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The electricity generation COMpetitiveness model for the derivation of carbon cost PASS-through rates (COMPASS) provides a simple and robust way to measure the competitiveness of fuel-intensive generators in an electricity market. It enables policymakers to measure the degree by which carbon costs are integrated into the electricity price, which informs about whether generators are competitively doing so. COMPASS may be used to analyse a group of generators as well as individual generators. It has been used to define the level of competition of the UK and European electricity wholesale markets in academic publications and was used for advanced econometrics teaching purposes at UCL.
The model relies on maximum likelihood optimisation and soft-links a theoretical model of the carbon cost to multiple advanced econometric techniques, including: Granger causality, VAR-X, and AR-GARCH. It is therefore robust to spurious correlations arising among time series variables, which typically biases estimated coefficients used to understand cost pass-through. The theoretical model component ensures that the estimated carbon cost pass-through rates are ad-hoc to the type of fuel-intensive electricity generator (e.g., coal, gas, oil) because they explicitly account for the thermal efficiency and carbon intensity of the considered generation units. While COMPASS is designed specifically for the analysis of fuel-intensive generators, its central algorithm may be used to assess the integration of other generator costs, such as balancing and fuel costs.
Model summary
| Model name | The electricity generation COMpetitiveness model for the derivation of carbon cost PASS-through rates (COMPASS) |
| Type | Econometric model |
| Purpose | To estimate the rate of carbon cost integration into wholesale electricity prices as a measure of the competitiveness of fuel-intensive generators in an electricity market |
| Policy impact | Provides evidence to electricity market authorities in relation to the competitiveness of fuel intensive generators |
| Spatial scale | Any spatial resolution |
| Temporal scale | Flexible (Half-hourly, hourly, daily, weekly, seasonal) |
| Main contact | Dr Giorgio Castagneto Gissey (UCL) |
Documentation
Please contact Dr Giorgio Castagneto Gissey if you are interested in the model's documentation.
Publications
Journal papers
Castagneto Gissey, G., 2014. How competitive are EU electricity markets? An assessment of ETS Phase II. Energy Policy, 73, pp.278-297.
Reports
Castagneto Gissey, G., Grubb, M., Staffell, I., Agnolucci, P., Ekins, P., 2018. Wholesale cost reflectivity of GB and European electricity prices. Ofgem: London.
Conference papers
Castagneto Gissey, G., 2014. 37th International Conference of the International Association for Energy Economics. June 15-18, 2014. New York, NY (US).
Projects
Castagneto Gissey, G., Grubb, M., & Ekins, P., 2018. Assessment of competition in European electricity markets.