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on Regulation |
| By: | Johanna Cludiud (School of Economics, Australian School of Business, the University of New South Wales); Sam Forrest (Centre for Energy and Environmental Markets, the University of New South Wales); Iain MacGill (School of Electrical Engineering and Telecommunications and Centre for Energy and Environmental Markets, the University of New South Wales) |
| Abstract: | The Australian Renewable Energy Target (RET) has spurred considerable investment in renewable electricity generation, notably wind power, over the past decade. This paper considers the distributional implications of the RET for different electricity customers. Using time-series regression, we show that the increasing amount of wind energy fed into the NEM has placed a considerable downward pressure on wholesale electricity prices through the so-called merit order effect. On the other hand, costs of the RET are passed on to consumers in the form of retail electricity price premiums imposed by the retailers who are liable parties under the scheme. Potential complexities for the analysis include the many drivers of wholesale price outcomes, the mix of regulated and competitive retail tariffs on offer in Australia, and the partial RET exemptions given to energy-intensive trade-exposed industries. Nevertheless, our findings highlight likely significant redistributive transfers between different energy user classes under current RET arrangements. In particular, some energy-intensive industries are benefiting from lower wholesale electricity prices whilst being largely exempted from contributing to the costs of the scheme. By contrast, many households are paying significant RET pass-through costs whilst not necessarily benefiting from lower wholesale prices. A more equitable distribution of RET costs and benefits could be achieved by reviewing the scope and extent of industry exemptions from the RET and ensuring regulators apply methodologies to estimate wholesale price components in regulated electricity tariffs that reflect more closely actual market conditions. More generally, these findings support the growing international appreciation that policy makers need to better integrate distributional assessments into policy design and implementation. |
| Keywords: | Renewable energy, Electricity market, Distributional effects |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2013-33&r=reg |
| By: | Steffen Hoernig; Marc Bourreau; Carlo Cambini |
| Abstract: | Often, fixed-line incumbents also own the largest mobile network. We consider the effect of this joint ownership on market outcomes. Our model predicts that while fixed-to-mobile call prices to the integrated mobile network are more efficient than under separation, those to rival mobile networks are distorted upwards, amplifying any incumbency advantage. As concerns potential remedies, a uniform off-net pricing constraint leads to higher welfare than functional separation and even allows to maintain some of the efficiency gains. JEL codes: L51, L92 |
| Keywords: | Network competition, On/off-net pricing, Integration, Call externality |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:unl:unlfep:wp574&r=reg |
| By: | R. Poudineh; T. Jamasb |
| Abstract: | Investment in electricity networks, as regulated natural monopolies, is among the highest regulatory and energy policy priorities. Given the large scale of required investments in the coming years, impelled by the need for decarbonising the electricity sector, identifying investment drivers of power networks facilitates effective regulatory treatment of investment under incentive regulation. This study analyses the determinants of investment in Norwegian electricity distribution networks using a panel dataset of 126 companies from 2004 to 2010. A Bayesian Model Averaging approach is used to provide a robust statistical inference by taking into account the uncertainties around model selection and estimation. The results show that five factors drive nearly all network investments: depreciation, number of network stations, energy density, cost of energy not supplied, and number of leisure homes. Among these, depreciation plays the most important role regardless of the choice of prior. The study finds no evidence of impact on investments by weather and geographic factors which might be due to small variations of these factors across the country. Finally, distributed generations show no effect on investments reflecting the fact that Norwegian distribution networks are already adapted to connect many dispersed small scale hydroelectric resources. |
| Keywords: | distribution network, investment, regulation, Bayesian model averaging |
| JEL: | D21 L43 L51 L52 C11 |
| Date: | 2013–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1324&r=reg |
| By: | Claire M. Weiller; Michael G. Pollitt |
| Abstract: | A structural shift from transaction-based, marginal cost pricing to fee-based service business models often accompanies the emergence of “platform” markets, i.e. multi-sided markets where an intermediary captures the value of the interaction between user groups. The many examples include telecommunications, data storage, cinema, music and media, and the automobile industry. Why not electricity? In this paper, we explore how the electricity supply industry can be conceived of as a platform-mediated, two-sided market and the consequences for pricing. Through two cases, a balancing services provider for smart home energy management systems and an electric vehicle charge manager, we show where a platform entrant could position itself in the retail electricity markets between supply companies and end-users. The drivers of such a transition include increased volatility due to renewable generation, the new complexity of roles for end-users, and the introduction of information and communication technologies. Conceiving of electricity as a platform market where new entrants provide an energy optimisation and management service may stimulate a competitive ecosystem and innovation. We suggest that fee-based pricing would enable the objectives of time-varying pricing to be achieved without adversely affecting the most vulnerable customers. |
| Keywords: | Platforms, balancing services, electric vehicles, retail electricity markets |
| JEL: | L81 L94 L10 D4 |
| Date: | 2013–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1361&r=reg |
| By: | Francisco Alvarez (Department of Fundamentos del Análisis Económico II, Universidad Complutense de Madrid, Spain); Francisco J. André (Department of Fundamentos del Análisis Económico II, Universidad Complutense de Madrid, Spain) |
| Abstract: | We compare auctioning and grandfathering as allocation mechanisms of emission permits when there is a secondary market with market power and the firms have private information. Based on real-life cases such as the EU ETS, we consider a multi-unit, multi-bid uniform auction, modelled as a Bayesian game of incomplete information. At the auction each firm anticipates his role in the secondary market, which affects the firms’ valuation of the permits (that are not common across firms) as well as their bidding strategies and it precludes the auction from generating a cost-effective allocation of permits, as it would occur in simpler auction models. Auctioning tends to be more cost-effective than grandfathering when the firms’ costs are asymmetric enough, especially if the follower has lower abatement costs than the leader and uncertainty about the marginal costs is large enough. If market power spills over the auction, the latter is always less cost-effective than grandfathering. One central policy implication is that the specific design of the auction turns out to be crucial for cost-effectiveness. The chances of the auction to outperform grandfathering require that the former is capable of diluting the market power that is present in the secondary market. |
| Keywords: | Cap-and-Trade Systems, Auctions, Grandfathering, Market Power, Bayesian Games of Incomplete Information |
| JEL: | D44 Q58 L13 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2013.98&r=reg |
| By: | Lion Hirth (Potsdam-Institute for Climate Impact Research, Vattenfall GmbH) |
| Keywords: | This paper estimates the welfare-optimal market share of wind and solar power, explicitly taking into account their output variability. We present a theoretical valuation framework that consistently accounts for output variability over time, forecast errors, and the location of generators in the power grid, and evaluate the impact of these three factors on the marginal value of electricity from renewables. Then we estimate the optimal share of wind and solar power in Northwestern Europe from a calibrated numerical power market model. The optimal long-term share of wind power of total electricity consumption is estimated to be 20% at cost levels of 50 €/MWh, about three times the current market share of wind; but this estimate is subject to significant parameter uncertainty. Variability significantly impacts results: if winds were constant, the optimal share would be 60%. In addition, the effect of technological change, price shocks, and policies on the optimal share is assessed. We present and explain several surprising findings, including a negative impact of CO2 prices on optimal wind deployment. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2013.90&r=reg |
| By: | Raffaella Sadun |
| Abstract: | Regulations aimed at curbing the entry of large retail stores have been introduced in many countries to protect independent retailers. Analyzing a planning reform launched in the United Kingdom in the 1990s, I show that independent retailers were actually harmed by the creation of entry barriers against large stores. Instead of simply reducing the number of new large stores entering a market, the entry barriers created the incentive for large retail chains to invest in smaller and more centrally located formats, which competed more directly with independents and accelerated their decline. Overall, these findings suggest that restricting the entry of large stores does not necessarily lead to a world with fewer stores, but one with different stores, with uncertain competitive effects on independent retailers. |
| JEL: | K2 L10 L51 L81 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19797&r=reg |
| By: | Klaas Bauermann (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen) |
| Abstract: | The German Energiewende envisages achieving a climate-neutral building stock in 2050 by means of two major pillars of regulation: First, residential buildings should consume 80% less primary energy and, second, the remaining energy demand should be covered primarily with renewables. This paper simulates the future heating market in Germany under different policy scenarios in order to evaluate the impact and limits of recent and conceivable heating market policy. The investigation is based upon a dual model approach, linking a residential heating model to a discrete choice model for the heating system purchase decision. The major finding is that current ‚regulations will not be suitable for meeting government targets. Carbon emission reductions in scenarios assuming current regulation nearly equal those where there is no regulation. In terms of economic efficiency, all calculated policy alternatives perform better than the regulation currently in place. The model results highlight two policy implications. First, rising renewable requirements deliver better results at lower costs. Second, renewable obligations for heating systems must include the existing building stock in order to achieve the postulated political targets. |
| Keywords: | Residential Heating Market, Policy Evaluation, Decarbonisation, Discrete Choice |
| JEL: | E27 E61 H21 O18 O38 C35 C53 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:dui:wpaper:1320&r=reg |
| By: | Christoph Böhringer (Carl von Ossietzky Universität Oldenburg, Institut für Volkswirtschaftslehre & ZenTra); Jared C. Carbone (University of Calgary and Resources for the Future, Department of Economics); Thomas F. Rutherford (University of Wisconsin, Madison) |
| Abstract: | Unilateral carbon policies are inefficient due to the fact that they generally involve emission reductions in countries with high marginal abatement costs and because they are subject to carbon leakage. In this paper, we ask whether the use of carbon tariffs—tariffs on the carbon embodied in imported goods—might lower the cost of achieving a given reduction in world emissions. Specifically, we explore the role tariffs might play as an inducement to unregulated countries adopting emission controls of their own. We use an applied general equilibrium model to generate the payoffs of a policy game. In the game, a coalition of countries regulates its own emissions and chooses whether or not to employ carbon tariffs against unregulated countries. Unregulated countries may respond by adopting emission regulations of their own, retaliating against the carbon tariffs by engaging in a trade war, or by pursuing no policy at all. In the unique Nash equilibrium produced by this game, the use of carbon tariffs by coalition countries is credible. China and Russia respond by adopting binding abatement targets to avoid being subjected to them. Other unregulated countries retaliate. Cooperation by China and Russia lowers the global welfare cost of achieving a 10% reduction in global emissions by half relative to the case where coalition countries undertake all of this abatement on their own. |
| Keywords: | climate policy, border tax adjustments, carbon leakage, strategic retaliation, applied general equilibrium model |
| JEL: | D58 H2 Q43 Q54 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:zen:wpaper:26&r=reg |