Behavioral Dynamics and Switching Price Regimes in Electricity Markets: Implications for Green Pricing in the GCC

Pascal Stiefenhofer () and Cafer Deniz
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Pascal Stiefenhofer: Newcastle University, Department of Economics
Cafer Deniz: Newcastle University, Department of Economics

Chapter 11 in Digital Finance and Transformation in the Gulf, 2026, pp 301-333 from Springer

Abstract: Abstract Negative electricity prices represent a sharp departure from classical expectations of equilibrium and efficiency. Instead of converging smoothly to zero, prices oscillate between positive and negative regimes, driven by the non-storability of power, renewable variability, and regulatory clearing rules. Standard models of intertemporal pricing and rational expectations cannot explain these dynamics, as they neglect behavioral asymmetries and policy-induced thresholds. This chapter develops a behavioral-dynamical framework that captures regime switching at the zero-price threshold using a system of differential equations with discontinuous right-hand sides. Drawing on behavioral finance—bounded rationality, reference dependence, and loss aversion—it shows how prosumers and other actors respond heuristically to volatile signals, producing feedback loops, tipping points, and path-dependent price regimes. The contribution is both theoretical and applied. Conceptually, it moves electricity price modeling beyond smooth equilibria to discontinuous, behaviorally shaped systems. Practically, it highlights how these dynamics inform governance in renewable-integrated markets, with particular relevance for the Gulf Cooperation Council (GCC), where subsidy reforms, rapid solar growth, and emerging prosumer participation create conditions for abrupt regime shifts. The framework thus provides policymakers with tools to anticipate volatility, manage negative prices, and design adaptive reforms during the transition to green electricity.

Keywords: Negative electricity prices; Behavioral dynamics; Regime switching; Non-smooth systems; Renewable integration (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-92-1588-1_11

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DOI: 10.1007/978-981-92-1588-1_11

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