Paths and processes in complex electricity markets: The agent-based perspective

An electricity market emerges from the interaction of several heterogeneous actors. On the one hand, generators, transmission system operators, distribution system operators, and retailers are engaged in producing and delivering a good with distinctive features: electricity is not storable, demand is subject to stochastic and temporal variations, and provision takes place via a physical network in which supply needs always to be equal to demand (Bollinger et al. 2016). On the other hand, households by virtues of policies aiming at discarding the traditional natural monopoly structure and at favoring generalized access and efficient economic conditions have assumed an unprecedented active role. Households can switch retailers and tariffs acting as a driver for competition and, by becoming prosumers, can participate in energy production and distribution. This interplay blurs the boundaries of the economic categories of demand and supply and casts doubts on the explanatory and predictive power of market models based on equilibrium.\r\nThe understanding of the electricity market behaviors requires the joint investigation of different processes like technology diffusion (i.e. smart grid), service innovation and the widening set of motivations for individual behaviors. Objectives like profit and utility maximization need to be complemented as the awareness of the consequences of climate change and the need for sustainable energy production and consumption increases.\r\nThis chapter aims to set out the ways in which complex systems thinking and modeling could be useful in understanding the functioning and evolution of the electricity markets. The final objective is to provide useful insights in order to address current and future policy challenges that is “to design appropriate economic and control mechanisms to handle demand and supply transactions among the increasingly heterogeneous and dispersed collection of participants in\r\nmodern electric power systems” (Tesfatsion 2018).