Classified: A simulated electricity market auction lights up Energy Markets course

Four students in Energy Markets class working on a simulated auction project.
Grace Brittan, (middle) MBA 22, works with classmates Rosa Huang, Jamie Daudon, and Lily Peng during a recent simulated auction in the Energy and Environmental Markets class. Photo: Jim Block.

“Classified” is an occasional series spotlighting some of the more powerful lessons being taught in classrooms around Haas.

On a recent Thursday morning in Chou Hall, Grace Brittan, MBA 22, paired off with three other graduate students in the Energy and Environmental Markets course to prepare for a simulated electricity market auction.

“We all worked together in advance of the auction to model how much we valued each of the portfolios and what our bidding strategy would be,” said Brittan, one of 71 students in the class.”Bidding went great for us.”

A student in Lucas Davis' class bids during an simulated energy auction.
Team Krugman bids during the electricity market auction. Each year, the student teams are named for prize-winning economists. Photo: Jim Block

The Electricity Strategy Game (ESG) and auction are highlights of the Energy Markets course that Berkeley Haas Professor Lucas Davis teaches each spring. He names the student auction teams in honor of prize-winning economists. “The ESG is a fun opportunity to put into practice the work we do in the class,” Davis said. “We start with a simple cost structure, and then later introduce transmission constraints, different auction formats, and even a carbon tax.”

Combining economics and energy markets

At its heart, the course teaches microeconomic analysis tools that are useful across multiple energy industries. Throughout the semester, Davis covers topics including what drives supply and demand in competitive energy markets, alternative regulatory structures for energy utilities, environmental policy, emerging markets for green energy, market power and antitrust, and the transportation and storage of energy commodities.

“Teaching this class is important to me because I’m passionate about economics, and about energy markets, and this class combines both,” said Davis, The Jeffrey A. Jacobs Distinguished Professor.  “I want class participants to walk away understanding how to think about energy and environmental challenges from an economic perspective.”

The class moves quickly. It’s lively and interactive, switching from student presentations to group sessions and analysis, all the while pushing students to apply what they learn in class to real-world energy and environmental questions.

Professor Lucas Davis teaching his Energy Markets class.
Professor Lucas Davis teaches the Energy and Environmental Markets class to 71 graduate students in Chou Hall. Photo: Jim Block

Most days, class kicks off with a so-called daily indicator, which calls on students to present a piece of data or data visualization related to energy and environmental markets. Sam Moskal, MBA 23, recently used data points to explain why the cost of converting algae to fuel might not make environmental or economic sense.

“It takes 1,500 liters of water to make one liter of product,” Moskal said, noting that Exxon, Shell, and Chevron have largely scuttled the idea.

“Should we cut our losses?” Davis asked. Moskal agreed.

After the daily indicator, students broke into teams to analyze the details of a typical residential electricity bill. Afterwards, they discuss how the utility charges for electricity. The group also considered Davis’ recent Energy Institute blog post, Why am I paying $65 a year for your solar panels?, which examined why solar panels benefit the wealthy at the expense of those who cannot afford to install them. One student shared that his parents’ electricity bill dropped to $2 after installing solar panels.Davis has taught the class for the past three years to full-time MBA students and, starting this year, to evening & weekend MBA students.

The big picture

The class is also open to graduate students in the College of Engineering, the Goldman School of Public Policy, the College of Natural Resources, and other departments. The course was previously taught by Severin Borenstein, professor of the graduate school, for two decades. “I’ve benefited enormously from the course he built,” said Davis, an affiliate with the Energy Institute at Haas who, like Borenstein, is among its well-known and respected industry bloggers.“When I first arrived at Haas, I sat in on Severin’s class and I learned a ton.”

For Brittan, who plans to work in the renewable energy industry after graduating, the class helped her to understand the markets.

“I never took a step back to think about the broader picture of global energy markets,” she said. “This class will allow me to think bigger picture and be more successful in my career moving forward.”

Photo of students in the Energy Markets course participating in an auction.
Students high five each other during the energy markets auction. Photo: Jim Block