nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒09‒05
thirteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Predicting market power in wholesale electricity markets By Newbery, D.
  2. Does Ownership Matter? The Performance and Efficiency of State Oil vs. Private Oil (1987-2006) By Wolf, C
  3. Ownership unbundling in electricity distribution: empircal evidence from New Zealand By Nillesen, P.; Pollitt, M.G.
  4. Africa in 2008: Breaking Down the Growth By Kenneth G. Ruffing
  5. Ownership Unbuilding in Electricity Markets - A Social Cost Benefit Analysis of the German TSO'S By Brunekreeft, G.
  6. Impact of climate change and bioenergy on nutrition: By Cohen, Marc J.; Tirado, Cristina; Aberman, Noora-Lisa; Thompson, Brian
  7. Total Factor Productivity Growth when Factors of Production Generate Environmental Externalities By Vouvaki, Dimitra; XEPAPADEAS, Anastasios
  8. Using regulatory benchmarking techniques to set company performance targets: the case of US electricity By Nillesen, P.; Pollitt, M.G.
  9. Financing the Nuclear Renaissance By Nuttall, W.J.; Taylor, S
  10. Divestiture Policy and Operating Efficiency in U.S. Electric Power Distribution By Kwoka, J.; Ozturk, S.; Pollitt, M.G.
  11. Estimating the common trend rate of inflation for consumer prices and consumer prices excluding food and energy prices By Michael T. Kiley
  12. Accounting for and finance of generation investment By Newbery, D.
  13. Policy Diffusion, Lobbying and the Taxation of Emissions By Peter Michaelis; Thomas Ziesemer

  1. By: Newbery, D.
    Abstract: The traditional measure of market power is the HHI, which gives implausible results given the low elasticity of demand in electricity spot markets, unless it is adapted to take account of contracting. In its place the Residual Supply Index has been proposed as a more suitable index to measure potential market power in electricity markets, notably in California and more recently in the EU Sector Inquiry. The paper investigates its value in identifying the ability of firms to raise prices in an electricity market with contracts and capacity constraints and find that it is most useful for the case of a single dominant supplier, or with a natural extension, for the case of a symmetric oligoply. Estimates from the Sector Inquiry seem to fit this case better than might be expected, but suggests an alternative defintion of the RSI defined over flexible output that should give a more reliable relationship.
    Keywords: Residual Supply Index, Cournot equilibrium, Lerner Index, electricity markets, market power
    JEL: D43 K21 L94
    Date: 2008–08
  2. By: Wolf, C
    Abstract: This paper investigates whether there are systematic performance and efficiency differentials between National Oil Companies (NOCs) and privately-owned oil companies. The dataset is based on a survey published by Energy Intelligence and covers 1,001 firm observation years in the period 1987 to 2006. After summarising the main trends emerging from the data and discussing some key issues of comparing ‘State Oil’ and ‘Private Oil’, I find that non-OPEC NOCs underperform their private sector counterparts in terms of labour and capital efficiency, revenue generation and profitability. I also find that much of these differences could be bridged through a change in ownership. OPEC producers show higher efficiency metrics than the private sector, which might be related to exogenous asset quality. All NOCs produce a significantly lower annual percentage of their upstream reserves. This paper complements the time-series analysis of oil privatisations in Wolf and Pollitt (2008) and suggests that a political preference for State Oil usually comes at an economic cost.
    Keywords: Ownership, performance, efficiency, NOC, IOC, OPEC
    JEL: C21 G32 L20 L71 M21 Q40
    Date: 2008–06
  3. By: Nillesen, P.; Pollitt, M.G.
    Abstract: New Zealand is the only country to date to have implemented forced ownership unbundling of electricity distribution from the rest of the electricity supply industry (in 1998). This paper examines the impact of this policy on electricity prices, quality of service and costs. We find that ownership unbundling did not achieve its objectives of facilitating greater competition in the electricity supply industry but that it did lead to lower costs and higher quality of service. We suggest that this experience indicates the potential benefits of ownership unbundling in Europe but also the danger of un-intended consequences.
    Keywords: electricity distribution, ownership unbundling, New Zealand
    JEL: L94
    Date: 2008–08
  4. By: Kenneth G. Ruffing
    Abstract: Growth will accelerate for net oil exporters and weaken slightly for oil importers. Inflation is rising due to increases in the price of food imports and rising oil prices. The current-account deficits of oil-importing countries are increasing.
    Date: 2008–04
  5. By: Brunekreeft, G.
    Abstract: This paper presents a social cost benefit analysis of ownership unbundling (as compared to legal und functional unbundling) of the electricity transmission system operators in Germany. The study relies on the Residual Supply Index for its competitive concept. The analysis models some 15 effects, grouped in three categories: the competition effect, the interconnector effect and the cost effect. Facing a looming capacity shortage, we find that the total available generation capacity and the effect of unbundling on capacity are of crucial importance. Overall, for the base-case, the net weighted discounted social-cost-benefit effect (weighted-?SCB) is likely to be positive, but small.
    Keywords: unbundling, electricity, networks, regulation, competition
    JEL: L11 L50 L94
    Date: 2008–07
  6. By: Cohen, Marc J.; Tirado, Cristina; Aberman, Noora-Lisa; Thompson, Brian
    Keywords: Climate change, Bioenergy, Nutrition, food security, Food prices, Sustainable development,
    Date: 2008
  7. By: Vouvaki, Dimitra; XEPAPADEAS, Anastasios
    Abstract: Total factor productivity growth (TFPG) has been traditionally associated with technological change. We show that when a factor of production, such as energy, generates an environmental externality in the form of CO₂ emissions which is not internalized because of lack of environmental policy, then TFPG estimates could be biased. This is because the contribution of environment as a factor of production is not accounted for in the growth accounting framework. Empirical estimates confirm this hypothesis and suggest that part of what is regarded as technology's contribution to growth could be attributed to the use of environment in output production.
    Keywords: Total Factor Productivity; Sources of Growth; Environmental Externalities; Energy; Environmental Policy
    JEL: Q56 O4
    Date: 2008–08–28
  8. By: Nillesen, P.; Pollitt, M.G.
    Abstract: Consolidation in many sectors has lead to the formation of “groups of companies”. Extracting all the potential cost savings from these independent or separate operating units is a challenge given asymmetric information. We develop a step-by-step approach that applies regulatory benchmarking techniques to set efficiency targets for operating units. Holding company management – like a regulator – will want to set targets to encourage efficient operation but in the absence of full information on effort, costs and environmental conditions. Our approach using the parallel with regulation incorporates issues such as measurement error and potential environmental factors that could influence the underlying efficiency score. We demonstrate the approach using data from the US electricity distribution sector and show that substantial savings can be extracted using this approach that was originally developed for regulatory purposes.
    Keywords: benchmarking, regulation, operating companies, electricity distribution
    JEL: L98 M21
    Date: 2008–08
  9. By: Nuttall, W.J.; Taylor, S
    Abstract: This paper considers the key economic risks associated with nuclear power. The authors observe that the bulk of the risks of a nuclear power station project fall during the roughly five year period of plant construction. This window of risk follows a lengthy siting process and comes before power station operations lasting up to sixty years. As a consequence of the nature of the economic risks, operational nuclear power plants are more attractive targets for initial investment than new build projects. The authors suggest that the first glimmers of a US nuclear renaissance were visible in 2000 when dramatically higher prices were achieved for second-hand nuclear power plants following a period of depressed prices in the 1990s. The paper closes with a consideration of the prospects for nuclear new build in both Europe and the United States and the key financial and economic factors that could drive such developments differently in each case.
    Keywords: Finance, Nuclear Power, Electricity Generation, Economic Risk, Energy Policy
    JEL: G31
    Date: 2008–06
  10. By: Kwoka, J.; Ozturk, S.; Pollitt, M.G.
    Abstract: This study examines the effects of divestiture policy on the operating efficiency of US distribution utilities. We focus on the decisive 1994-2003 period when state utility commissions required or pressured utilities to create standalone generation facilities, and thereby almost incidentally standalone distribution systems. The analytical foundation of this study is the measurement of the operating efficiency of 73 distribution units of major U.S. electric utilities in each of those ten years through the use of data envelopment analysis (DEA). Using this panel of data and controlling for other possible influences, we then evaluate the effects on measured efficiency from the divestitures that many of the utilities underwent during the study period. We find that while all divestitures as a group do not significantly affect distribution efficiency, those mandated by state public utility commissions have resulted in large and statistically significant adverse effects on efficiency.
    Keywords: Divestiture, electricity distribution, efficiency analysis
    JEL: L94
    Date: 2008–07
  11. By: Michael T. Kiley
    Abstract: I examine the common trend in inflation for consumer prices and consumer prices excluding prices of food and energy. Both the personal consumption expenditure (PCE) indexes and the consumer price indexes (CPI) are examined. The statistical model employed is a bivariate integrated moving average process; this model extends a univariate model that fits the data on inflation very well. The bivariate model forecasts as well as the univariate models. The results suggest that the relationship between overall consumer prices, consumer prices excluding the prices of food and energy, and the common trend has changed significantly over time. In the 1970s and early 1980s, movements in overall prices and prices excluding food and energy prices both contained information about the trend; in recent data, the trend is best gauged by focusing solely on prices excluding food and energy prices.
    Date: 2008
  12. By: Newbery, D.
    Abstract: State-owned electricity companies typically set prices that are too low to finance new investment when needed, and which create additional problems where private investment is sought. The paper asks to what extent this can be attributed to historic cost accounting, and finds that provided the required rate of return is appropriately set, this seems unlikely to be the main cause of under-pricing, although inflation in a period of excess capacity can amplify such under-pricing. It seems more likely that the main problem is a failure to charge an appropriate riskadjusted rate of return. The paper concludes by suggesting how such companies can move to a more efficient price structure, provided the correct cost of capital is recognised in the regulated pricing structure.
    Keywords: Electricity investment, pricing, accounting, cost of capital
    JEL: L32 L51 L94
    Date: 2008–07
  13. By: Peter Michaelis (University of Augsburg, Department of Economics); Thomas Ziesemer (University of Augsburg, Department of Economics)
    Abstract: Policy diffusion refers to the process by which a political innovation – like the introduction of a novel emission tax – disseminates over time among countries. In order to analyze this issue from an economic point of view we develop a simple two-country-model of the taxation of emissions in presence of (possible) policy diffusion. Contrary to the usual Nash setting of simultaneous decision making we consider a Stackelberg game: In the first step the domestic government introduces an emission tax td thus acting as Stackelberg-leader, in the second step the foreign government decides whether or not to introduce an emission tax tf and in the third step the firms decide on their output quantities to be sold on a third country’s market. For the case of an exogenous given probability of policy diffusion we show that the optimal domestic tax rate is c.p. the higher, the higher the probability of policy diffusion is. Moreover, we explore under which conditions first-mover behaviour by the domestic government leads to a higher tax rate compared to the Nash solution In the next step we introduce an endogenous probability of policy diffusion by combining our model with a strategic lobbying approach. As a result, the probability of policy diffusion is c.p. the smaller, the higher domestic tax rate td is. Consequently, in fixing the optimal tax rate the domestic government has to account for the foreign firm’s lobbying activities otherwise it will choose a tax rate too high.
    Keywords: emission taxes, first-mover behaviour, strategic environmental policy, policy diffusion
    JEL: F18 Q55 Q58
    Date: 2008–08

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