nep-ene New Economics Papers
on Energy Economics
Issue of 2016‒08‒14
fifteen papers chosen by
Roger Fouquet
London School of Economics

  1. The Future Prospects of Energy Technologies: Insights from Expert Elicitations By Verdolini, Elena; Anadón, Laura Diaz; Baker, Erin; Bosetti, Valentina; Reis, Lara Aleluia
  2. Measuring resilience in electricity generation: An empirical analysis By Molyneaux, Lynette; Brown, Colin; Wagner, Liam; Foster, John
  3. The economic value of dispatchable solar electricity: a Post-Paris evaluation By Karl W. Steininger; Wolf D. Grossmann; Iris Grossmann
  4. Buffering Volatility: A Study on the Limits of Germany’s Energy Revolution By Hans-Werner Sinn
  5. Level versus Variability Trade-offs in Wind and Solar Generation Investments: The Case of California By Frank A. Wolak
  6. EU ETS, free allocations, and activity level thresholds: the devil lies in the details By Frédéric Branger; Jean-Pierre Ponssard; Oliver Sartor; Misato Sato
  7. Bridging the Gap: Do Fast Reacting Fossil Technologies Facilitate Renewable Energy Diffusion? By Elena Verdolini; Francesco Vona; David Popp
  8. Finding Common Ground when Experts Disagree: Belief Dominance over Portfolios of Alternatives By Baker, Erin; Bosetti, Valentina; Salo, Ahti
  9. A Forward Looking Ricardian Approach: Do Land Markets Capitalize Climate Change Forecasts? By Christopher Severen; Christopher Costello; Olivier Deschenes
  10. Efectos espaciales en la formación de precios de oferta en mercados spot de generación eléctrica By John J. García,; Jhonny Moncada
  11. Did the Paris Agreement Plant the Seeds of a Climate Consistent International Financial Regime? By Dasgupta, Dipak; Espagne, Etienne; Hourcade, Jean-Charles; Minzer, Irving; Nafo, Seyni; Perissin-Fabert, Baptiste; Robins, Nick; Sirkis, Alfredo
  12. Assessing key stakeholder perceptions to build a strategy for biorefineries deployment in rural areas By Prosperi, Maurizio; Lopolito, Antonio
  13. The Valley of Death, the Technology Pork Barrel, and Public Support for Large Demonstration Projects By Gregory F. Nemet; Martina Kraus; Vera Zipperer
  14. Foods, Fuels or Finances: Which Prices Matter for Biofuels? By Ondrej Filip; Karel Janda; Ladislav Kristoufek; David Zilberman
  15. A Choice Experiment Study on the Farmers’ Attitudes toward Biogas and Waste Reuse in a Nitrates Vulnerable Zone By Strazzera, Elisabetta; Statzu, Vania

  1. By: Verdolini, Elena; Anadón, Laura Diaz; Baker, Erin; Bosetti, Valentina; Reis, Lara Aleluia
    Abstract: Expert elicitation is a process for eliciting subjective probability distributions from experts about items of interest to decision makers. These methods have been increasingly applied in the energy domain to collect information on the future cost and performance of specific energy technologies and the associated uncertainty. This article reviews the existing expert elicitations on energy technologies with three main objectives: (1) to provide insights on expert elicitation methods and how they compare/complement other approaches to inform public energy decision making; (2) to review all recent elicitation exercises about future technology costs; and (3) to discuss the main results from these expert elicitations, in terms of implied rates of cost reduction and the role of R&D investments in shaping these reductions, and compare it with insights from backward looking approaches. We argue that the emergence of data on future energy costs through expert elicitations provides the opportunity for more transparent and robust analyses incorporating technical uncertainty to assess energy and climate change mitigation policies.
    Keywords: Energy Technologies, R&D Investments, Expert Elicitations, Uncertainty, Research and Development/Tech Change/Emerging Technologies, Q5, Q55,
    Date: 2016–07–31
  2. By: Molyneaux, Lynette; Brown, Colin; Wagner, Liam; Foster, John
    Abstract: Carbon constraints will act as a significant fuel shock for electricity generation. This paper seeks to use previous fuel shocks (the 1970s oil price crises and the global surge in energy demand that started in 2003) as the context for analysing the adaptive capacity of electricity generation to large fuel shocks. Resilience is the framework for analysis and the metrics analysed are based on the characteristics of resilience; diversity, spare capacity and organisational structure. This approach differs from current energy resilience research in its pursuit of empirical evidence for the relevance of metrics. The findings indicate that spare capacity is the most important metric for predicting favourable outcomes but diversity also plays a role.
    Keywords: Resilience, Sustainable Energy, Energy Security
    JEL: Q40 Q43 Q47
    Date: 2016–06–20
  3. By: Karl W. Steininger (University of Graz); Wolf D. Grossmann (University of Graz); Iris Grossmann (Carnegie Mellon University)
    Abstract: The UNFCCC Paris Agreement is indicative of the global effort to shift from fossil to renewable energy. Given its abundance and continuous cost decline, photovoltaic electricity is set to play a major role, requiring determination of its economic value in dependence on market share and time horizon. While the literature evaluates short-term perspectives for small market shares and medium-term for significant shares, we develop an approach to determine the costs of ``dispatchable'' solar electricity, where distributed photovoltaic electricity combined with storage and transmission serves full market coverage. This provides a reference for the long-term economic value of solar electricity.
    Keywords: Renewable Energy; Sustainability; Allocative Efficiency
    JEL: D61 Q01 Q24
    Date: 2016–07
  4. By: Hans-Werner Sinn
    Abstract: Based on German hourly feed-in and consumption data for electric power, this paper studies the storage and buffering needs resulting from the volatility of wind and solar energy. It shows that joint buffers for wind and solar energy require less storage capacity than would be necessary to buffer wind or solar energy alone. The storage requirement of over 6,000 pumped storage plants, which is 183 times Germany’s current capacity, would nevertheless be huge. Taking the volatility of demand into account would further increase storage needs, and managing demand by way of peak-load pricing would only marginally reduce the storage capacity required. Thus, only a buffering strategy based on dual structures, i.e. conventional energy filling the gaps left in windless and dark periods, seems feasible. Green and fossil plants would then be complements, rather than substitutes, contrary to widespread assumptions. Unfortunately, however, this buffering strategy loses its effectiveness when wind and solar production overshoots electricity demand, which happens beyond coverage of about a third of aggregate electricity production. Voluminous, costly and inefficient storage devices will then be unavoidable. This will make it difficult for Germany to pursue its energy revolution beyond merely replacing nuclear fuel towards a territory where it can also crowd out fossil fuel.
    JEL: Q4
    Date: 2016–07
  5. By: Frank A. Wolak
    Abstract: Hourly plant-level wind and solar generation output and real-time price data for one year from the California ISO control area is used to estimate the vector of means and the contemporaneous covariance matrix of hourly output and revenues across all wind and solar locations in the state. Annual hourly output and annual hourly revenues mean/standard deviation efficient frontiers for wind and solar resource locations are computed from this information. For both efficient frontiers, economically meaningful differences between portfolios on the efficient frontier and the actual wind and solar generation capacity mix are found. The relative difference is significantly larger for aggregate hourly output relative to aggregate hourly revenues, consistent with expected profit-maximizing unilateral entry decisions by renewable resource owners. Most of the hourly output and hourly revenue risk-reducing benefits from the optimal choice of locational generation capacities is captured by a small number of wind resource locations, with the addition of a small number of solar resource locations only slightly increasing the set of feasible portfolio mean and standard deviation combinations. Measures of non-diversifiable wind and solar energy and revenue risk are computed using the actual market portfolio and the risk-adjusted expected hourly output or hourly revenue maximizing portfolios.
    JEL: Q2 Q4 Q5
    Date: 2016–08
  6. By: Frédéric Branger; Jean-Pierre Ponssard; Oliver Sartor; Misato Sato
    Abstract: It is well known that discontinuous jumps or thresholds in tax or subsidies are socially inefficient, because they create incentives to make strategic behavioural changes that lead to substantial increases in private benefits. This paper investigates these distortions in the context of the EU Emissions Trading Scheme, where activity level thresholds (ALTs) were introduced in Phase 3 to reduce the overallocation of free allowances to low-activity installations. Using installation-level data, we find evidence that cement producers indeed respond to such thresholds when confronted with low demand, by strategically adjusting output to obtain more free allocation. We estimate that in 2012, ALTs induced excess cement clinker production of 6.4 Mt (5% of total EU output), and in affected regions this further distorted trade patterns and reversed carbon intensity improvements. As intended, ALTs reduced free allocation by 4%; however, a linear scheme (output-based allocation) would have achieved a 32% reduction.
    Keywords: activity level thresholds; carbon trading; cement; EU ETC; free allowance allocation
    JEL: D24 H23 L23 L61
    Date: 2015–09
  7. By: Elena Verdolini; Francesco Vona; David Popp
    Abstract: The diffusion of renewable energy in the power system implies high supply variability. Lacking economically viable storage options, renewable energy integration has so far been possible thanks to the presence of fast-reacting mid-merit fossil-based technologies, which act as back-up capacity. This paper discusses the role of fossil-based power generation technologies in supporting renewable energy investments. We study the deployment of these two technologies conditional on all other drivers in 26 OECD countries between 1990 and 2013. We show that a 1% percent increase in the share of fast-reacting fossil generation capacity is associated with a 0.88% percent increase in renewable in the long run. These results are robust to various modifications in our empirical strategy, and most notably to the use of system-GMM techniques to account for the interdependence of renewable and fast-reacting fossil investment decisions. Our analysis points to the substantial indirect costs of renewable energy integration and highlights the complementarity of investments in different generation technologies for a successful decarbonization process.
    JEL: O33 Q42 Q48 Q55
    Date: 2016–07
  8. By: Baker, Erin; Bosetti, Valentina; Salo, Ahti
    Abstract: We address the problem of choosing a portfolio of policies under “deep uncertainty.” We introduce the idea of belief dominance as a way to derive a set of non-dominated portfolios and robust individual alternatives. Our approach departs from the tradition of providing a single recommended portfolio; rather, it derives a group of good portfolios. The belief dominance concept allows us to synthesize multiple expert- or model- based beliefs by uncovering the range of alternatives that are intelligent responses to the range of beliefs. This goes beyond solutions that are optimal for any specific set of beliefs to uncover other defensible solutions that may not otherwise be revealed. We illustrate our approach using an important problem in the climate change and energy policy context: choosing among clean energy technology R&D portfolios. We demonstrate how the belief dominance concept can reveal portfolios and alternatives that would otherwise remain uncovered.
    Keywords: Deep Uncertainty, Decision Making under Uncertainty, Robust, Dominance, Risk and Uncertainty, D8, D78, D81,
    Date: 2016–07–31
  9. By: Christopher Severen; Christopher Costello; Olivier Deschenes
    Abstract: The hedonic pricing method is one of the fundamental approaches used to estimate the economic value of attributes that affect the market price of an asset. In environmental economics, such methods are routinely used to derive the economic valuation of environmental attributes such as air pollution and water quality. For example, the Ricardian approach is based on a hedonic regression of land values on historical climate variables. Forecasts of future climate can then be employed to estimate the future costs of climate change. This extensively-applied approach contains an important implicit assumption that current land markets ignore current climate forecasts. While this assumption was defensible decades ago (when this literature first emerged), it is reasonable to hypothesize that information on climate change is so pervasive today that markets may already price in expectations of future climate change. We show how to account for this with a straightforward empirical correction (called the Forward-Looking Ricardian Approach) that can be implemented with readily available data. We apply this empirically to agricultural land markets in the United States and find evidence that these markets already are accounting for climate change forecasts. Failing to account for this would lead a researcher to understate climate change damages by 36% to 66%.
    JEL: Q12 Q50 Q51 Q54
    Date: 2016–07
  10. By: John J. García,; Jhonny Moncada
    Abstract: El mecanismo de fijación del precio de oferta en el mercado eléctrico colombiano exhibe comportamientos estratégicos inherente a la estructura oligopólica de este mercado, no solo por su alto porcentaje hidrológico, aproximadamente 80%, sino también debido a la localización geográfica de las plantas de generación eléctrica cercanas a la Región Andina. En esta investigación se diseña una matriz de pesos espaciales, que recoge características de la localización geográfica de las plantas de generación eléctrica, la cual se incorpora en un panel espacial de tipo Durbin para identificar dichos comportamientos de la geografía económica, además de las variables fundamentales que explican la formación del precio en este mercado.
    Keywords: Precios de oferta, Mercado spot eléctrico, Panel Espacial, Colombia
    JEL: C23 D43 L25
    Date: 2016–07–01
  11. By: Dasgupta, Dipak; Espagne, Etienne; Hourcade, Jean-Charles; Minzer, Irving; Nafo, Seyni; Perissin-Fabert, Baptiste; Robins, Nick; Sirkis, Alfredo
    Abstract: Finance has been critical to the development of interest and momentum concerning the Paris Agreement, which emerged from COP21. However, a quick scan of the accord could lead many to derive a disappointing picture because of the absence of practical commitments to financial devices that can limit the risks of climate change. We support the opposite view that the text marks a new departure by committing countries to “making financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development ». This was matched by parallel developments such as the Financial Stability Board’s launch of a new Task Force on climate disclosure. We argue that, further steps now need to be taken within the broader context of financing the new model of prosperity laid out in the UN Sustainable Development Goals (UN, September 2015). At a time of increasing financial uncertainty and inadequate investment in the real economy, putting in place a framework for financing the transition to a low-carbon, resilient model of development is now an economic imperative – and an immense opportunity. Mitigating the systemic risks of climate change while putting the global financial system on a path toward balanced and sustainable development, is in the long-term strategic interests of both industrialized and developing countries and we suggest what practical steps can be accomplished in a near future in this direction.
    Keywords: COP 21, Paris Agreement, Climate Finance, Environmental Economics and Policy, Q5, Q58, F53,
    Date: 2016–07–31
  12. By: Prosperi, Maurizio; Lopolito, Antonio
    Abstract: Agroenergy, a relatively simple and mature technology to convert biomass into heat and electric energy, may represent a good opportunity to introduce the biorefinery schemes in rural areas. However, to guarantee the feasibility of new investments in this innovative sector, the commitment of all relevant players, and the sharing of their embedded knowledge of local conditions will play a crucial role. In this paper, we propose a modified neural network model to analyse the knowledge extracted from different groups of actors, in order to prevent the definition of strategic plans which may not be not fully consistent. We propose a methodology to support the strategic planning of the agroenergy innovation deployment in rural areas, based on the logical framework of the SWOT analysis, through which the most relevant factors affecting the expectations of local informed actors are identified. Subsequently, a modified multilayered feed-forward neural network is proposed to analyse the qualitative data, in order to verify their consistency. The results obtained from a case study in the province of Foggia (Italy) show that the level of consistency between the perceived factors affecting the deployment of the technology and the expectations towards the successful adoption of agroenergy at local level may vary depending on the degree of involvement and commitment of local players. This may represent a relevant issue for the definition of long-term strategic planning.
    Keywords: embedded knowledge, multilayered feed-forward neural networks, SWOT analysis, agroenergy, strategic planning, Agricultural and Food Policy, Research and Development/Tech Change/Emerging Technologies, D83, O32, Q42,
    Date: 2016–06–17
  13. By: Gregory F. Nemet; Martina Kraus; Vera Zipperer
    Abstract: Moving non-incremental innovations from the pilot scale to full commercial scale raises questions about the need and implementation of public support. Heuristics from the literature put policy makers in a dilemma between addressing a market failure and acknowledging a government failure: incentives for private investments in large scale demonstrations are weak (the valley of death) but the track record of governance in large demonstration projects is poor (the technology pork barrel). We reassess these arguments in the literature, particularly as to how they apply to sup- porting demonstration projects for decarbonizing industry. Conditions for the valley of death exist with: low appropriability, large chunky investments, unproven reliability, and uncertain future markets. We build a data set of 511 demonstration projects in nine technology areas and code characteristics for each project, including timing, motivations, and scale. We argue that the literature and the results from the case studies have five main implications for policy makers in making decisions about demonstration support. Policy makers should consider: 1) prioritizing learning, 2) iterative upscaling, 3) private sector engagement, 4) broad knowledge dissemination, and 5) making demand pull robust.
    Keywords: Demonstrations, technology push, demand pull
    JEL: Q55 O31 O38
    Date: 2016
  14. By: Ondrej Filip (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic); Karel Janda (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; University of Economics, Prague, Czech Republic); Ladislav Kristoufek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic); David Zilberman (University of California, Berkeley, United States of America)
    Abstract: We show that three factors combine to explain the mean excess sensitivity reported in studies estimating consumption Euler equations: the use of macro data, publication bias, and liquidity constraints. When micro data are used, publication bias is corrected for, and the households under examination do not face liquidity constraints, the literature implies no evidence for the excess sensitivity of consumption to income. Hence little remains for pure rule-of-thumb behavior. The results hold when we control for 45 additional variables reflecting the methods employed by researchers and use Bayesian model averaging to account for model uncertainty. The estimates of excess sensitivity are also systematically affected by the order of approximation of the Euler equation, the treatment of non-separability between consumption and leisure, and the choice of proxy for consumption.
    Keywords: biofuels, prices, minimum spanning tree, wavelet coherenc
    JEL: C22 C38 Q16 Q42
    Date: 2016–07
  15. By: Strazzera, Elisabetta; Statzu, Vania
    Abstract: The present study aims at assessing dairy farmers’ preferences over different technological options related to the anaerobic digestion technology. A Choice Experiment study was conducted in Arborea, a NVZ dairy district located in Sardinia, Italy. The results show that profitability of the investment is a general driver of the choice. Heterogeneity of preferences is observed, especially as regards the options of investment on-farm or off-farm. Farmers who are especially interested in an investment on-farm are characterized by higher awareness of energy issues; while farmers with excess waste load would prefer an off-farm investment. Digestate treatment options have practically been ignored in our choice experiments: farmers do not seem aware of the opportunities offered by further processing of the digestate to improve management of the farm waste. New regulations associated with the Circular Economy EU package could increase the farmers’ perception of economic benefits associated with the adoption of anaerobic digestion technologies.
    Keywords: choice experiment, random parameter logit, anaerobic digestion, nitrates directive, Agribusiness, Resource /Energy Economics and Policy, Q16, C35, Q42,
    Date: 2016–06

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