The global electricity sector's environmental transition has led to significant growth in wind and solar capacity and a decline in coal-based generation. However, this shift has also caused lower baseload electricity prices, impacting the profitability of conventional producers, and increased peakload price volatility, making the system more reliant on natural gas. This paper proposes a long-term model using a mean-field game (MFG) approach to describe the electricity industry's dynamics, focusing on gas as a substitute for coal. This paper extends the recent contribution [Aïd, Dumitrescu, and Tankov, 2021] in several ways, making the model much more realistic, especially for describing the medium-term impacts of energy transition on electricity markets. We also present a central planner counterpart using mean-field control (MFC) and demonstrate their equivalence. A case study calibrated on German data examines the impact of environmental policies.

Our results show that without policies, gas power plants meet rising demand, leading to higher gas and electricity prices. A carbon tax eliminates coal plants by 2030 and encourages renewables, though it raises long-term electricity prices. Renewable subsidies promote wind power initially but are less effective beyond a certain threshold.