Minority games played by arbitrageurs on the energy market

Tim Ritmeester and Hildegard Meyer-Ortmanns

Physica A: Statistical Mechanics and its Applications, 2021, vol. 573, issue C

Abstract: Along with the energy transition, the energy markets change their organization towards more decentralized and self-organized structures, striving for locally optimal profits. These tendencies may endanger the physical grid stability. One realistic option is the exhaustion of reserve energy due to an abuse by arbitrageurs. We map the energy market to different versions of a minority game and determine the expected amount of arbitrage as well as its fluctuations as a function of the model parameters. Of particular interest are the impact of heterogeneous contributions of arbitrageurs, the interplay between external stochastic events and nonlinear price functions of reserve power, and the effect of risk aversion due to suspected penalties. The non-monotonic dependence of arbitrage on the control parameters reveals an underlying phase transition that is the counterpart to replica symmetry breaking in spin glasses. As conclusions from our results we propose economic and statutory measures to counteract a detrimental effect of arbitrage.

Keywords: Arbitrage; Energy markets; Statistical physics; Agent-based modelling (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:573:y:2021:i:c:s0378437121001990

DOI: 10.1016/j.physa.2021.125927

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