Economics of Energy

Course Description

Relationship between energy consumption and economic growth. Overview of the distribution of energy resources, demand, supply and trade across the world. Economics of exhaustible resources and its application to energy sector. Key concepts from the theory of the firm with application to energy sector. Energy markets - liberalisation and deregulation. Complexity of competitive electricity market. Organisation of electricity markets. Participants in electricity markets. Risks of participating in electricity markets. Types of markets and contracts. Ancillary services market. Powers systems limitations and their impacts on electricity prices. Methods for evaluating cost - effectiveness of investments. Investing in electricity production. Investing in energy efficiency improvements as a new energy source. Investing in transmission. Energy strategies in market conditions.

General Competencies

Fundamental knowledge about electricity as a commodity, its economic value and market position. Insight in the operation of today's electricity markets. Understanding of energy sources scarcity and relation between economic development and energy consumption.

Learning Outcomes

  1. explain historical and actual occurrences and cause-effect relationships in the world energy market
  2. distinguish between different electricity market participants, their strategic goals and rationale for decision making in market conditions
  3. estimate risks and applicability of different mechanisms for reducing risks related to participation in electricity market
  4. demonstrate the impacts of physical characteristics of electricity on the market
  5. compare different investment options in the power system according to their cost – effectiveness in market conditions
  6. choose adequate market strategy according to the type of market participant

Forms of Teaching


Lectures are performed every week except in weeks when exams take place. Weekly lecture load is 3 hours. Use of electronic student response system.


There are two examinations during the lectures.


Calculations are integral part of lectures.


Lecturers are available for consultations any time upon agreement, via e-mail or in person.

Structural Exercises

Students analyse the selected case of participating in the market by using software RETSCreen and CrystalBall. Profitability of investments is being calculated and associated risks evaluated.

Grading Method

Continuous Assessment Exam
Type Threshold Percent of Grade Threshold Percent of Grade
Homeworks 50 % 15 % 50 % 15 %
Class participation 50 % 9 % 50 % 9 %
Mid Term Exam: Written 50 % 30 % 50 %
Final Exam: Written 50 % 30 %
Final Exam: Oral 16 %
Exam: Written 50 % 60 %
Exam: Oral 16 %

Week by Week Schedule

  1. Introduction to the energy economics Theory of scarcity, efficiency and sustainable development Relation between energy and economic development
  2. Overview of energy situation in the world (production and consumption of primary energy sources, main trends in world market, future challenges)
  3. Liberalization of electricity market
  4. Market basics and theory of the firm
  5. Market risks, types of markets and contracts
  6. Organisation of electricty market
  7. Electricity market participants
  8. System security and ancillary services I.
  9. System security and ancillary services II.
  10. Transmission network and system constraints' influence on electricity prices I.
  11. Transmission network and system constraints' influence on electricity prices II.
  12. Investing in electricity generation
  13. Investing in transmission
  14. Energy strategies in market conditions
  15. Examples from the practice

Study Programmes

University graduate
Electrical Power Engineering (profile)
Theoretical Course (2. semester)


Daniel S. Kirschen, Goran Štrbac (2004.), Fundametals of Power System Economics, Wiley
Ivar Wangesteen (2007.), Power System Economics – The Nordic Electricity Market, Tapir Academic Press
Carol A. Dahl (2004.), International Energy Markets - Understanding Pricing, Policies and Profits, PennWell



ID 86456
  Summer semester
L1 English Level
L1 e-Learning
40 Lectures
5 Exercises
0 Laboratory exercises
0 Project laboratory

Grading System

90 Excellent
75 Very Good
60 Good
50 Acceptable