Overcoming the central planner approach - Bilevel optimization of the European energy transition

The energy transition is a multinational challenge to mitigate climate change, with a joint reduction target for greenhouse gas emissions. Simultaneously, each country is interested in minimizing its own energy supply cost. Still, most energy system models neglect national interests when identifying cost-optimal transition pathways. We design the European energy system transition until 2050, considering competition between countries in a shared electricity and carbon market using bilevel optimization. We find that national objectives substantially impact the transition pathway: Compared to the model solved using the common centralized optimization, the overall installed capacity increases by just 3% when including national interests. However, the distribution of the installed capacity changes dramatically by more than 40% in most countries. Our results underline the risk of miscalculating the need for national capacity expansion when neglecting stakeholder representation in energy system models and demonstrate the need for cooperation for an efficient energy transition.