Martin Palovic

• This thesis studies energy system integration, that is mechanisms coordinating electricity sector with the broader energy system. More specifically, it utilizes microeconomic modeling and academic insights from industrial and institutional economics to develop coordination mechanisms capable of addressing flawed stakeholder coordination occurring within the electricity sector and at its interface to other energy sectors. This cumulative dissertation consists of five papers that together cover all three layers of energy system integration. Paper 1 addresses the whole-network optimization layer and asks whether independent operators of electricity networks have an incentive to cooperate in optimizing their interconnected networks. It demonstrates an incentive problem in power network operator interactions that turns these into game-theoretical problems like prisoner’s dilemma and chicken game. This makes optimization of electricity network as a single system difficult. Papers 2, 3 and 4 explore the whole-chain optimization layer of energy system integration which focuses at coordination between electricity network and power generation, storage, and consumption. Paper 2 evaluates the economic efficiency of administrative network congestion management, that is addressing network congestion by an administrative rule, and provides a policy advice on an efficient design. Paper 4 provides a similar result for market-based alternatives, where network congestion is addressed by market-based coordination between network and network users. Paper 3 reviews the empirical experience with such market-based type of congestion management. Paper 5 is concerned with the cross-system optimization layer. Aiming to provide a policy advice on a coherent institutional framework governing investment in the future hydrogen infrastructure, which is expected to be dispersed across multiple energy sectors, it reviews and evaluates current governance proposals raised by the European institutions.