An Electricity Grid As an Agent-Based Market System: Exploring the Effects of Policy on Sustainability

Abstract

Electricity generation is a major source of air pollution, contributing to nearly one-third of the total greenhouse gas emissions in the United States. As with most goods, production must keep up with the projected consumer demand, and the industry is subject to government regulations at the federal, state, and local levels. This study models the New Jersey electric grid as a market system, using agent-based modeling to represent individual consumers and power companies making utility-maximizing decisions. Each consumer agent is prescribed a unique value function that includes factors such as income, energy intensity, and environmental sensitivity, and they are able to make decisions about how much energy they use and whether they opt into a renewable energy program. Power producers are modeled to keep up with demand and minimize their cost per unit of electricity produced, and they include options to prefer either on-demand or renewable energy sources. Using this model, different scenarios are examined with respect to producer strategy and government policy. The results provide a proof-of-concept for the modeling approach, and they reveal interesting trends about how the markets are expected to react under different scenarios.