Minority games played by arbitrageurs on the energy market

Tim Ritmeester and Hildegard Meyer-Ortmanns

Papers from arXiv.org

Abstract: Along with the energy transition, the energy markets change their organization toward 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.

Date: 2020-12, Revised 2021-03
New Economics Papers: this item is included in nep-cwa and nep-ene
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Published in Physica A 573 (2021)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2012.10475

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