The impact of heterogeneous market players with bounded-rationality on the electricity sector low-carbon transition

Elsa Barazza and Neil Strachan

Energy Policy, 2020, vol. 138, issue C

Abstract: The energy sector transition requires large financial investments in low-carbon generation technologies, to be delivered by a variety of actors with heterogeneous characteristics. Real-world actors have bounded-rationality, reflected by their limited foresight and heterogeneous expectations, and as past trends influence their investments. Agent-based models are highly suitable modelling frameworks to study such realistic and complex energy transition dynamics. This paper introduces BRAIN-Energy, a novel agent-based model which explicitly allows to explore the impacts of actors' heterogeneous characteristics, and of their interactions, on the transition pathways of the UK, German and Italian electricity sectors. Results show that actors' heterogeneous characteristics pose barriers to effective decarbonisation efforts, affect the speed of the transition, and impact the transition's security of supply and affordability dimensions. Limited foresight and path-dependency lead to investment cycles (both virtuous and vicious). The country comparison highlights how such effects are stronger in markets with more heterogeneous market players.

Keywords: Agent-based modelling; Bounded-rationality; Heterogeneity of actors; Investment decisions; Energy sector; Low-carbon transition (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:138:y:2020:i:c:s0301421520300343

DOI: 10.1016/j.enpol.2020.111274

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