bill is eventually paid by the customer.”
At the IAEE energy economics conference, Koolen also presented research he is currently working on at London Business School with Professor Derek Bunn, in which they are studying the real-world empirical effects of the award-winning model for various power markets in the world, with various needs and preferences for flexibility depending on specific market structures.
Koolen has also presented his work to the Directorate-General for Energy of the European Commission as well as at major European utility and energy companies, discussing both policy as strategic implications for efficient trading in future renewable power markets.
International Association for Energy Economics
The Best Paper Award 2018 was handed out by Danielle Devogelaer, energy expert and member of the IAEE, at the association’s annual international conference on June 10-13 in Groningen, the Netherlands. The conference is the organisation’s annual flagship event for energy economics researchers with more than 700 submissions this year. The conference brings together academics, policy makers, consultants, and representatives from energy businesses to discuss current economic challenges for an efficient energy transition to renewable energy resources.
Watch Derck Koolen and Prof. Wolf Ketter’s research video How the current electricity market design may keep fossil fuel alive on RSM Discovery.
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