Electricity economics

THE SIGNIFICANCE OF ELECTRICITY ECONOMICS

The electricity industry is undergoing the deepest transformation of its history, driven by decentralisation and decarbonisation: new technologies  from solar photovoltaics to batteries and the internet of things reshape how electricity is produced, transported, traded and consumed. Wind and solar energy are at the center of change. Understanding this revolution requires understanding the interactions between electricity systems, technologies, economics, markets and regulation.

LEARNING  OBJECTIVES

Good energy policy requires a sound understanding of the fundamental physics and economics, as well as the institutional and legal frameworks that shape power systems and markets. The goal of this course is to equip students with this knowledge. The focus of this class is on economics, and to a lesser degree it also covers technology.

TOPICS

The centerpiece of this class is the economics of wind and solar energy.  After a crash-course in power plant technology and electricity systems engineering, we will discuss the drivers of cost of electricity, with a particular focus on renewable energy and the cost revolution that has made wind and solar energy cost-competitive with fossil fuels. We will then develop tools to assess the value of electricity, based on a  rigorous assessment of electricity markets. Students will learn methods to derive an optimal long-term electricity generation mix and to evaluate the economics of wind and solar energy. A particular focus will  be the “market value” (average revenue) of wind and solar energy. We will see why the value of renewable electricity drops as its share in total electricity supply increases and discuss the (unsettling) implications of this outcome for the long-term economics of renewables, and learn what can be done to mitigate the value drop. Apart from economics of electricity generation, the course will discuss the fundamental principles of electricity grids and options to integrate renewable energy into existing power systems (electricity storage, network expansion and flexible power plants), and the rise of “prosumers”. 

These are the relevant issues not only in Germany’s Energiewende, but  also in upcoming EU legislation and a number of emerging economies. This is a 2nd year elective with a Policy Analysis concentration. It can be taken in place of C8 Economics II, for students who completed GRAD-C7adv Advanced Economics during the Fall 2019 semester. If you took GRAD-C7 Economics I Intro and received a recommendation, you may also take this elective in place of C8 Economics II. Please note that in each course we have designated spots for both 1st year students and 2nd year students. As with all electives, 2nd year students with the respective area of concentration will get preference within the designated spots for 2nd year students.

This course is for 2nd year MIA and MPP students only.

Instructor

  • Lion Hirth , Assistant Professor of Governance of Digitalisation and Energy Policy