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on Regulation |
| By: | Pascal Da Costa (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris); Bianka Shoai Tehrani (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris, ITESE - Institut de Technico-Economie des Systèmes Energétiques - CEA : DEN/ITESE) |
| Abstract: | The aim of the article is to understand how the drivers for investment decisions in the capacities of electricity production have evolved over time, from 1945 to the present day, in the specific context of Europe facing wars and conflicts, scientific and technological progress, strong political and academic developments. We study the electric investment decisions by comparing the history of the European electricity markets with the successively dominant economic theories in this field. Therefore, we highlight differences between rational behaviors, such as described by the theories, and actual behaviors of investors and governments. Thus the liberalization of electricity markets in the European Union, more than twenty-five years ago, parts of a rationalization prescribed by new economic theories. It is clear that liberalization is being discussed. First, it remains very heterogeneous, which complicates the goal of creating a large single market for electricity in the Union. Second, we see a recent re-centralization of energy policy in the European Union (EU), which takes the form of a new regulation mainly relating to climate and renewables. However, this re-regulation is different from centralized control experienced by all European electricity markets until the mid-1980s. |
| Keywords: | European Electricity Market, Electricity Investments, European Energy Market Liberalisation, Climatic issues, Renewables. |
| Date: | 2013–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00995799&r=reg |
| By: | Anna Pechan (University of Oldenburg, Department of Economics) |
| Abstract: | Climate change poses a new challenge in particular to long-lasting electricity networks. At the same time, this industry is highly regulated, which greatly affects the behavior of network operators. In this paper, the impact of regulation in general and of the German electricity grid regulation in particular on anticipatory adaptation investments is analyzed. The qualitative analysis shows that in general a whole set of elements of the regulatory model and their coordination influence the decision of ex ante adaptation to climate change. A careful and balanced design, e.g. of efficiency and quality measurement, is thus crucial to avoid inadequate adaptation. The regulation in Germany discourages flexible adaptation to extreme weather events (EWEs). For irreversible adaptation of new and existing infrastructure to EWEs, the incentives highly depend on the cost approval of the regulator. Currently, the regulation discourages this type of adaptation. But if the additional costs can be claimed, the network operator is indifferent to adapt. Similarly, incentives to irreversibly adapt existing and new infrastructure to slow onset events (SOEs) range between excessively high and undistorted depending on the regulator’s discretion. Undistorted means that the decision to implement adaptation measures is not biased by regulation. Undistorted are also the incentives for flexible measures to adapt to SOEs. Only in the undistorted cases, the risk of inadequate adaptation are borne by the network operator. |
| Keywords: | Electricity Networks, Regulation, Climate Change, Germany |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:old:dpaper:365&r=reg |
| By: | Germà Bel (Faculty of Economics, University of Barcelona); Jordi Rosell (Faculty of Economics, University of Barcelona) |
| Abstract: | Academics and policy makers are increasingly shifting the debate concerning the best form of public service provision beyond the traditional dilemma between pure public and pure private delivery modes, because, among other reasons, there is a growing body of evidence that casts doubt on the existence of systematic cost savings from privatization, while any competition seems to be eroded over time. In this paper we compare the relative merits of public and private delivery within a mixed delivery system. We study the role played by ownership, transaction costs, and competition on local public service delivery within the same jurisdiction. Using a stochastic cost frontier, we analyze the public-private urban bus system in the Barcelona Metropolitan Area. Our results suggest that private firms tendering the service have higher delivery costs than those incurred by the public firm, especially when transaction costs are taken into account. Tenders, therefore, do not help to reduce delivery costs. Our results suggest that under a mixed delivery scheme, which permits the co-existence of public and private production, the metropolitan government and the regulator can use private delivery to contain costs in the public firm and, at the same time, benefit from the greater flexibility of private firms for dealing with events not provided for under contract. |
| Keywords: | costs, transaction costs, mixed delivery, local governments JEL classification: H0, H7, K00, L33 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201418&r=reg |
| By: | Lucas Davis; Catherine Hausman |
| Abstract: | Reliable estimates of the value of electricity transmission are critical if these heavily-regulated investments are to be made cost-effectively. In this paper, we exploit the abrupt closure of the San Onofre Nuclear Generating Station (SONGS) in February 2012. During the previous decade, SONGS had produced about 8% of the electricity generated in California, so its closure had a pronounced impact on the wholesale market, requiring large and immediate increases in generation from other sources. We find that in the months following the closure, almost all of the lost generation from SONGS was met by natural gas plants inside California at an average cost of almost $68,000 per hour. During high demand hours, we find that as much as 75% of the lost generation was met by plants located in the southern part of the state. Although lower-cost production was available elsewhere, transmission constraints and other physical limitations of the grid severely limited the ability of other producers to sell into the southern California market. These constraints also made it potentially more profitable for certain plants to exercise market power, and we find evidence consistent with one company acting non-competitively. Overall, the constraints increased generation costs by an average of $4,500 per hour, implying that the value of additional transmission capacity is about $380 million. |
| JEL: | L51 L94 Q41 Q54 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20186&r=reg |
| By: | Matthias Weitzel |
| Abstract: | A simple model is used to illustrate the effects of a reduction in (marginal) abatement cost in a two country setting. It can be shown that a the country experiencing a cost reduction can actually be worse off. This holds true for a variety of quantity and price based emission policies. The most important channel is that a country with lower abatement costs engages in additional abatement effort for which it is not compensated. Under a quantity based policy with a given allocation, a seller of permits can also be negatively affected from a lower carbon price. We also argue that abatement cost shocks to renewable energy and carbon capture and storage (CCS) are different in terms of their effects on international energy markets. A shock to renewable energy reduces fossil fuel rents benefiting energy importers, while the opposite holds for a shock to CCS. The channels obtained in the theoretical model can be confirmed in a more complex global computable general equilibrium model. Some regions are indeed worse off from shock that lowers their abatement costs |
| Keywords: | Climate policy, prices vs. quantities, renewable energy, CCS, technological uncertainty, CGE model |
| JEL: | C68 Q54 Q58 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1926&r=reg |
| By: | Anil K Kashyap; Dimitrios P. Tsomocos; Alexandros P. Vardoulakis |
| Abstract: | We analyze a variant of the Diamond-Dybvig (1983) model of banking in which savers can use a bank to invest in a risky project operated by an entrepreneur. The savers can buy equity in the bank and save via deposits. The bank chooses to invest in a safe asset or to fund the entrepreneur. The bank and the entrepreneur face limited liability and there is a probability of a run which is governed by the bank’s leverage and its mix of safe and risky assets. The possibility of the run reduces the incentive to lend and take risk, while limited liability pushes for excessive lending and risk-taking. We explore how capital regulation, liquidity regulation, deposit insurance, loan to value limits, and dividend taxes interact to offset these frictions. We compare agents welfare in the decentralized equilibrium absent regulation with welfare in equilibria that prevail with various regulations that are optimally chosen. In general, regulation can lead to Pareto improvements but fully correcting both distortions requires more than one regulation. |
| JEL: | E44 G01 G21 G28 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20165&r=reg |
| By: | Harbord, David; Pagnozzi, Marco |
| Abstract: | The jury is still out on the need for government-organized capacity markets in order to achieve efficient long-run investments in electricity generation. When new capacity markets are introduced, however, it is important that they are well designed and take account of existing experience and previous design failures. Experience in both Colombia and New England provide a stark warning about the dangers of placing descending clock auctions at the center of electricity capacity markets. Among alternative auction design options, a sealed-bid auction is a better choice. |
| Keywords: | Capacity markets; auctions; New England; Colombia; UK |
| JEL: | D44 L5 L94 |
| Date: | 2014–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56224&r=reg |
| By: | Mark Armstrong |
| Abstract: | Traditionally, the scholarly journal market operates so that research institutions are charged high prices and the wider public is often excluded altogether, while authors can usually publish for free and commercial publishers enjoy high profits.� Two forms of open access regulation can mitigate these problems: (i) direct price regulation of the form whereby a journal must charge a price of zero to all readers, or (ii) mandating authors or publishers to make freely available an inferior substitute to the publishing paper.� The former policy is likely to result in authors paying to publish, which may lead to a reduction in the quantity of published papers and may make authors less willing to publish in selective journals.� Recent UK policy towards open access is discussed. |
| Keywords: | publishing, journals, open access, two-sided markets, regulation |
| JEL: | D83 I23 L17 L51 L86 |
| Date: | 2014–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:707&r=reg |
| By: | Fabio Dercole; Davide Radi |
| Abstract: | This paper investigates the effects of the "uptick rule" (a short selling regulation formally known as rule 10a-1) by means of a simple stock market model, based on the ARED (adaptive rational equilibrium dynamics) modeling framework, where heterogeneous and adaptive beliefs on the future prices of a risky asset were first shown to be responsible for endogenous price fluctuations. The dynamics of stock prices generated by the model, with and without the uptick-rule restriction, are analyzed by pairing the classical fundamental prediction with beliefs based on both linear and nonlinear technical analyses. The comparison shows a reduction of downward price movements of undervalued shares when the short selling restriction is imposed. This gives evidence that the uptick rule meets its intended objective. However, the effects of the short selling regulation fade when the intensity of choice to switch trading strategies is high. The analysis suggests possible side effects of the regulation on price dynamics. |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1405.7747&r=reg |
| By: | Bianka Shoai Tehrani (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris, ITESE - Institut de Technico-Economie des Systèmes Energétiques - CEA : DEN/ITESE); Pascal Da Costa (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris); Danièle Attias (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris) |
| Abstract: | While nuclear power may experience a technological breakthrough in Europe with Generation IV nuclear reactors within a few decades (2040), several events and drivers could question this possibility: as the Fukushima accident, the climate issues and the electricity market liberalization. This paper analyzes how the necessary conditions for their industrial development from now up to 2040 can be either favorable or detrimental to future nuclear reactors compared with other technologies and according to four main investment drivers: 1) technical change, 2) policy, 3) market and 4) power company drivers. Twenty-four scenarios have been identified through structural analysis, with only three proving to be favorable to the development of future nuclear reactors. |
| Keywords: | Power System Economics; Electricity Investments; Nuclear Energies |
| Date: | 2014–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00997005&r=reg |
| By: | James Roumasset (University of Hawai‘i at Manoa & University of Hawai’i Economic Research Organization); Christopher Wada (University of Hawai’i Economic Research Organization) |
| Abstract: | General principles of groundwater management for a single aquifer are extended to the management of multiple water resources, including additional aquifers, recycled wastewater, and desalinated seawater. Optimal groundwater extraction can be incentivized by pricing according to the Pearce equation for renewable resources, although the standard version of the equation must be modified in certain situations, e.g. to accommodate corner solutions or governance costs. Groundwater management and pricing must be coordinated with the management of watershed and related resources lest the benefits of conservation are squandered by wasting the water saved. Joint optimization also provides the basis for correctly pricing ecosystem services such as groundwater recharge. From the models and examples discussed, one can conclude that a systems approach is necessary, and ad hoc rules-of-thumb such as maximum-sustainable-yield are welfare reducing. Inasmuch as actual groundwater management may be far from efficient, the Gisser-Sanchez effect notwithstanding, we discuss the problem of optimal resource governance. |
| Keywords: | Groundwater, renewable resources, dynamic optimization, sustainable yield, Pearce equation, marginal user cost, conjunctive use, water institutions, Gisser-Sanchez effect, governance, natural capital |
| JEL: | Q20 Q25 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201414&r=reg |