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on Regulation |
| By: | Luciano Greco (University of Padova); Fabio Manenti (University of Padova) |
| Abstract: | In a simple model of network industry, where an upstream monopolist provides an essential input for downstream service supply, we analyze the competitive settings arising in the downstream market under alternative regulatory frameworks; we combine structural (i.e. vertical integration, functional/ownership separation) and conduct (discriminatory and nondiscriminatory access) regulatory remedies. Downstream firms are characterized by different levels of cost efficiency in the provision of the service. We show that the degree of heterogeneity in firmsÕ cost efficiency is critical to the determination of the amount of competition that emerges in the downstream market, and of the efficiency of the industry. We show that i) when downstream firms are significantly heterogenous, discriminatory access fees may be socially desirable and ii) vertical integration is always socially preferable. |
| Keywords: | Vertical Integration, Functional Separation, Ownership Separation, Regulation, Discriminatory Access Fees. JEL: L13, L22, L44 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0162&r=reg |
| By: | rondi, laura; cambini, carlo; bremberger, francisca; gugler, klaus |
| Abstract: | We study the impact of different regulatory contracts of electricity companies on their dividend policy. Using a panel of 106 publicly traded European electric utilities in the period 1986-2011 we link dividend pay-out and smoothing ratios to the implementation of different regulatory mechanisms (cost plus vs. incentive regulation) and also to firm ownership. After controlling for the potential endogeneity of the regulatory mechanism, our results show that electric utilities subject to incentive regulation smooth their dividends less than firms subject to cost plus regulation but also present higher target payout ratios; thus suggesting that incentive regulation leads firms to a dividend policy more responsive to earnings variability and more consistent with efficiency-enhancing pressures. This suggests that when managers are more sensitive to competition-like efficiency pressures following the adoption of incentive regulation, they are more inclined to cut dividends when necessary. These results seem to apply in particular to incentive regulated firms when they are privately controlled. |
| Keywords: | Dividends, Lintner model, regulation, energy industry, price cap, incentive regulation |
| JEL: | G35 G38 L51 L94 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:48043&r=reg |
| By: | Bryan, Jeffrey; Lange, Ian; MacDonald, Alexander |
| Abstract: | The UK government introduced the Renewable Obligation (RO), a system of tradable quotas, to encourage the installation of renewable electricity capacity. Each unit of generation from renewables created a renewable obligation certificate (ROC). Electricity generators must either; earn ROCs through their own production, purchase ROCs in the market or pay the buy-out price to comply with the quota set by the RO. A unique aspect of this regulation is that all entities holding ROCs receive a share of the buy-out fund (the sum of all compliance purchases using the buy-out price). This set-up ensures that the difference between the market price for ROCs and the buy-out price should equal the expected share of the buy-out fund, as regulated entities arbitrage these two compliance options. The expected share of the buy-out fund depends on whether enough renewable generation is available to meet the quota. This analysis tests whether variables associated with renewable generation or electricity demand are correlated with, and thus can help predict, the price of ROCs. |
| Keywords: | Electricity; Arbitrage; Renewable Obligation |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:stl:stledp:2013-08&r=reg |
| By: | Marc Bourreau; Cambini Steffen |
| Abstract: | We analyse competition between vertically-integrated operators who build infrastructure and provide access in different geographical areas. Under full commitment, the regulator sets socially-optimal access rates that depend on the local degree of infrastructure competition. If he can only commit to implementing a single access price, the regulator can impose a uniform access price or deregulate access in competitive areas. While uniform access pricing leads to suboptimal investment, deregulation can spur investment. Still, deregulation is not an ideal solution to the commitment problem, as it tends to involve multiple and inefficient equilibria at the wholesale level, with either too little or too much investment. |
| Keywords: | Next generation networks, Infrastructure investment, Geographical access regulation, Deregulation |
| JEL: | L51 L96 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2013/28&r=reg |
| By: | Ambec, S.; Garapin, A.; Muller, L.; Reynaud, A.; Sebi, C. |
| Abstract: | In a laboratory experiment we test the three regulations imposed on a common-pool resource game with heterougeneous users: an access fee and subsidy scheme, transferable quotas and non transferable quotas? We calibrate the game so that all regulations improve users' profits compared to free-access extraction. We compare the regulations according to five criteria: resource preservation, individual profits, profit difference, Pareto-improvement from free-access and sorting of the most efficient users. One of the main findings is that, even though it performs better in sorting out the most efficient subjects, the fee and subsidy scheme is not the more profitable than tradable quotas. |
| Keywords: | COMMON-POOL RESOURCE;REGULATION;QUOTA;PERMIT;TAX |
| JEL: | C91 Q28 Q38 Q58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:gbl:wpaper:2013-07&r=reg |
| By: | Arjan Ruijs (PBL Netherlands Environmental Assessment Agency); Herman Vollebergh (PBL Netherlands Environmental Assessment Agency, CentER and Tilburg Sustainability Centre, Tilburg University) |
| Abstract: | Since 1997 the Netherlands has a tax allowance scheme introduced to promote investments in energy saving technologies and sustainable energy production. This Energy Investment Tax Allowance (EIA in Dutch) reduces up-front investment costs for firms investing in the newest energy saving and sustainable energy technologies. The basic design of the EIA has remained the same over the past 15 years. Firms investing in technologies listed in the annually updated ‘Energy List’ may deduct some of the investment costs from their taxable profits. The EIA may also reduce search costs by investors to find particular technologies because of the Energy List which is used to consider eligibility for the subsidy. This Energy List contains generic technologies that meet a certain energy-saving standard or a selection of novel, but proven, technologies with a higher energy-saving potential than conventional technologies. Over the past 15 years, the use of the EIA has been affected by a number of changes, mainly due to exogenous factors, such as interactions with other policy instruments, rising oil and gas prices, and the economic crisis since 2007. Despite this turbulence and changes in government focus, the EIA is still part of the Dutch energy policy mix. Our evaluation of the EIA contains four lessons. First, the use of tax revenues to subsidise investment in energy-efficient technologies and renewable energy is not very different from using on-budget subsidies if budgetary rules require sufficient accountability of such tax expenditures. At the beginning of the scheme, a lack of accountability of tax expenditures contributed to budgetary turbulence. A number of budget overruns in later periods were not related to budget accountability issues, but to changes outside the EIA. Second, incentive compatibility problems of the EIA are of concern but seem to be manageable. The main weakness of the tax allowance is the difficulty to prevent free-riders from receiving subsidies, even though subsidy effectiveness has improved considerably over the years. Third, the use of a dynamic technology list makes the regulation flexible, allowing policy to refocus and apply tighter standards if necessary. The list also reduces the information asymmetry between supply and demand of new technologies and helps suppliers of energy-saving or sustainable energy technologies to overcome the well-known ‘valley of death’. Finally, the design of a subsidy scheme should pay sufficient attention to the likely interaction with other policy instruments, in particular other subsidy schemes aimed at complementary objectives. The turbulence with the EIA over the 2001–2007 period was mainly caused by fluctuations in the application of other instruments. |
| Keywords: | Energy Efficiency, Renewable Energy, Investment, Tax, Tax Preference, Policy Evaluation |
| JEL: | H23 H25 H32 O33 Q48 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2013.56&r=reg |
| By: | Randall S. Jones; Myungkyoo Kim |
| Abstract: | The 2011 disaster and nuclear problems opened the door to a new energy policy, as they raised fundamental questions about the electricity system’s ability to prevent and respond to accidents. In particular, the system has had difficulty coping with the shortages caused by the accident and the suspension of operations of nuclear power plants. Addressing these problems requires creating a more competitive electricity sector by reducing the dominance of the ten regional monopolies through ownership unbundling of generation and transmission and by expanding the wholesale market. It is also important to increase interconnection capacity, while introducing real-time pricing. The reduced role of nuclear power following the Fukushima accident makes it necessary to accelerate the expansion of renewable energy, which requires setting a sufficiently high and consistent price for carbon. Finally, the government should ensure the independence of the new Nuclear Regulatory Agency and create an independent regulator for the electricity sector to promote competition. This Working Paper relates to the 2013 OECD Economic Survey of Japan (www.oecd.org/eco/surveys/japan)<P>Restructurer le secteur électrique et favoriser la croissance verte au Japon<BR>La catastrophe naturelle et nucléaire de 2011, parce qu’elle a posé des questions fondamentales concernant la capacité du système électrique d’éviter et de réagir à des accidents, a ouvert la voie à l’élaboration d’une nouvelle politique énergétique. Ce système notamment n’a pu sans mal gérer les pénuries d’électricité provoquées par l’accident et par la suspension de l’exploitation des centrales nucléaires. S’attaquer à ces faiblesses nécessite la création d’un secteur de l’électricité plus concurrentiel, en atténuant la position dominante des dix monopoles régionaux ; pour cela, il faut dissocier la production du transport et dynamiser le marché de gros. Également, il est important d’augmenter les capacités d’interconnexion, tout en introduisant la tarification en temps réel. L’énergie nucléaire ayant un rôle moins important depuis l’accident de Fukushima, le Japon doit accélérer le développement des énergies renouvelables, ce qui impose de fixer un prix suffisamment élevé et cohérent pour le carbone. Enfin, le gouvernement doit assurer l’indépendance de la nouvelle Autorité de sûreté nucléaire et créer une autorité de régulation indépendante pour le secteur de l’électricité afin de stimuler la concurrence. Ce Document de travail a trait à l’Étude économique de l’OCDE du Japon, 2013 (www.oecd.org/eco/etudes/japon). |
| Keywords: | renewable energy, energy efficiency, Japanese economy, emissions trading system, nuclear power, electricity sector, electricity shortages, ownership unbundling, wholesale electricity market, interconnection, real-time price, feed-in-tariffs, energy conservation, regional electricity monopolies, économie japonaise, système d’échange de droits d’émissions, énergies renouvelables, efficacité énergétique, énergies nucléaire, secteur de l’électricité, marché de l’électricité de gros, interconnexion, tarification en temps réel, tarifs d’achat garantis, monopoles régionaux de l’électricité |
| JEL: | Q40 Q41 Q42 Q48 |
| Date: | 2013–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1069-en&r=reg |
| By: | Claire Bergaentzlé (PACTE - Politiques publiques, ACtion politique, TErritoires - Institut d'Études Politiques [IEP] - Grenoble - CNRS : UMR5194 - Université Pierre-Mendès-France - Grenoble II - Université Joseph Fourier - Grenoble I); Cédric Clastres (PACTE - Politiques publiques, ACtion politique, TErritoires - Institut d'Études Politiques [IEP] - Grenoble - CNRS : UMR5194 - Université Pierre-Mendès-France - Grenoble II - Université Joseph Fourier - Grenoble I) |
| Abstract: | Smart Grid technology appears necessary to succeed in activating the demand through demand side management (DSM) programs. This would in turn improve energy efficiency and achieve environmental targets through controlled consumption. The many pilot projects led worldwide involving smart grids technology, brought quantitative evaluations of DSM measures on electricity load. Efficient DSM instruments must be fine tuned to respond to very specific issues arising from the generation mix, the integration of intermittent energies or the level of outage risks faced during peak period. Efficient DSM strategies are illustrated through a model involving five countries that carry these different features and under the assumptions of isolated and fully interconnected markets. This paper aims at bringing recommendations regarding the instruments that should be implemented to maximize the benefits of smart grids technology and demand response. Finally, it tends to emphasis the issue of homogenized energy efficiency policies, critical in the building of internal energy markets such as the one the European Union is envisioning. |
| Keywords: | Demand-Side Management ; Dynamic Pricing ; Generation Mix ; Isolated Market ; Integrated market |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00839116&r=reg |
| By: | Miguel Vazquez; Michelle Hallack |
| Abstract: | Gas-fired power plants are increasingly used in the production of electricity, which in turn makes them a relevant part of the gas demand. In this paper, we investigate whether the current designs of gas and power markets are robust to the relatively new link between industries. Specifically, we study the cross-industry efficiency losses associated with designs aimed at increasing liquidity by limiting the amount of network services allocated through markets. In the short run, reducing the set of transmission services priced in one market (say gas) affects the use of transmission in the other market (say power). This may result in inefficiencies that should be accounted for when deciding on the network services to be allocated through market arrangements in each industry. We also identify long-term effects of such design strategies: the allocation of gas pipeline storage and transmission services without preference representation may weaken localization signals for power plants investment. In addition, lack of harmonization of market designs may raise barriers to network investment. |
| Keywords: | Market design, Gas and power interaction, Network economics. |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2013/42&r=reg |
| By: | Andrew C Worthington; Helen Higgs |
| Keywords: | wholesale spot electricity prices, generation mix, emission controls and taxation |
| JEL: | Q48 C33 D40 Q41 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:gri:fpaper:finance:201306&r=reg |
| By: | Eva Schliephake (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | Minimum capital requirement regulation forces banks to refund a substantial amount of their investments with equity. This creates a buffer against losses, but also increases the cost of funding. If higher refunding costs translate into higher loan interest rates, then borrowers are likely to become more risky, which may destabilize the lending bank. This paper argues that, in addition to the buffer and cost effect of capital regulation, there is a strategic effect. A binding capital requirement regulation restricts the lending capacity of banks, and therefore reduces the intensity of loan interest rate competition and increases the banks' price setting power as shown in Schliephake and Kirstein (2013). This paper discusses the impact of this indirect effect from capital regulation on the stability of the banking sector. It is shown that the enhanced price setting power can reverse the net effect that capital requirements have under perfect competition. |
| Keywords: | Capital Requirement Regulation, Competition; Financial Stabilityt |
| JEL: | G21 K23 L13 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:130012&r=reg |
| By: | Richard G. Newell; Juha V. Siikamäki |
| Abstract: | We evaluate the effectiveness of energy efficiency labeling in guiding household decisions. Using a carefully designed choice experiment with alternative labels, we disentangle the relative importance of different types of information and intertemporal behavior (i.e., discounting) in guiding energy efficiency behavior. We find that simple information on the economic value of saving energy was the most important element guiding more cost-efficient investments in energy efficiency, with information on physical energy use and carbon emissions having additional but lesser importance. The degree to which the current EnergyGuide label guided cost-efficient decisions depends importantly on the discount rate assumed. Using individual discount rates separately elicited in our study, we find that the current EnergyGuide label came very close to guiding cost-efficient decisions, on average. However, using a uniform five percent discount rate—which was much lower than the average elicited rate—the EnergyGuide label led to choices that result in a one-third undervaluation of energy efficiency. We find that labels that also endorsed a model (with Energy Star) or gave a suggestive grade to a model (EU-style label), encouraged substantially higher energy efficiency. Our results reinforce the centrality of views on intertemporal choice and discounting, both in terms of understanding individual behavior and in guiding policy. |
| JEL: | C91 D12 D83 D91 H43 Q41 Q48 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19224&r=reg |
| By: | Mauritzen, Johannes (Research Institute of Industrial Economics (IFN)) |
| Abstract: | An important challenge facing many deregulated electricity markets is dealing with the increasing penetration of intermittent generation. Simulation studies have pointed to the advantages of trading closer to real-time with large amounts of intermittent generation. Using Danish data, I show that, as expected, shortfalls increase the probability of trade on the shortterm market. But in the period studied between 2010 and 2012 surpluses are shown to decrease the probability of trade. This unexpected result is likely explained by wind power policies that discourages trading on Elbas and leads to unnecessarily high balancing costs. I use a rolling-windows regression to support this claim. |
| Keywords: | Wind power; Short-term markets; Forecasting error |
| JEL: | Q42 Q48 |
| Date: | 2013–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0969&r=reg |
| By: | Miguel Vazquez; Michelle Hallack |
| Abstract: | Strategic interaction between gas and electricity sectors is a major issue in the implementation of competitive energy markets. One relevant aspect of the problem is the potential for input foreclosure between gas and power industries. In this paper, we are concerned with situations where input foreclosure opportunities are associated with the choice of market design. In particular, we study input foreclosure in the case that the short-term capacity allocation mechanism of gas networks raises barriers to cross-border trade. In that situation, one may find gas markets that are isolated only in the short term. We explain players' ability to influence the electricity price using their gas decisions in those isolated markets. We also show that this should be a concern of EU capacity allocation mechanisms, which provide spatial flexibility in the short term to promote liquidity, at the cost of creating barriers to cross-border trade. Therefore, input foreclosure opportunities are additional costs to be taken into account when weighing benefits and drawbacks of European gas market designs. |
| Keywords: | Market design, Input foreclosure, Gas-power interaction, Network economics |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2013/41&r=reg |
| By: | Katrin Schmitz; Bjarne Steffen; Christoph Weber |
| Abstract: | Capacity remuneration mechanisms are a widespread instrument to foster investment. The growing interest in electricity storage raises the question how these mechanisms interact with storage plants. Using a stylized capacity planning model, we demonstrate that an exclusion of storage plants from capacity mechanisms leads to welfare losses. Even if storages are not explicitly excluded, the setup of capacity mechanisms can discriminate storage implicitly we therefore discuss typical mechanism design parameters and their impact on storage plants. Three case studies describe the actual situation of storage plants in the PJM system, Ireland and Spain. Finally the findings are summarized to general principles for storage-compatible capacity mechanisms. |
| Keywords: | capacity market, pumped-hydro storage, power plant investment |
| JEL: | L51 L52 L94 Q41 Q42 Q48 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2013/46&r=reg |
| By: | Diego Comin; Johannes Rode |
| Abstract: | We estimate the effect of the diffusion of photovoltaic (PV) systems on the fraction of votes obtained by the German Green Party. The logistic diffusion of PV systems offers a new identification strategy. We take first differences and instrument adoption rates (i.e. the first difference in the diffusion level) by lagged diffusion levels. The existing rationales for non-linearities in diffusion, and ubiquity of logistic curves ensure that our instrument is orthogonal to variables that directly affect voting patterns. We find that the diffusion of domestic PV systems caused 25 percent of the increment in green votes between 1998 and 2009. |
| JEL: | D72 O33 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19219&r=reg |
| By: | Strunz, Sebastian |
| Abstract: | In this paper, I use the resilience framework to interpret the project of transforming the German energy system into a renewable energy sources (RES)-based system, the so-called Energiewende, as a regime shift. This regime shift comprises several transformations, which are currently altering the technological, political and economic system structure. To build my argument, I first sketch how technological, political and economic developments reduced the resilience of the conventional fossil-nuclear energy regime and created a new RES-regime. Second, I depict recent changes in German public discourse and energy policy as the shift to the RES-regime. Third, I highlight challenges involved with increasing the resilience of the RES-regime. In particular, sufficient resilience of the electricity transmission grid appears to be crucial for facilitating the transformation of the whole energy system. -- |
| Keywords: | energy system,energy transition,regime shift,renewable energy sources,resilience |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ufzdps:102013&r=reg |