nep-ene New Economics Papers
on Energy Economics
Issue of 2005‒04‒16
twenty papers chosen by
Roger Fouquet
Imperial College, UK

  1. The Long-Run Forecasting of Energy Prices Using the Model of Shifting Trend By Stanislav Radchenko
  2. Electricity prices in a mixed thermal and hydropower system By Hoel, Michael
  3. Modeling electricity prices with regime switching models By Michael Bierbrauer; Stefan Trueck; Rafal Weron
  5. Pricing in Electricity Markets: a Mean Reverting Jump Diffusion Model with Seasonality By Alvaro Cartea; Marcelo_Gustavo Figueroa
  6. Market price of risk implied by Asian-style electricity options By Rafal Weron
  7. Modeling and forecasting electricity loads: A comparison By Rafal Weron; Adam Misiorek
  8. Deregulation, Restructuring and Changing R&D Paradigms in the US Electric Utility Industry By Paroma Sanyal; Linda R. Cohen
  9. The transmission services in a regional electricity market: evidence from IBELM By Vítor Moutinho
  10. A Residential Energy Demand System for Spain By Xavier Labandeira; José M. Labeaga; Miguel Rodríguez
  11. The Benefits of Information on the Efficient Usage of Consumer Durables By Isamu Matsukawa
  12. Powering a Green Progress: The Effect of Electricity Deregulation on Environmental Research By Paroma Sanyal
  13. Optimal Environmental Road pricing By Johansson-Stenman, Olof
  14. Dominant Agent and Intertemporal Emissions Trading By Hagem , Cathrine; Westskog, Hege
  15. The Kyoto agreement and Technology Spillovers By Golombek, Rolf; Hoel, Michael
  16. Environmental Awareness and Sustainable Development By Rahul Shastri
  17. Estimating the Size of Oil Tanker Spills By Ayla Ogus
  18. A Model of Endogeneous Oil Spill Regulation By Ayla Ogus
  19. Semiparametric Estimation of the Size of Oil Tanker Spills By Ayla Ogus

  1. By: Stanislav Radchenko (UNC at Charlotte)
    Abstract: This paper constructs long-term forecasts of energy prices using a reduced form model of shifting trend developed by Pindyck (1999). A Gibbs sampling algorithm is developed to estimate models with a shifting trend line which are used to construct 10-period-ahead and 15-period ahead forecasts. An advantage of forecasts from this model is that they are not very influenced by the presence of large, long-lived increases and decreases in energy prices. The forecasts form shifting trends model are combined with forecasts from the random walk model and the autoregressive model to substantially decrease the mean forecast squared error compared to each individual model.
    Keywords: energy forecasting, oil price, coal price, natural gas price, shifting trends model, long term forecasting
    JEL: C53
    Date: 2005–02–04
  2. By: Hoel, Michael (Dept. of Economics, University of Oslo)
    Abstract: When a monopolistic hydro producer interacts with a competitive thermal fringe, the short-run revenue function of the hydro monopolist is non-concave. This implies that even if the demand function is stationary, equilibrium prices may fluctuate through the year. For given capacities, both hydro and thermal producers are better off under such an outcome than under the competitive outcome with constant prices, while consumers are worse off. Prices may fluctuate through the year also in the long-run equilibrium where capacities are endogenous. In such an equilibrium the hydropower monopoly will get a lower profit than it would have gotten had it been a price taker.
    Keywords: Electricity prices; Hydropower
    JEL: L12 L13 L94 Q25
    Date: 2004–11–29
  3. By: Michael Bierbrauer (University of Karlsruhe); Stefan Trueck (University of Karlsruhe); Rafal Weron (Hugo Steinhaus Center)
    Abstract: We address the issue of modeling spot electricity prices with regime switching models. After reviewing the stylized facts about power markets we propose and fit various models to spot prices from the Nordic power exchange. Afterwards we assess their performance by comparing simulated and market prices.
    Keywords: Power market, Electricity price modeling, Regime switching model
    JEL: C51 L94 Q40
    Date: 2005–02–07
  4. By: Rafal Weron (Hugo Steinhaus Center); Adam Misiorek (Institute of Power Systems Automation)
    Abstract: In this paper we study simple time series models and assess their forecasting performance. In particular we calibrate ARMA and ARMAX (where the exogenous variable is the system load) processes. Models are tested on a time series of California power market system prices and loads from the period proceeding and including the market crash.
    Keywords: Electricity, price forecasting, ARMA model, seasonal component
    JEL: C22 C53 L94 Q40
    Date: 2005–04–06
  5. By: Alvaro Cartea (Birkbeck College, University of London); Marcelo_Gustavo Figueroa (Birkbeck College, University of London)
    Abstract: In this paper we present a mean-reverting jump diffusion model for the electricity spot price. We obtain a closed-form solution for forward contracts and calibrate it to market data from England and Wales. Finally, based on the calibrated forward curve we present months, quarters, and seasons-ahead forward surfaces.
    Keywords: Energy derivatives, mean reversion, jump diffusion, electricity spot and forward.
    JEL: G
    Date: 2005–01–21
  6. By: Rafal Weron (Hugo Steinhaus Center)
    Abstract: In this paper we propose a jump diffusion type model which recovers the main characteristics of electricity spot price dynamics, including seasonality, mean reversion, and spiky behavior. Calibration of the market price of risk allows for pricing of Asian-type options written on the spot electricity price traded at Nord Pool. The usefulness of the approach is confirmed by out-of-sample tests.
    Keywords: Power market, Electricity price modeling, Asian option, Market price of risk, Derivatives pricing
    JEL: C51 G13 L94 Q40
    Date: 2005–02–07
  7. By: Rafal Weron (Hugo Steinhaus Center); Adam Misiorek (Institute of Power Systems Automation)
    Abstract: In this paper we study two statistical approaches to load forecasting. Both of them model electricity load as a sum of two components – a deterministic (representing seasonalities) and a stochastic (representing noise). They differ in the choice of the seasonality reduction method. Model A utilizes differencing, while Model B uses a recently developed seasonal volatility technique. In both models the stochastic component is described by an ARMA time series. Models are tested on a time series of system-wide loads from the California power market and compared with the official forecast of the California System Operator (CAISO).
    Keywords: Electricity, load forecasting, ARMA model, seasonal component
    JEL: C22 C53 L94 Q40
    Date: 2005–02–07
  8. By: Paroma Sanyal (Brandeis University); Linda R. Cohen (University of Califirnia, Irvine)
    Abstract: This paper studies the impact of electricity deregulation and restructuring on research and development (R&D) expenditures of investor owned utilities. The differing pace of deregulation in the fifty states provides heterogeneity in institutional structure and competitive forces, and showcases the response of R&D funding to changing institutional environments. Based on a panel of all major investor-owned utilities from 1989-1997, this paper analyzes various political constraints, institutional change, and firm-specific financial and structural factors that have contributed to the decline of R&D expenditure in the U.S. electric utility industry. R&D is modeled as a two-stage process where firms first decide whether to invest in research depending on their critical mass and state characteristics, and then conditional on a positive decision, decide on the level of expenditure. A variation of the Heckman model is estimated in a panel data setting, allowing for separate effects of selection and intensity. The primary findings are: First, greater deregulation and competition has a positive effect on R&D whereas a higher probability of deregulation adversely affects research spending. The start date for retail competition and level and policies for stranded cost recovery do affect spending. Second, the response of R&D to financial and other firm attributes varies with the state of deregulation and provides insights into firm behavior in a regulated context. Third, the institutional and competitive factors interact in a way that suggest that full deregulation, coupled with effective retail competition may mitigate the problem of declining electricity R&D by the utilities.
    Keywords: Electricity Deregulation, Competition, R&D
    JEL: O30 O31 L50 L94
    Date: 2005–04–13
  9. By: Vítor Moutinho (Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro)
    Abstract: The paper analyses various proposals for the organisation of regional electricity transmission in terms of the forward and spot market. That they may implicitly assume. We explore some of questions arising in the design of regional transmission systems consisting of different control areas operating in interaction. Elementary notions of variational inequalities constitute the analytical tool used throughout the paper. The discussion is conducted with reference to the nodal and flow gate in regional electricity transmission and European proposals for the organization of cross border electricity trade.
    Date: 2004–04
  10. By: Xavier Labandeira (rede & Universidade de Vigo); José M. Labeaga (FEDEA & UNED); Miguel Rodríguez (rede & Universidade de Vigo)
    Abstract: Sharp price fluctuations and increasing environmental and distributional concerns, among other issues, have led to a renewed academic interest in energy demand. In this paper we estimate, for the first time in Spain, an energy demand system with household microdata. In doing so, we tackle several econometric and data problems that are generally recognized to bias parameter estimates. This is obviously relevant, as obtaining correct price and income responses is essential if they may be used for assessing the economic consequences of hypothetical or real changes. With this objective, we combine data sources for a long time period and choose a demand system with flexible income and price responses. We also estimate the model in different sub-samples to capture varying responses to energy price changes by households living in rural, intermediate and urban areas. This constitutes a first attempt in the literature and it proved to be a very successful choice.
    Keywords: households, energy, demand, spain, location
    JEL: D12 Q41 R22
    Date: 2005–03–08
  11. By: Isamu Matsukawa (Musashi University)
    Abstract: This paper attempts to measure how information provision affects usage of consumer durables, using data on residential demand for electricity in Japan. Assuming that consumer preferences are well described by a translog indirect utility function, a discrete-continuous model of information and usage choice is estimated to examine the effects of information about efficient usage of electric appliances. The empirical results indicate that information provision contributed to energy conservation.
    Keywords: information, energy conservation, discrete-continuous model
    JEL: P Q Z
    Date: 2005–02–01
  12. By: Paroma Sanyal (Brandeis University)
    Abstract: This paper analyzes the impact of changing market structure on environmental research expenditure by investor owned utilities in the US electricity sector for the period 1989-1997. The main finding suggests that after controlling for firm characteristics and the “greenness” of the state, deregulation decreases such R&D expenditure, while effective competition increases it. When these opposing trends are factored in, the empirical model estimates that for a one percent increase in overall market competition, environmental research declines by 1.1 percent. It also finds that environmental regulations like the Clean Air Act, can help stem the decline in environmental research even in the face of market restructuring and competition.
    Keywords: Electricity Deregulation, Environmental R&D, Clean Air Act
    JEL: O32 L94 L51
    Date: 2005–04–13
  13. By: Johansson-Stenman, Olof (Department of Economics, School of Economics and Commercial Law, Göteborg University)
    Abstract: An optimal first-best road charge should not only be differentiated with respect to factors that affect the direct external environmental and time costs from the road-user himself. Indirect effects, such as the fact that other cars will be more polluting when congestion increases, should also be taken into account. <p>
    Keywords: Road pricing; environmental costs; externalities; indirect effects
    JEL: Q58 R41 R48
    Date: 2005–03–31
  14. By: Hagem , Cathrine (Dept. of Economics, University of Oslo); Westskog, Hege (CICERO, Center for International Climate and Environmental Research,)
    Abstract: In this paper we analyze how restricting intertemporal trading by prohibiting borrowing of emission permits affects the ability of a dominant agent to exploit its market power, and the consequences this has for the cost-effectiveness of implementing an emissions target. We show that the monopolist could take advantage of the constraint on borrowing by distributing the sale of permits ineffectively across periods, and moreover that this inefficiency is influenced by the way permits are initially allocated between agents. A cost-effective distribution of abatement across periods can be achieved by an appropriate distribution of the total endowments of permits over time for each agent.
    Keywords: pollution permits; intertemporal trading; market power; borrowing constraint
    JEL: D92 H74 Q52
    Date: 2005–04–06
  15. By: Golombek, Rolf (The Ragnar Frisch Centre for Economic Research); Hoel, Michael (Dept. of Economics, University of Oslo)
    Abstract: A significant reduction in global greenhouse gas emissions will require development of new technologies if such reductions are to be achieved without excessive costs. An important question is whether an agreement of the Kyoto type, which does not include elements related to research and development (R&D) of new technologies, will give sufficient incentives to develop such new technologies. On the one hand, since greenhouse gas emissions will become costly for countries and private producers, countries and individual producers will have incentives to undertake effort and costs to develop new technologies. On the other hand, R&D in one country is not only advantageous for this country, but usually also for other countries. The reason for this is that producers in these countries in many cases will learn from the R&D project, for example, through(informal) networks, journals, and in some cases through the import of goods from the country where the new technology is developed. The purpose of the paper is to discuss properties of an international climate agreement of the Kyoto type when R&D investments undertaken in one country are beneficial also for other countries. We examine whether a Kyoto type of agreement can provide the correct social amount of aggregate emissions and R&D investments in new technologies. We argue that the outcome of a Kyoto type agreement will differ from the social optimum. In particular, for a given level of abatement a Kyoto type agreement provides too little R&D investments relative to the social optimum.
    Keywords: Climate policy; Kyoto; international environmental agreements; R&D; technology spillovers.
    JEL: P28 Q54
    Date: 2005–04–06
  16. By: Rahul Shastri (National Akademi of Development)
    Abstract: Sustainable development depends upon participation by the people, and their awareness of the environmental effects of their actions. This paper analyses the awareness of the deforesting effect (DFE) of firewood use in the users. It shows that those who bear the costs of deforestation, either by travelling long distances, or by buying all their firewood, are more likely to be aware than others of DFE. Specifically, ceteris paribus, households that buy all their firewood are 3 times as likely to be aware as households that collect at least part of their firewood, ceteris paribus. Likewise, every extra kilometre travelled to collect free firewood increases the odds of awareness by 94%, ceteris paribus. Income, education of the head, and community affiliation show no significant association with awareness. However, those in poorer dwellings are more likely to be aware of the DFE than those in pucca houses, ceteris paribus. Large cultivators are more likely to be aware of DFE, whereas ag. Labour are less likely to be aware than other occupations, controlling for other factors. Significantly, firewood users in less fertile districts appear to be more likely to be aware of the DFE effect than firewood users in more fertile districts. This study also reveals the severe limitations of tools of bivariate analysis (correlations, cross-tabulations, chi- squares) in multivariate situations involving survey data. In some cases bivariate tools fail to detect associations revealed to be significant by logistic analysis, and in other cases, they detect a spurious association by attributing the effects of excluded variables to the included independent variable. The results of the study suggest that reforestation/social forestry efforts should shortlist villages far removed from free firewood, or purchasing their entire stock of firewood. And that education of DFE should have a special focus on agricultural labour, dwellers of pucca houses, and more fertile districts, relative to other groups.
    Keywords: Fuelwood use, Environmental Awareness, Deforestation
    JEL: P Q Z
    Date: 2005–04–04
  17. By: Ayla Ogus (IZmir University of Economics)
    Abstract: This paper estimates the determinants of the size of oil tanker spills. In the lit- erature, spill size has been estimated but the results are not very strong. A review of the existing results is provided and the determinants of spill size using a sample selection model are estimated. Estimates from a Tobit regressions are also given to serve as a basis of comparison with the earlier work. One important nding is that groundings and collisions result in larger spills if there is a spill, but the likelihood that there will be a spill due to a grounding or collision is very low. Tanker size is found to have only a marginal e ect on the probability of a spill and a dubious e ect on spill size. US ag tankers and new tankers are found to have a lower probability of causing spills compared to foreign ag and old tankers, respectively. US ag tankers do not have smaller spills when type of cargo variables are included in the analysis. So it is not straightforward to claim that US ag tankers have smaller spills due to stricter regulations. 1
    Keywords: size of oil spills, sample selection models
    JEL: C8
    Date: 2005–04–08
  18. By: Ayla Ogus (Izmir University of Economics)
    Abstract: This paper presents a model of endogenous oil spill regulation where the severity of regulations is shown to be a function of the size of recent spills. The regulator chooses how much to regulate in order to maximize political capital when regulations are rigid downwards and the distribution of spills is not known with certainty. Very large spills are shown to cause large increases in the regulation level. In the event that an unlikely disastrous spill is realized, major regulatory reform may take place which would take the regulations to too high a level.
    Keywords: general equilibrium, endogeneous
    JEL: D9
    Date: 2005–04–08
  19. By: Ayla Ogus (Izmir University of Economics)
    Abstract: This paper estimates the determinants of the size of oil tanker spills without dis- tributional assumptions on the error terms. We employ semiparametric estimation techniques to estimate the parameters of a sample selection model and compare them to the estimates from a sample selection model with normal errors. We nd that al- though parameter estimates are sensitive to the assumption of normality and to the semiparametric technique used. Major ndings that are qualitatively supported by all methods are: groundings and collisions result in larger spills if there is a spill, but the likelihood that there will be a spill due to a grounding or collision is very low; tanker size has only a marginal e ect on the probability of a spill and a dubious e ect on spill size; US ag tankers and new tankers have a lower probability of causing spills, compared to foreign ag and old tankers, respectively.
    Keywords: semiparametric methods, sample selection, oil spills
    JEL: C8
    Date: 2005–04–08
  20. By: Dr.VSR.Subramaniam
    Abstract: If bigger objects go into a jar, then there will be space to fill it with smaller objects in sequence. If the order of the objects are reversed, then it ends in filling it at the starting point. Happiness in life is similar to this. Fill high priority needs in the life, and smaller needs can be subsequent, for progressive happiness. Money cannot bring happiness, and it can induct problems as well. GDP, a vague relation builder is used as an index to measure the progress and happiness. Governments and Private corporate sectors in developed nations have attempted to induct happiness to their employees, through earning improvement, lower working hours etc… But, these did not increase happiness. Priority needs change over a period of time, and people compare themselves with others. It is because, the Tangible wealth generation is dribbled by Intangible feelings, to disturb the Happiness. These are Aggregate and Complex. Intangible aspects are Psychological, Social, Local, International and Universal in nature. Author’s Research and Development approach for these vicious combination infers that, all nations, irrespective their level of development, should evaluate Productivity/Management Decisions with reference to Socio-Economic Development units, and Intangible components should have priority over Tangibles (Algebraic Model). Domestic investments should be from Domestic Savings. Domestic Technology should be manned by Domestic Manpower. These could lead people towards more satisfaction and happiness (Geometric Model)
    Keywords: Algebraic, Decision, Development, Dollar, Domestic, Economic Scenario, Euro, GDP, Geometric, Government, Happiness, Intangible, International, Investment, Local, Logical Info, Magical Demo, Management, Manpower, Mathematical Expo, Money, Private, Priority, Productivity, Psychological, Public, Savings, Social, Tangible, Technology, Universal
    JEL: A13 F01 F15 I31 J24 M14 O11 O16 O47 M21
    Date: 2005–01–29

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