Working Papers,
Copenhagen Business School, Department of Economics

Abstract: This paper investigates how energy networks in the European Union can be encouraged to increase innovation to reach the decarbonisation goals. We design and analyse a tripar-tite evolutionary game model with the European Commission, national energy regulators, and energy network companies being the groups of players in the game. We find that the only evolutionary stable state of the game is where the three groups of players choose cooperation strategies. For the Commission and the national regulatory authorities, induc-ing innovation involves adopting new policy and regulatory mechanisms, respectively. For the energy networks, it involves investing in innovation with decarbonisation goals. We assume that the initial probability of the Commission choosing its cooperation strategy is relatively high and the initial probabilities of the regulators and the energy networks choosing cooperation strategies is relatively low. Numerical simulations suggest that the convergence rate to the evolutionary stable state can be increased if the Commission in-creases the probability of energy networks receiving external funding and penalty im-posed on regulators to adapt their incentive mechanisms to induce innovation. The Com-mission clearly plays a key role in reaching the stable state.

Keywords: Energy networks; innovation; regulation; green transition; tripartite evolutionary game

JEL-codes: C70; L50; L90; O30; Q40; Q50

Language: English

28 pages, June 24, 2024

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