Energy Markets and Policy

This is a course on how energy and environmental markets work, and the regulatory mechanisms that have been and can be used to achieve desired policy goals. The course uses a electricity market game as a central teaching tool. In the game, students play the role of electricity generators and retailers in order to gain an understanding of how market rules(including environmental regulations and renewable energy mandates) affect the business strategy of market participants, and in turn economic and environmental outcomes. The goal of the course is to provide students with both theoretical and hands-on understanding of important energy and environmental market concepts that are critical to market functioning but not always widely appreciated. Concepts covered include: 1)regulated price-setting versus price-setting through market mechanisms, 2) BTU arbitrage in input energy choices, 3) uniform price vs. pay-as-bid auctions, 4) the ability and incentive to exercise unilateral market power, 5) unilateral versus coordinated exercise of market power, 6) transmission congestion, 7) forward contracts and their effect on market functioning, 8) dynamic pricing of electricity and active involvement of final demand, 9)the nature of energy reserves, 10) carbon pricing mechanisms including taxes and cap-and trade systems, 11) renewable portfolio standards and other renewable energy incentives,12) determination of levelized cost of energy (LCOE) and its impact on new capacity investment decisions, and 13) interactions between environmental mechanisms and regulations. We will also discuss the key features of the markets for major sources of energy such as oil, natural gas, coal, nuclear, solar, wind, and biomass. The course is useful background for private sector roles in energy production, research, management, trading, investment, and government and regulatory affairs; government positions in policymaking and regulation; research and policy functions in academia, think tanks, or consultancies; and non-profit advocacy roles related to energy and the environment.