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on Regulation |
| By: | Per J. Agrell; Mehdi Farsi; Massimo Filippini; Martin Koller |
| Abstract: | The purpose of this study is to analyze the cost efficiency of electricity distribution systems in order to enable regulatory authorities to establish price- or revenue cap regulation regimes. The increasing use of efficiency analysis in the last decades has raised serious concerns among regulators and companies regarding the reliability of efficiency estimates. One important dimension affecting the reliability is the presence of unobserved factors. Since these factors are treated differently in various models, the resulting estimates can vary across methods. Therefore, we decompose the benchmarking process into two steps. In the first step, we identify classes of similar companies with comparable network and structural characteristics using a latent class cost model. We obtain cost best practice within each class in the second step, based on deterministic and stochastic cost frontier models. The results of this analysis show that the decomposition of the benchmarking process into two steps has reduced unobserved heterogeneity within classes and, hence, reduced the unexplained variance previously claimed as inefficiency. |
| Keywords: | Efficiency analysis, cost function, electricity sector, incentive regulation |
| JEL: | L92 L50 L25 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:chc:wpaper:0038&r=reg |
| By: | Hélène Le Cadre (CMA - Centre de Mathématiques Appliquées - MINES ParisTech - École nationale supérieure des mines de Paris); David Mercier (CEA, LIST - CEA) |
| Abstract: | In this article, we consider houses belonging to an eco-neighborhood in which inhabitants have the capacity to optimize dynamically the energy demand and the energy storage level so as to maximize their utility. The inhabitants' preferences are characterized by their sensitivity toward comfort versus price, the optimal expected temperature in the house, thermal loss and heating efficiency of their house. At his level, the eco-neighborhood manager shares the resource produced by the eco-neighborhood according to two schemes: an equal allocation between the houses and a priority based one. The problem is modeled as a stochastic game and solved using stochastic dynamic programming. We simulate the energy consumption of the eco-neighborhood under various pricing mechanisms: flat rate, peak and off-peak hour, blue/white/red day, peak day clearing and a dynamic update of the price based on the consumption of the eco-neighborhood. We observe that economic incentives for houses to store energy depend deeply on the implemented pricing mechanism and on the homogeneity in the houses' characteristics. Furthermore, when prices are based on the consumption of the eco-neighborhood, storage appears as a compensation for the errors made by the service provider in the prediction of the consumption of the eco-neighborhood. |
| Keywords: | Eco-Neighborhood; Planning; Stochastic game theory; Energy storage; Pricing |
| Date: | 2013–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00758916&r=reg |
| By: | Donald N. Dewees |
| Abstract: | Economic evaluation of green or renewable power should compare the cost of renewable power with the cost savings from displaced fossil generation plus the avoided harm from reduced emissions of air pollution and greenhouse gases. We use existing estimates of the values of the harm and we calculate cost savings from renewable power based on wholesale spot prices of power in Ontario and steady-state estimates of the cost of new gas generation to estimate the value or affordability of various forms of renewable power in Ontario. We find that timing matters in evaluating intermittent renewable sources. Considering air pollution and greenhouse gases we find that coal generation is dominated by natural gas, supporting Ontario's policy of ending coal generation by 2014. Renewable power thus displaces gas. Dispatchable renewable generation sources, such as many biogas, biomass and some hydroelectric sites cause savings and reduced harm that can justify some of the Ontario Feed-in-Tariff prices up to $130/MWh; other FIT prices are too high. Wind and solar power are variable, so the value of their power depends on system marginal costs when they generate. Wind's displacement of gas capacity is low because it cannot be depended upon when demand is high and generation is needed, so it justifies prices of only $60 to $95/MWh, less than the FIT price of $115. Solar power justifies higher prices than wind, up to $152/MWh because solar generates in the daytime when prices are higher and when solar can fairly reliably displace gas capacity. Still, solar power falls far short of justifying the 2012 Ontario FIT prices of $347 to $549/MWh. Ontario's Feed-in-Tariff program costs more than necessary to achieve its environmental goals. |
| Keywords: | renewable energy, green energy, wind power, solar power, air pollution harm, greenhouse gases, feed-in-tariff, electricity generation externalities |
| JEL: | L94 Q42 Q51 Q52 Q53 Q54 Q58 |
| Date: | 2013–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-478&r=reg |
| By: | Bruno Amable (Centre d'Economie de la Sorbonne, CEPREMAP, Institut Universitaire de France); Ivan Ledezma (Université Paris Dauphine et IRD/DIAL - UMR 225) |
| Abstract: | This paper analyses the impact of product market regulation on the propensity to export at the industry level for 13 OECD countries and 13 industries over the 1977-2007 period. Recent economic policy and academic literature insists on the negative effects of product market regulation on productivity or innovation, and hence on “competitiveness”, a term that we interpret as the ability to export. Similar to the conclusions of some contributions to a recent literature on competition and growth, the “common sense” is that product market regulation should be detrimantal to competitiveness. Testing through a two-step estimation the impact of upstream pressures of product market regulation on productivity and the effect of the latter on the propensity to export, this paper shows that upstream regulatory pressures have a significantly positive impact on productivity and thereby on the capability of an industry to attract resources and to sell its production in international markets. |
| Keywords: | Exports, product market regulation, competitiveness. |
| JEL: | F14 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:13010&r=reg |
| By: | Pittman, Russell; Choi, Sunghee |
| Abstract: | South Korea, like many countries, is engaged in a policy debate concerning possible railways reforms. However, unlike most countries, here the focus of discussion has been the government’s proposal to open high-speed passenger train lines to a second train company that would supply on-track competition to KTX trains. While such a policy may indeed lead to lower fares and greater efficiency, worldwide experience casts doubt on the government’s hope that it would lead to such dramatic increases in ridership that the level of subsidies to the overall rail system could be reduced. We argue that a more promising reform strategy may be to introduce competition into freight rail. Based on the Latin American experience, creating independent, vertically integrated, competing freight railway companies could be expected not only to lower shipper rates and increase efficiency but also to raise considerable revenues from the private sector in franchising fees and new investments. |
| Keywords: | railways, restructuring, competition, South Korea |
| JEL: | L9 L92 O1 O18 R4 R48 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44992&r=reg |
| By: | Georg Zachmann |
| Abstract: | Being able to transport electricity seamlessly across borders is essential for achieving three major European Union energy policy goals: (1) enabling competition between national energy companies, (2) cost-effective roll-out of renewables,and (3) security of supply. However, neither the market design nor the framework for infrastructure investment proposed by the European Commission is adequate for enabling free flows of electricity within the EU. We propose that first, vertical unbundling needs to be completed. Second, to ensure the reliable operation of the meshed European electricity system a European control centre should be established. Third, a truly European and binding network infrastructure planning process should be established. It should be transparent and open in order to ensure the synchronisation of investment.The outcome should be democratically legitimised. Finally, networks should be joint-funded by all benefiting parties, not just consumers that happen to live in the member state where a particular line is being built. Without a bold step the single energy market project risks falling short in theface of increased penetration of intermittent renewable sources |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:772&r=reg |
| By: | Vincent van den Berg (VU University Amsterdam) |
| Abstract: | Consider a government tendering the right to operate, for example, an airport, telecommunication network, or utility. There is an 'incumbent bidder' who owns a complement or substitute facility, and one entering 'new bidder'. With a 'standard auction' on the payment to the government, the incumbent is willing to bid higher than its expected profit from the facility as winning implies that it is a monopolist instead of a duopolist. The incumbent is therefore more likely to win. However, it tends to have a lower expected surplus unless the new bidder can never win, which occurs with 'private values' when the facilities are strong complements or substitutes and always with 'common values'. The 'standard auction' leads to an unregulated outcome which hurts consumers as tendered facilities tend to have limited competition. The government could improve the outcome by endogenously regulating using a 'price auction' on the price to be a sked to consumers. Now, it depends who is advantaged: with complements, the incumbent bids below its marginal cost and is more likely to win; with substitutes, it bids above and is less likely to win. The same effects occur in auctions on service quality or number of users. In many settings, the advantaged bidder always wins, and this can greatly affect the competition for the field. |
| Keywords: | tendering; overbidding; advantaged bidders; network markets |
| JEL: | D43 D44 L51 R42 |
| Date: | 2013–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130033&r=reg |
| By: | Christopher R. Knittel; Ryan Sandler |
| Abstract: | A basic tenet of economics posits that when consumers or firms don't face the true social cost of their actions, market outcomes are inefficient. In the case of negative externalities, Pigouvian taxes are one way to correct this market failure, where the optimal tax leads agents to internalize the true cost of their actions. A practical complication, however, is that the level of externality nearly always varies across economic agents and directly taxing the externality may be infeasible. In such cases, policy often taxes a product correlated with the externality. For example, instead of taxing vehicle emissions directly, policy makers may tax gasoline even though per-gallon emissions vary across vehicles. This paper estimates the implications of this approach within the personal transportation market. We have three general empirical results. First, we show that vehicle emissions are positively correlated with vehicle elasticities for miles traveled with respect to fuel prices (in absolute value)—i.e. dirtier vehicles respond more to fuel prices. This correlation substantially increases the optimal second-best uniform gasoline tax. Second, and perhaps more importantly, we show that a uniform tax performs very poorly in eliminating deadweight loss associated with vehicle emissions; in many years in our sample over 75 percent of the deadweight loss remains under the optimal second-best gasoline tax. Substantial improvements to market efficiency require differentiating based on vehicle type, for example vintage. Finally, there is a more positive result: because of the positive correlation between emissions and elasticities, the health benefits from a given gasoline tax increase by roughly 90 percent, compared to what one would expect if emissions and elasticities were uncorrelated. |
| JEL: | H21 H23 L91 Q48 Q51 Q52 Q53 Q54 Q58 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18849&r=reg |
| By: | Ioannis Tikoudis (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam); Jos N. van Ommeren (VU University Amsterdam) |
| Abstract: | This paper explores the interactions between congestion pricing and a tax-distorted labor market within a monocentric urban equilibrium model. We compute the efficiency gains of various second-best policies, i.e. combinations of toll schemes and revenue recycling programs, with a predetermined level of public revenue. We find that 35% of the space-varying road tax does not reflect marginal external congestion costs, but rather functions as a Ramsey-Mirrlees tax, i.e. an efficiency enhancing mechanism allowing space differentiation of the labor tax. Such a space-varying tax adds a quite different motivation to road pricing, since it can produce large welfare gains even in the absence of congestion. We show that both a cordon toll and a flat kilometer tax achieve over 80% of these gains when combined with specific types of revenue recycling, such as labor tax cuts or public transport subsidies. Sensitivity analysis shows that the optimal type of revenue recycling depends on the level of inefficiency in the provision of public transport prior to the introduction of congestion pricing. |
| Keywords: | Second-best road pricing; revenue recycling; monocentric city |
| JEL: | R41 R48 H23 H76 J20 R13 R14 |
| Date: | 2013–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130031&r=reg |
| By: | Boying Liu; Ana Espinola-Arredondo (School of Economic Sciences, Washington State University) |
| Abstract: | This paper investigates under which conditions a regulator can strate- gically set an emission fee as a tool to induce a domestic firm to adopt a non-polluting technology and deter entry. We consider a market in which a monopolistic incumbent faces the threat of entry from firms that can choose between a dirty and a green technology. Our results show that, despite the fact of facing a polluting incumbent, an entrant might find it profitable to acquire a clean technology if the environmental tax is strin- gent enough. In addition, we demonstrate that an incumbent that adopts a clean technology is more likely to deter entry than an incumbent that keeps its dirty technology. Finally, we also show that a non-polluting duopoly market, in which all firms acquire clean technology, is socially preferred to a non-polluting monopoly market if the green technology cost is sufficiently low. However, if the clean technology becomes more expensive it may be socially optimal to have a polluting duopoly market in which only one firm adopts the green technology. |
| Keywords: | Technology Adoption; Market Structure; Emission Tax |
| JEL: | H23 L12 Q58 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:espinola-14&r=reg |