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on Regulation |
| By: | Gürkan, G.; Ozdemir, O.; smeers, Y. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: In competitive electricity markets, markets designs based on power exchanges where supply bidding (barring demand-side bidding) is at the sole short run marginal cost may not guarantee resource adequacy. As alternative ways to remedy the resource adequacy problem, we focus on three different market designs in detail when demand is inelastic, namely an energy-only market with VOLL pricing (or a price cap), an additional capacity market, and operating-reserve pricing. We also discuss demand-side bidding (i.e., a price responsive demand) which can be seen as a categorically different alternative to remedy the resource adequacy problem. We consider a perfectly competitive market consisting of three types of agents: generators, a transmission system operator, and consumers; all agents are assumed to have no market power. For each market design, we model and analyze capacity investment choices of firms using a two-stage game where generation capacities are installed in the first stage and generation takes place in future spot markets at the second stage. When future spot market conditions are assumed to be known a priori (i.e., deterministic demand case), we show that all of these two-stage models with different market mechanisms, except operating-reserve pricing, can be cast as single optimization problems. When future spot market conditions are not known in advance (i.e., under demand uncertainty), we essentially have a two-stage stochastic game. Interestingly, an equilibrium point of this stochastic game can be found by solving a two-stage stochastic program, in case of all of the market mechanisms except operating-reserve pricing. In case of operatingreserve pricing, while the formulation of an equivalent deterministic or stochastic optimization problem is possible when operating-reserves are based on observed demand, this simplicity is lost when operatingreserves are based on installed capacities. We generalize these results for other uncertain parameters in spot markets such as fuel costs and transmission capacities. Finally, we illustrate how all these models can be numerically tackled and present numerical experiments. In our numerical experiments, we observe that uncertainty of demand leads to higher total generation capacity expansion and a broader mix of technologies compared to the investment decisions assuming average demand levels. Furthermore for the same VOLL (or price cap) level and under the assumptions of random demand with finite support and no forced outages, energy-onlymarkets with VOLL pricing tend to lead to total generation capacity below the peak load with a certain probability whereas energy markets with a forward capacity market or operating-reserve pricing result in higher investments. Finally, the regulator decisions (e.g., reserve capacity target) in capacity markets and operating-reserve pricing can be chosen in such a way that results in very similar investment levels and fuel mix of generation capacities in b |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2013045&r=reg |
| By: | Marcelo Caffera; Carlos Chávez; Analia Ardente |
| Abstract: | We study individual compliance behavior with respect to a legal norm in an experimental setting under two different regulatory instruments: emission standards and tradable pollution permits. Compliance to the same set of standards and expected permit holdings was induced with different structures of the fine schedule, namely: a linear and a strictly convex penalty function. Even though our design induces perfect compliance, we find that there are violations in both emissions standards and tradable permits systems, regardless of the penalty structure. Nevertheless, the extent of violations is affected by the penalty parameters under emissions standards, but not under a tradable pollution permits. Notwithstanding, we find that the penalty design has an effect on the average price of permits traded, its dispersion and the number of trades. |
| Keywords: | Environmental policy, enforcement, penalty structure, emissions standards, emissions trading, laboratory experiments |
| JEL: | C91 L51 Q58 K42 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:mnt:wpaper:1305&r=reg |
| By: | Cleff, Thomas; Rennings, Klaus |
| Abstract: | Energy efficiency regulation is an important driver for innovations in environmental technologies. Improvements of energy efficiency do not only contribute to reach envi-ronmental policy targets, they can be furthermore economically profitable. E.g. private households can reduce their costs in the long term by using efficient household appli-ances. But how can the specific competitive position on this market be assessed for German producers, and how strong is the competitiveness from firms coming from emerging economies? We analyse - as an example - the global refrigerator market, using the lead market approach for environmental innovations. As our results show, Germany has the most lead market potentials for energy-efficient refrigerators, followed by Korea und Italy. First mover advantages for high-tech energy efficient appliances can be realised on the German market. This is backed by high en-ergy efficiency standards in Europe which diffuse after some years to other countries. Since the pay-off time for energy efficient household appliances is with 7 to 10 years quite long, also a cost strategy with low prices can be successful. Especially in the case when the price of electricity and the national income are low. Markets for such products are for example in Asia and Russia. Producers use the existence of both strategy options to operate with different brands and product lines in different market niches at the same time. For firms in countries that do not have sufficient lead market potentials, innovations in energy efficiency must be targeted to fit the preferences of users in the lead market. The screening of the lead market can take on varying degrees of intensity. A good way for a company to estab-lish ties with a lead market is via producers with long experience on the Lead Market. It can be realised through a simple sales cooperation with local producers or a merger with a local producer of the lead market. -- |
| Keywords: | Household appliances,energy efficiency,refrigerators,lead market,first mover |
| JEL: | Q55 O33 Q01 Q58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:13054&r=reg |
| By: | Gürkan, G.; Ozdemir, O.; smeers, Y. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: We analyze a two-stage game of strategic firms facing uncertain demand and exerting market power in decentralized electricity markets. These firms choose their generation capacities at the first stage while anticipating a perfectly competitive future electricity spot market outcome at the second stage; thus it is a closed loop game. In general, such games can be formulated as an equilibrium problem with equilibrium constraints (EPEC) and examples have been posed in the literature that have multiple or no equilibria. Therefore, it is of interest to define general sets of conditions under which solutions exist and are unique, which would enhance the value of such models for policy andmarket intelligence purposes. In this paper, we consider various types of such a closed loop model regarding the underlying price-demand relations (elastic and inelastic demand), the assumed demand uncertainty with a broad class of continuous distributions, and any finite number of players with symmetric or asymmetric costs. We establish sufficient conditions for the random demand’s probability distribution which guarantee existence and uniqueness of equilibria in most of the cases of this closed loop model. We identify a broad class of commonly used continuous probability distributions satisfying these conditions. |
| Keywords: | electricity markets;strategic generation investment modeling;demand uncertainty;existence and uniqueness of equilibrium. |
| JEL: | C62 C68 C72 D43 L94 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2013044&r=reg |
| By: | Mokinski, Frieder; Wölfing, Nikolas |
| Abstract: | We find an asymmetric pass-through of European Emission Allowance (EUA) prices to wholesale electricity prices in Germany and show that this asymmetry has disappeared in response to a report on investigations by the competition authority. The asymmetric pricing pattern, however, was not detected at the time of the report, nor had it been part of the investigations. Our results therefore provide evidence of the deterring effect of regulatory monitoring on firms which exhibit non-competitive pricing behavior. We do not find any asymmetric pass-through of EUA prices in recent years. Several robustness checks support our results. -- |
| Keywords: | asymmetric price adjustment,regulatory monitoring,wholesale electricity markets,emission trading |
| JEL: | L4 L94 Q41 Q52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:13055&r=reg |
| By: | Jakub Nowotarski; Eran Raviv; Stefan Trueck; Rafal Weron |
| Abstract: | In this paper we investigate the use of forecast averaging for electricity spot prices. While there is an increasing body of literature on the use of forecast combinations, there is only a small number of applications of these techniques in the area of electricity markets. In this comprehensive empirical study we apply seven averaging and one selection scheme and perform a backtesting analysis on day-ahead electricity prices in three major European and US markets. Our findings support the additional benefit of combining forecasts for deriving more accurate predictions, however, the performance is not uniform across the considered markets. Interestingly, equally weighted pooling of forecasts emerges as a viable robust alternative compared with other schemes that rely on estimated combination weights. Overall, we provide empirical evidence that also for the extremely volatile electricity markets, it is beneficial to combine forecasts from various models for the prediction of day-ahead electricity prices. In addition, we empirically demonstrate that not all forecast combination schemes are recommended. |
| Keywords: | Electricity price forecasting; Forecasts combination; ARX model; Day-ahead market; |
| JEL: | C22 C24 C53 Q47 |
| Date: | 2013–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:wuu:wpaper:hsc1307&r=reg |
| By: | Bekchanov, Maksud; Bhaduri, Anik; Ringler, Claudia |
| Abstract: | Increasing water demand due to population growth, irrigation expansion, industrial development, and the need for ecosystem improvements under mounting investment costs for developing new water sources calls for the efficient, equitable and sustainable management of water resources. This is particularly essential in the Aral Sea Basin (ASB) where ineffective institutions are the primary reason of intersectoral and inter-state water sharing conflicts and lack of sufficient investments for improving water use efficiency. This study examined market-based water allocation as an alternative option to the traditional administrative allocation to deal with water scarcity issues in the ASB. Potential economic gains of tradable water use rights were analyzed based on a newly constructed integrated hydro-economic river basin management model. The analysis differentiates between inter-catchment and intra-catchment water trading. The former does not consider any restrictions on water trading whereas the latter is based on the assumption that water trading is more likely to happen between neighboring water users located within the same catchment area. The analyses show that compared to fixed water allocation, inter-catchment water trading can improve basin-wide benefits by US$ 373 and US$ 476 million depending on water availability. Similarly, additional gains of US$ 259 to US$ 339 million are estimated under intra-catchment water trading depending on relative water availability. Trading gains are higher under drier conditions. However, water trading carries a series of transaction costs. We find that transaction costs exceeding US$0.05 per m3 of water traded wipe out the economic potential for water trading. Enforcement of the rule of law, infrastructural improvements, participation of representatives of all water stakeholders in decision making processes, and friendly relationships among the riparian countries are suggested as means for reducing transaction costs of water trading contracts. |
| Keywords: | inter-catchment and intra-catchment water trading, transaction costs, hydro-economic model, Agribusiness, International Development, International Relations/Trade, Land Economics/Use, Resource /Energy Economics and Policy, |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ubzefd:155504&r=reg |
| By: | Aditi Sengupta |
| Abstract: | I examine how ex ante symmetric firms that compete in prices strategically decide to invest in research and development of cost-reducing technology when the rival firm and the consumers are not aware of the actual outcome of the investment. I also compare the strategic incentive to invest and market outcomes under incomplete information with that of the full information. I find that equilibrium investment under incomplete information with unobservable investment is same as that of (symmetric) full information equilibrium and is also socially optimal. |
| Keywords: | Cost-reducing technology; Duopoly; Incomplete information; Price competition; Strategic investment |
| JEL: | D43 D82 L13 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2013-10&r=reg |
| By: | di Cosmo, Valeria; Hyland, Marie |
| Abstract: | This paper uses data from the World Input Output Database (WIOD) to examine channels through which CO2 emissions are embodied within and imported into the European production process. We apply a metric to calculate sectoral emission intensity and thus rank countries and sectors in the EU in terms of their emission intensity, and look at the evolution of patterns of emission intensity in 2005 and in 2009. We use an input-output price model to simulate the effect that a rise in the price of EU-ETS allowances, from $17 to $25 /tonne, would have on the final price of goods in each EU country and sector. We find that all countries in the EU reduced the emission-intensity of their production processes from 2005 to 2009, and we find that the reduction was greatest in those sectors regulated under the ETS. Comparisons of emission intensity between countries show that industries in Central and Eastern Europe are more emission intensive than those of Northern Europe, where industries import emission-intensive goods rather than producing them domestically. Finally we examine the trade in intermediate goods from China into the EU to examine possible increases in carbon leakage from 2005 to 2009. Results show that while emissions embodied in imported intermediate goods have increased from 2005 to 2009, this increase is not limited to, nor particularly notable in, the sectors regulated by the ETS. |
| Keywords: | CO2 emissions/data/europe/Trade |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp462&r=reg |
| By: | Vincent Glode (Wharton School); Christian Opp (University of Pennsylvania) |
| Abstract: | We propose a parsimonious model of over-the-counter trading under asymmetric information to study the presence of intermediary chains that stand between well informed parties and uninformed market participants. Multiple moderately informed intermediaries can fulfill an important economic role of "smoothing" adverse selection. Informed market participants may prefer to trade through these intermediary chains as they improve trade efficiency but also reduce the surplus accruing to uninformed traders. Our model makes novel predictions about optimal network formation when adverse selection problems impede the efficiency of trade. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:119&r=reg |