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on Regulation |
| By: | Brown, David P. (University of Alberta, Department of Economics); Sappington, David E. M. (University of Florida) |
| Abstract: | We characterize the optimal regulatory policy to promote demand response in the electricity sector. Demand response arises when consumers reduce their purchases of electricity in times of peak demand, when the utility's marginal cost of supplying electricity is relatively high. The optimal policy differs systematically from the policy in the U.S. Federal Energy Regulatory Commission's (FERC's) Order 745. Under plausible conditions, implementation of the FERC's policy can reduce welfare substantially below the level secured by the optimal demand response policy. |
| Keywords: | electricity pricing; demand response |
| JEL: | L11 L50 L94 Q40 |
| Date: | 2015–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2015_003&r=reg |
| By: | Mohammad Reza Hesamzadeh; Juan Rosellón; Steven A. Gabriel |
| Abstract: | This paper proposes an incentive mechanism for transmission expansion planning. The mechanism is a bilevel program. The upper level is a profit-maximizing transmission company (Transco) which expands its transmission system while endogenously predicts and influences the generation investment. The lower level is the optimal generation dispatch and investment. The Transco funds its transmission investment costs by collecting merchandising surplus and charging a fixed fee to consumers. The Transco is subject to a revenue cap set by the regulator. This mechanism is formulated as a mixed-integer, quadratically-constrained program (MIQCP) and applied to modified Garver and IEEE 24-node systems. The results of proposed approach have been compared with the welfare-maximum benchmark and cases of Transco with cost-plus regulation and no regulation. In all tested cases, the proposed approach results in welfare-maximum outcomes while the other regulatory approaches fail to produce welfare-maximum outcomes. The profit-maximizing approach has also been successful in cases where transmission investment is driven by demand growth and reactive Transco. |
| Keywords: | revenue-cap regulation, transmission planning, electricity |
| JEL: | D24 L51 L94 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1470&r=reg |
| By: | Tim Burnett |
| Abstract: | This paper empirically analyses the impact of the bundling of four common home communication services with a single supplier on the probability that an individual changes supplier using a survey-elicited dataset of 2,871 individuals. Implementing a random effects probit approach to control for individual heterogeneity, the results strongly show that when individuals bundle their service then they are significantly less likely to change supplier. A second result indicates that service- and supplier- related variables are better predictors of an individual's likelihood of switching than are the characteristics of the individual, suggesting that future research in this area should prioritise their inclusion. |
| Keywords: | Bundling, Consumers, Panel-data, Regulation, Switching, telecommunications |
| JEL: | C3 C5 D1 L5 L8 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:bri:cmpowp:14/321&r=reg |
| By: | Antonio Estache; Anne-Sophie Steichen |
| Abstract: | The main purpose of this paper is to document the differences in the cost of capital in Belgium across electricity generation companies, depending on whether they rely on traditional thermal sources or on RES. The average results are quite surprising and in sharp contrast with the results obtained for the UK or Germany by other researchersfor instancer. Comparing 3 main categories (renewable, non renewable and mixed), the Non-Renewable appear to have a lower CoC than the other in contrast to what the literature suggests should be expected The Vanilla CoC for the RES of our sample show lower CoC levels by around 30bps than for non-RES. The conclusion is the same from the analysis of the Pre-tax WACC. We take this as evidence that Belgium may have overshot in its efforts to stimulate investment to increase the relative importance of renewable energy sources, at least until the reduction in these efforts started in 2013 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/198443&r=reg |
| By: | A.Haarscher; M. Bruner; J. Doblas; A. Fargere; S.F. Ashley; W.J. Nuttall |
| Abstract: | The Great East Japan earthquake and tsunami on March 11th 2011 caused mass destruction, significant loss-of-life and a large displacement of people. It also placed significant strain of Japan’s electricity-generating infrastructure. There was a significant reduction in capacity due to the damage in thermal generation and gradual closure of Japan’s nuclear power plants; the ability for load-balancing across the Japanese grid was compromised due to limited interconnections between the different utilities that comprise the Japanese electricity system. This paper looks at the first fifteen months following the earthquake and tsunami: outlining the supply reduction and consequent attempts to manage the demand. In turn it highlights the foibles of Japan’s vertically-integrated monopolistic structures and the evolution of governmental and utilities response that went from decisions made “on-the-fly” to a more developed policy for peak-demand electricity savings. The findings from this paper should serve as a useful set of examples to aid decision makers in contingency planning for disruptive large-scale reduction in electricity-generating capacity. |
| Keywords: | Public Policy; Nuclear Power; Energy Conservation |
| JEL: | O13 P28 P48 Q41 Q47 Q48 |
| Date: | 2014–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1443&r=reg |
| By: | Jorge Alvarez; Fabian Valencia |
| Abstract: | This paper assesses the real effects of the energy reform in Mexico by looking at its impact on manufacturing output through changes in energy prices. Using sub-sector and state-level manufacturing output data, along with past variation in energy prices, we find electricity prices––relative to oil and gas––to be more important in the manufacturing process, with a one standard deviation reduction in electricity prices leading to a 2.8 percent increase in manufacturing output. Our estimated elasticities together with plausible reductions in electricity tariffs derived from the energy reform, could increase manufacturing output by up to 3.6 percent, and overall real GDP by 0.6 percent. Larger reductions are possible over the long run if increased efficiency in the sector leads electricity prices to converge to U.S. levels. Moreover, including the impact of lower electricity tariffs on the services sector, could lead to significantly larger effects on GDP. Accounting for endogeneity of unit labor costs in a panel VAR setting leads to an additional indirect channel which amplifies the impact of electricity prices on output. |
| Keywords: | Energy sector;Mexico;Manufacturing sector;Industrial production;Electricity;Energy prices;Fiscal reforms;growth; energy reform; manufacturing output; electricity; gas; Mexico; panel VAR. |
| Date: | 2015–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/45&r=reg |
| By: | Karim L. Anaya; Michael G. Pollitt |
| Abstract: | This study explores and quantifies the benefits of connecting more distributed generation (with and without the use of smart connections) across different parties (Distribution Network Operators, wider society and generators). Different connection scenarios are proposed (with partial and full interruptible capacity quota, a mix of generation and different technology-specific curtailment levels) for integrating DG units in the constrained area of the March grid (East of England). This constitutes the trial area of the Flexible Plug and Play project, which is being implemented by UK Power Networks. The smart connection option is by far the preferred option across all the scenarios (higher NPV/MW). However, for some generators the results are very sensitive to the discount rate used (i.e. solar PV). The analysis of the distribution of benefits suggests that generators capture most of the benefits while DNOs and wider society capture much less benefit. A smart connection incentive, which recreates the benefits to DNOs from an earlier losses incentive, is proposed. In contrast with other societally desirable metrics which are usually incentivised or penalised, there is currently no direct connection between more DG MWs connected and DNO incentive payments. Our proposed smart connection incentive, by charging DG for smarter connection may help to distribute more efficiently the benefits for connecting more DG. |
| Keywords: | distributed generation, renewable energy, smart solutions, cost benefit analysis, smart connection incentive |
| JEL: | D61 H25 L51 L94 Q40 Q48 |
| Date: | 2015–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1505&r=reg |
| By: | Christian Pape (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen); Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen) |
| Abstract: | European electricity market participants are encouraged to balance intraday deviations from their day-ahead schedules via trades in the intraday market. Together with the increasing production of variable renewable energy sources, the intraday market is gaining importance. We investigate the explanatory power of a fundamental modeling approach explicitly accounting for must-run operations of combined heat and power plants (CHP) and intraday peculiarities such as a shortened intraday supply stack. The fundamental equilibria between every hour’s supply stack and aggregated demand in 2012 and 2013 are modeled to yield hourly price estimates. The major benefits of a fundamental modeling approach are the ability to account for non-linearities in the supply stack and the ability to combine time-varying information consistently. The empirical results show that fundamental modeling explains a considerable share of spot price variance. How-ever, differences between the fundamental and actual prices persist and are explored using regression models. The main differences can be attributed to (avoided) start up-costs, market states and trading behavior. |
| Keywords: | Intraday market for electricity, fundamental price modeling |
| JEL: | Q41 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:dui:wpaper:1502&r=reg |
| By: | Gabriel Di Bella; Lawrence Norton; Joseph Ntamatungiro; Sumiko Ogawa; Issouf Samaké; Marika Santoro |
| Abstract: | The oil price decline creates an opportunity to dismantle energy subsidies, which escalated with high oil prices. This paper assesses energy subsidies in Latin America and the Caribbean—about 1.8 percent of GDP in 2011–13 (approximately evenly split between fuel and electricity), and about 3.8 percent of GDP including negative externalities. Countries with poorer institutions subsidize more. Energy-rich countries subsidize fuel more, but low-income countries are more likely to subsidize electricity, as are Central America and the Caribbean. Energy subsidies impose fiscal costs, hurting SOEs, competitiveness, and distribution. The paper overviews country experience with subsidy reform, drawing lessons. |
| Keywords: | Energy sector;Latin America;Caribbean;Fiscal policy;Energy;Subsidies;Public enterprises;Private investments;Energy Subsidies, Fiscal Policy, Latin America and the Caribbean |
| Date: | 2015–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/30&r=reg |
| By: | Xiaoping He; David Reiner |
| Abstract: | An increasing block tariff (IBT) has been implemented nationwide in the residential sector in China since July 2012 as part of a process towards liberalizing electricity prices. However, knowledge about IBT design is still limited, particularly how to determine the electricity volume for the first block of an IBT scheme. Assuming the first block should be set based on some measure of electricity poverty, we attempt to model household electricity demand such that the range of basic needs can be established. We find that in Chinese households there exists a threshold for electricity consumption with respect to income, which might be considered a measure of electricity poverty, and the threshold differs between rural and urban areas. For rural (urban) families, electricity consumption at the level of 7th (5th) income decile households can be considered the threshold for basic needs or a measure of electricity poverty since household electricity demand in rural (urban) areas does not respond to income changes until after the 7th (5th) income decile. Further, for the case of China’s electricity consumption, we find that if there is a saturation point, after which household energy needs would not rise further proportionately with increasing income, it is far from having been reached. Whereas the first IBT block was set at 240 kWh per household for Beijing, we estimate basic needs to be roughly 90 kWh per month for rural households and 150 kWh for urban households. The first IBT block therefore appears to have been set at a level that is too high, roughly equivalent to the average consumption of the top decile of urban residents. Over time however, given continued rapid growth, the IBT will begin to better reflect actual basic needs. |
| Keywords: | - |
| JEL: | N55 P28 Q41 O13 I3 |
| Date: | 2014–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1442&r=reg |
| By: | Bergquist, Ann-Kristin (CERE); Söderholm, Kristina (LTU) |
| Abstract: | This paper examines the transition towards renewable energy in the Swedish pulp and paper industry (PPI) during the 1970s and -80s. In the wake of the first Oil Crisis until the late 1980s, the use of fossil fuels was reduced by 70 percent in this sector. The lion’s share of the reduction was achieved by substituting oil by biofuels in terms of rest products from the pulp manufacturing process. The reduction was made possible also by efficiency improvements and increased internal production of electricity through back-pressure turbine power generation. Sweden was highly dependent on oil when the first Oil Crisis broke, and the run up in oil prices put pressure on the Swedish government and the energy intensive PPI to reduce dependency. Of central importance for the transition to be implemented was a highly collaborative strategy of the sector as well as between the sector and the corporatist Swedish state administration. The Swedish government chose a proactive strategy by emphasizing knowledge management and collaboration with industry along with the substitution of oil with biofuels. The transition was further fueled by the fact that focus was directed towards unutilized potentials in the sector, where a previous waste problem now could be transformed into energy savings, i.e., the strong version of the Porter hypothesis. Also energy taxes and fees played a major role as control agents in the Swedish energy policy of the 1970s and 80s. Thus, the study illustrates the central role of governments and their ability to push industries into new technological paths through a wide palette of interplaying policy instruments. The study further points at the importance of a more holistic understanding of the interplay between different policies and impacts in the longer run. |
| Keywords: | Energy transition; oil crisis; bio fuels; pulp and paper; Sweden |
| JEL: | N00 |
| Date: | 2015–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:slucer:2015_004&r=reg |