nep-reg New Economics Papers
on Regulation
Issue of 2016‒08‒14
six papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Regulation and Investment in Telecom Network Infrastructure Facilities: The Recent Developments and Debates By Ben Dkhil, Inès
  2. Bridging the Gap: Do Fast Reacting Fossil Technologies Facilitate Renewable Energy Diffusion? By Elena Verdolini; Francesco Vona; David Popp
  3. EU ETS, free allocations, and activity level thresholds: the devil lies in the details By Frédéric Branger; Jean-Pierre Ponssard; Oliver Sartor; Misato Sato
  4. Buffering Volatility: A Study on the Limits of Germany’s Energy Revolution By Hans-Werner Sinn
  5. The economic value of dispatchable solar electricity: a Post-Paris evaluation By Karl W. Steininger; Wolf D. Grossmann; Iris Grossmann
  6. Level versus Variability Trade-offs in Wind and Solar Generation Investments: The Case of California By Frank A. Wolak

  1. By: Ben Dkhil, Inès
    Abstract: The regulation has the greatest role in forcing the introduction and the establishment of competition in the fixed telecom markets by facilitating the entrants’ access conditions to the incumbent’s infrastructure facilities (the local loop). Recently, the sole way to ensure the development of telecom industry consists to promote innovation and investment in network infrastructure technologies. This paper provides a critical review of both recent theoretical and empirical literature that address the issues of regulation on innovation and investment in the fixed telecommunication in-frastructures.
    Keywords: bottleneck, access regulation policies, investment in network upgrade, service-based competition, facility-based competition.
    JEL: K21 L1 L12 L51
    Date: 2014–12–01
  2. By: Elena Verdolini; Francesco Vona; David Popp
    Abstract: The diffusion of renewable energy in the power system implies high supply variability. Lacking economically viable storage options, renewable energy integration has so far been possible thanks to the presence of fast-reacting mid-merit fossil-based technologies, which act as back-up capacity. This paper discusses the role of fossil-based power generation technologies in supporting renewable energy investments. We study the deployment of these two technologies conditional on all other drivers in 26 OECD countries between 1990 and 2013. We show that a 1% percent increase in the share of fast-reacting fossil generation capacity is associated with a 0.88% percent increase in renewable in the long run. These results are robust to various modifications in our empirical strategy, and most notably to the use of system-GMM techniques to account for the interdependence of renewable and fast-reacting fossil investment decisions. Our analysis points to the substantial indirect costs of renewable energy integration and highlights the complementarity of investments in different generation technologies for a successful decarbonization process.
    JEL: O33 Q42 Q48 Q55
    Date: 2016–07
  3. By: Frédéric Branger; Jean-Pierre Ponssard; Oliver Sartor; Misato Sato
    Abstract: It is well known that discontinuous jumps or thresholds in tax or subsidies are socially inefficient, because they create incentives to make strategic behavioural changes that lead to substantial increases in private benefits. This paper investigates these distortions in the context of the EU Emissions Trading Scheme, where activity level thresholds (ALTs) were introduced in Phase 3 to reduce the overallocation of free allowances to low-activity installations. Using installation-level data, we find evidence that cement producers indeed respond to such thresholds when confronted with low demand, by strategically adjusting output to obtain more free allocation. We estimate that in 2012, ALTs induced excess cement clinker production of 6.4 Mt (5% of total EU output), and in affected regions this further distorted trade patterns and reversed carbon intensity improvements. As intended, ALTs reduced free allocation by 4%; however, a linear scheme (output-based allocation) would have achieved a 32% reduction.
    Keywords: activity level thresholds; carbon trading; cement; EU ETC; free allowance allocation
    JEL: D24 H23 L23 L61
    Date: 2015–09
  4. By: Hans-Werner Sinn
    Abstract: Based on German hourly feed-in and consumption data for electric power, this paper studies the storage and buffering needs resulting from the volatility of wind and solar energy. It shows that joint buffers for wind and solar energy require less storage capacity than would be necessary to buffer wind or solar energy alone. The storage requirement of over 6,000 pumped storage plants, which is 183 times Germany’s current capacity, would nevertheless be huge. Taking the volatility of demand into account would further increase storage needs, and managing demand by way of peak-load pricing would only marginally reduce the storage capacity required. Thus, only a buffering strategy based on dual structures, i.e. conventional energy filling the gaps left in windless and dark periods, seems feasible. Green and fossil plants would then be complements, rather than substitutes, contrary to widespread assumptions. Unfortunately, however, this buffering strategy loses its effectiveness when wind and solar production overshoots electricity demand, which happens beyond coverage of about a third of aggregate electricity production. Voluminous, costly and inefficient storage devices will then be unavoidable. This will make it difficult for Germany to pursue its energy revolution beyond merely replacing nuclear fuel towards a territory where it can also crowd out fossil fuel.
    JEL: Q4
    Date: 2016–07
  5. By: Karl W. Steininger (University of Graz); Wolf D. Grossmann (University of Graz); Iris Grossmann (Carnegie Mellon University)
    Abstract: The UNFCCC Paris Agreement is indicative of the global effort to shift from fossil to renewable energy. Given its abundance and continuous cost decline, photovoltaic electricity is set to play a major role, requiring determination of its economic value in dependence on market share and time horizon. While the literature evaluates short-term perspectives for small market shares and medium-term for significant shares, we develop an approach to determine the costs of ``dispatchable'' solar electricity, where distributed photovoltaic electricity combined with storage and transmission serves full market coverage. This provides a reference for the long-term economic value of solar electricity.
    Keywords: Renewable Energy; Sustainability; Allocative Efficiency
    JEL: D61 Q01 Q24
    Date: 2016–07
  6. By: Frank A. Wolak
    Abstract: Hourly plant-level wind and solar generation output and real-time price data for one year from the California ISO control area is used to estimate the vector of means and the contemporaneous covariance matrix of hourly output and revenues across all wind and solar locations in the state. Annual hourly output and annual hourly revenues mean/standard deviation efficient frontiers for wind and solar resource locations are computed from this information. For both efficient frontiers, economically meaningful differences between portfolios on the efficient frontier and the actual wind and solar generation capacity mix are found. The relative difference is significantly larger for aggregate hourly output relative to aggregate hourly revenues, consistent with expected profit-maximizing unilateral entry decisions by renewable resource owners. Most of the hourly output and hourly revenue risk-reducing benefits from the optimal choice of locational generation capacities is captured by a small number of wind resource locations, with the addition of a small number of solar resource locations only slightly increasing the set of feasible portfolio mean and standard deviation combinations. Measures of non-diversifiable wind and solar energy and revenue risk are computed using the actual market portfolio and the risk-adjusted expected hourly output or hourly revenue maximizing portfolios.
    JEL: Q2 Q4 Q5
    Date: 2016–08

This nep-reg issue is ©2016 by Natalia Fabra. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.