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For several years, EPRI has been developing a multi-agent simulator for spot electricity markets called STEMS. We present here an extension, jointly developed by EPRI and EDF, of this simulator to handle investment decisions in new generation capacity. This extension is applied to a case study inspired from real market data, to demonstrate the use of these simulations for analyzing interactions between long and shortterm decisions of strategic profit-maximizing agents. We also use an elementary example to observe the impact of varying market structures, pertaining to new entry or to the level of forward contracting. Agent-based modeling provides a flexible framework able to deal with the complexity of real-world situations. Our view is that such agent-based simulations should henceforth become an essential component of the objective evaluation of candidate resource adequacy policies.

1Delta hedging, although widely used in commodity markets, needs to be further adapted to electricity markets. Given the extreme volatility of electricity prices, even a portfolio whose market value is perfectly hedged may still yield large and potentially unacceptable cash-flow swings in the short term. Thus, hedging strategies may need to meet multiple, if not conflicting, objectives: one is to secure the market value of a portfolio, and another is to avoid large cash-flow variations in a given time period. This paper analyses both objectives, explores several hedging strategies tailored to each, and compares their relative efficiency.

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