This was part of Applications to Financial Engineering
A mean-field game of energy transition
Peter Tankov, ENSAE
Tuesday, December 7, 2021
Abstract: We develop a model for the industry dynamics in the electricity market, based on mean-field games of optimal stopping. In our model, there are several types of agents representing various electricity production technologies. The renewable producers choose the optimal moment to build new renewable plants, and the conventional producers can both build new plants and exit the market. The agents interact through the market prices of electricity determined by matching the aggregate supply of all producers with an exogenous demand function. Using a relaxed formulation of optimal stopping mean-field games, we prove the existence of a Nash equilibrium and the uniqueness of the equilibrium price process. An empirical example, inspired by the German electricity market is presented.