Agent-based modelling of investment decisions in the electricity sector

Abstract

The energy transition requires coherent and consistent investments in new carbon-neutral generation and storage technologies. These investments and the subsequent capacity expansions are not centrally orchestrated, but come mainly from private companies focusing on their business interests. Policy measures aimed at guiding the capacity expansion process often fall short of reaching their goals. To address this, we introduce an agent-based approach to model investment decisions in the electricity sector according to current business practices. We couple this model with an agent-based dispatch model of the electricity market to investigate the interplay of investment, policy, and market. The resulting simulation model is shown to replicate key features of the investment and generation expansion process in two test cases. First, a company's risk assumptions, policy support, and prognosis about future electricity prices are varied. This influences the investment decisions and capacity expansions. Second, two companies invest large amounts of capital and add a substantial amount of renewable generation capacity. This leads to lower and more volatile electricity prices at the simulated electricity market. The consistent application of agent-based modelling for the investment and market operation of renewable energy technologies allows new analyses on policies regarding the capacity expansion process.