A green field of solar panels against a blue sky
Solar power is part of the new energy mix, but supply varies. Photo: Zbynek Burival/Unsplash.

Hej Afzal, tell us about your research!
– I use game-theoretic models to understand how energy policy affects the electricity industry. The challenge is that the objectives of policymakers are not always aligned with those of power companies. For example, policymakers want to maximize social welfare and to reduce carbon emissions, whereas power companies wish to maximize profit. Although policymakers cannot directly intervene in the sector, they can devise policy in a proactive manner to align private and public incentives.

Photo of professor Afzal Siddiqui, Department of Computer and Systems Sciences, Stockholm University
Afzal Siddiqui. Photo: HEC Montréal.

Can you give an example of how this is done?
– Yes, an illustrative case is that of energy storage, which integrates variable renewable energy sources like wind and solar power. Clearly, improving storage efficiency is beneficial for society as it increases welfare and lowers emissions by enabling more energy to be moved from off-peak to peak periods of consumption. Yet, higher device efficiency may not always be favorable for storage owners because it could depress the electricity price in peak periods. In order to avoid this outcome, storage owners may actually keep more energy for the off-peak period if device efficiency increases. Such an undesirable result may be mitigated if policymakers set an appropriate carbon tax on emissions. This is because a carbon tax simultaneously reduces non-renewable generation and increases the opportunity cost of discharging from storage in the peak period. Thus, since a carbon tax creates scarcity in the peak period, storage owners under a carbon tax are incentivized to move energy from the off-peak to the peak period for a wider range of device efficiency.

What was your input to the report and the seminar?
– My expertise is at the interface of economics and engineering, which enables me to develop suitable models to study the policy issues in the sustainable energy transition. In the report, I advocated for additional policy-oriented research. This is because energy research tends to be dominated by a focus on technology development and algorithms for deploying flexible resources. These are highly relevant areas and should continue to be supported. However, in reality, technologies will be used by power companies with possibly different incentives than public ones. Indeed, some of these power companies have sufficient leverage to affect outcomes in the electricity market via their investment and operational decisions. Thus, research efforts should also be devoted to understanding situations in which such distortions arise, and assessing mechanisms for mitigating them.

In the report, ongoing changes in the electrical system are described. What is the implication of those changes?
– Climate policy envisages a deep decarbonization of the electricity sector and electrification of the wider energy sector. For example, sectors such as transport and heating are likely to rely more on electricity with a gradual phaseout of fossil fuels. This is a global trend with recent climate and energy packages proposed by both the U.S. and the EU. Besides the shift toward renewable energy, underpinning regulation, such as FERC Order 222 and EU Directive 2019/944 (Article 16), also facilitates the rise of the so-called prosumer, who both produces and consumes energy – for example through rooftop solar photovoltaic panels. Such a diverse array of intermittent resources and decision makers along with sector coupling makes for a complex set of decisions. Thus, methods for decision support and policymaking will have to evolve in order to adapt to this new paradigm.

Is there a lot of cooperation going on in the energy sector, between academia, private companies and public actors?
– From my perspective in academia, I think that there are ample opportunities to interact with practitioners. For example, power companies, system operators, and regulators have research units, and their work is often presented at academic conferences. Data on market operations and technology ownership are also generally available for us to conduct our research. Moreover, workshops to transfer knowledge are organized, for example with training modules for practitioners. In the past, I have been involved in an EU-funded project with industry partners which fostered close cooperation.

What’s next – tell us about your ongoing research project!
– In partnership with the Chalmers University of Technology, I'm currently coordinating a project funded by the Swedish Energy Agency called “Storage, Transmission, and Renewable Interactions in the Nordic Grid (STRING)”. It aims to understand how flexible resources in the Nordic region, such as hydropower, will be operated in the presence of more intermittent generation from wind and solar power. In principle, the Nordic region is well positioned to cope with an influx in such intermittent output because hydropower can smooth out imbalances between supply and demand. However, large power companies that actually own hydro reservoirs may have incentives to use them strategically. More ambitious climate targets are likely to strengthen those incentives as the requirement for flexible resources increases. Given this perspective, the project will develop game-theoretic models to identify circumstances in which such distortions can arise, and propose policy or technological interventions for mitigating their impact.

Contact asiddiq@dsv.su.se

More on Afzal Siddiqui’s research

Download the report ”Elmarknadsforskning i Sverige idag – en syntesrapport om forskningsläget och framtida forskningsbehov” (in Swedish)

A shorter version of this article has been translated to Swedish