nep-reg New Economics Papers
on Regulation
Issue of 2017‒02‒12
fourteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. The Merit Order Effect of Czech Photovoltaic Plants By Petra Lunackova; Karel Janda; Jan Prusa
  2. The Rebound Effect in Swedish Heavy Industry By Amjadi, Golnaz; Lundgren, Tommy; Persson, Lars; Zhang, Shanshan
  3. Tender Frequency and Market Concentration in Balancing Power Markets By Knaut, Andreas; Obermüller, Frank; Weiser, Florian
  4. Power to the people: Electricity demand and household behavior By Vesterberg, Mattias
  5. Do electricity prices matter? Plant-level evidence from German manufacturing By Gerster, Andreas
  6. Against the Wind: China's Struggle to Integrate Wind Energy into Its National Grid By Long Lam; Lee Branstetter; Ines M. L. Azevedo
  7. The RES-induced Switching Effect Across Fossil Fuels: An Analysis of the Italian Day-Ahead and Balancing Prices and Their Connected Costs By Angelica, Gianfreda; Lucia, Parisio; Matteo, Pelagatti;
  8. Centralization versus Separation of Regulatory Institutions By Foarta, Dana; Sugaya, Takuo
  9. Do Energy Efficiency Investments Deliver at the Right Time? By Judson P. Boomhower; Lucas W. Davis
  10. Consumer inattention, heuristic thinking and the role of energy labels By Andor, Mark; Gerster, Andreas; Sommer, Stephan
  11. Recreational Use of Public Waterways and the Impact of Water Quality By Breen, Benjamin; Curtis, John; Hynes, Stephen
  12. A Pathway toward Reducing CO2 Emissions from the Industrial Sector By Psarras, Peter C.; Bains, Praveen; Charoensawadpong, Panunya; Carrington, Mark; Comello, Stephen; Reichelstein, Stefan; Wilcox, Jennifer
  13. Do they still matter? – Impact of Fossil Fuels on Electricity Prices in the Light of Increased Renewable Generation By Lips, Johannes
  14. The Economics of Zero-Rating and Net Neutrality By SOMOGYI, Robert

  1. By: Petra Lunackova (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic); Karel Janda (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Department of Banking and Insurance, Faculty of Finance and Accounting, University of Economics, Namesti Winstona Churchilla 4, 13067 Prague, Czech Republic); Jan Prusa (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: We assess the impact of photovoltaic power plants on the electricity supply curve in the Czech Republic. The merit order effect is estimated as the elasticity of electricity spot price with respect to change in supply of electricity from renewable sources. Data for the Czech electricity spot market from 2010 to 2015 are analyzed as this is the period with the steepest increase in a renewable generation capacity. The effect is estimated separately for solar and other renewable sources. We find a significant difference between these two groups. Our results show that based on hourly, daily and weekly data energy produced by Czech solar power plants does not decrease electricity spot price, creating double cost to the end consumer. However, the merit Order effect based on averaged daily and weekly data is shown to exist for other renewable sources excluding solar (mainly water and wind). This contributes to the conclusion that the Czech renewables policy that prefers solar to other renewable sources may be considered as suboptimal.
    Keywords: energy subsidies; photovoltaic; renewables; merit order effect
    JEL: Q42 H23 M21
    Date: 2017–01
  2. By: Amjadi, Golnaz (CERE and the Department of Economics, Umeå University); Lundgren, Tommy (CERE and the Department of Economics, Umeå University); Persson, Lars (CERE and the Department of Economics, Umeå University); Zhang, Shanshan (CERE and the Department of Forest Economics, SLU)
    Abstract: Energy efficiency improvement (EEI) benefits the climate and matters for energy security. The potential emission and energy savings due to EEI may however not fully materialize due to the rebound effect. In this study, we measure the size of rebound effect for the two energy types fuel and electricity within the four most energy intensive sectors in Sweden – pulp and paper, basic iron and steel, chemical, and mining. We use a detailed firm-level panel data set for the period 2000-2008 and apply Stochastic Frontier Analysis (SFA) for measuring the rebound effect. We find that both fuel and electricity rebound effects do not fully offset the potential for energy and emission savings. Furthermore, we find 2 CO intensity and fuel and electricity share as the two main determinants of rebound effect in Swedish heavy industry. Our results seems to imply that it matters both to what extent and where to promote EEI, as the rebound effect varies between sectors as well as between firms within sectors.
    Keywords: Energy efficiency improvement; Rebound effect; Stochastic Frontier Analysis
    JEL: D22 Q40
    Date: 2017–01–31
  3. By: Knaut, Andreas (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Obermüller, Frank (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Weiser, Florian (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))
    Abstract: Balancing power markets ensure the short-term balance of supply and demand in electricity markets and their importance may increase with a higher share of fluctuating renewable electricity production. While it is clear that shorter tender frequencies, e.g. daily or hourly, are able to increase the efficiency compared to a weekly procurement, it remains unclear in which respect market concentration will be affected. Against this background, we develop a numerical electricity market model to quantify the possible effects of shorter tender frequencies on costs and market concentration. We find that shorter time spans of procurement are able to lower the costs by up to 15%. While market concentration decreases in many markets, we – surprisingly – identify cases in which shorter time spans lead to higher concentration.
    Keywords: Balancing Power; Market Design; Market Concentration; Tender Frequency; Provision Duration; Mixed Integer Programming
    JEL: D47 L94
    Date: 2017–01–31
  4. By: Vesterberg, Mattias (Department of Economics, Umeå University)
    Abstract: Paper [I] Using a unique and highly detailed data set on energy consumption at the appliance-level for 200 Swedish households, seemingly unrelated regression (SUR)-based end-use specific load curves are estimated. The estimated load curves are then used to explore possible restrictions on load shifting (e.g. the office hours schedule) as well as the cost implications of different load shift patterns. The cost implications of shifting load from "expensive" to "cheap" hours, using the Nord Pool spot prices as a proxy for a dynamic price, are computed to be very small; roughly 2-4% reduction in total daily costs from shifting load up to five hours ahead, indicating small incentives for households (and retailers) to adopt dynamic pricing of electricity. Paper [II] Using a detailed data set on appliance-level electricity consumption at the hourly level, we provide the first estimates of hourly and end-use-specific income elasticities for electricity. Such estimates are informative about how consumption patterns in general, and peak demand in particular, will develop as households’ income changes. We find that the income elasticities are highest during peak hours for kitchen and lighting, with point estimates of roughly 0.4, but insignificant for space heating. Paper [III] In this paper, I estimate the price elasticity of electricity as a function of the choice between fixed-price and variable-price contracts. Further, assuming that households have imperfect information about electricity prices and usage, I explore how media coverage of electricity prices affects electricity demand, both by augmenting price responsiveness and as a direct effect of media coverage on electricity demand, independent of prices. I also address the endogeneity of the choice of electricity contract. The parameters in the model are estimated using unique and detailed Swedish panel data on monthly household-level electricity consumption. I find that price elasticities range between -0.025 and -0.07 at the mean level of media coverage, depending on contract choice, and that households with monthly variation in electricity prices respond more to prices when there is extensive media coverage of electricity prices. When media coverage is high, for example 840 news articles per month (which corresponds to the mean plus two standard deviations), the price elasticity is -0.12, or 1.7 times the elasticity at the mean media coverage. Similarly, media coverage is also found to have a direct effect on electricity demand. Paper [IV] I explore how households switch between fixed-price and variable-price electricity contracts in response to variations in price and temperature, conditional on previous contract choice. Using panel data with roughly 54000 Swedish households, a dynamic probit model is estimated. The results suggest that the choice of contract exhibits substantial state dependence, with an estimated marginal effect of previous contract choice of 0.96, and that the effect of variation in prices and temperature on the choice of electricity contract is small. Further, the state dependence and price responsiveness are similar across housing types, income levels and other dimensions. A plausible explanation of these results is that transaction costs are larger than the relatively small cost savings from switching between contracts.
    Keywords: electricity demand; real-time pricing; demand flexibility; appliance-level data; end-use; media; contract choice; deregulated market; household behavior; information
    JEL: C30 D10 D12 D83 Q26 Q41 Q48
    Date: 2017–02–01
  5. By: Gerster, Andreas
    Abstract: In many countries, the transition process towards a low-carbon economy has been associated with increasing electricity prices. Microeconometric evaluations of the causal impact of electricity price changes on plant-level outcomes are rare, though. By exploiting local randomization induced by thresholds in exemption rules, we estimate the local average treatment effects of electricity levy exemptions using a fuzzy regression discontinuity (RD) design. The results indicate that exempted German manufacturing plants increase electricity use substantially and substitute it for fossil fuels, while we do not find evidence for short-run effects on gross output, exports and employment.
    Keywords: environmental taxation,electricity prices,manufacturing,regression discontinuity design
    JEL: D22 H23 L60 Q41 Q48
    Date: 2017
  6. By: Long Lam (Carnegie Mellon University); Lee Branstetter (Peterson Institute for International Economics); Ines M. L. Azevedo (Carnegie Mellon University)
    Abstract: China launched an unprecedented wind farm construction boom a decade ago to expand renewable energy’s share of its primary energy by exploiting its considerable wind energy resources. On the surface these efforts appeared to yield great success, with China’s wind generating capacity growing more than 100-fold in less than 10 years. But close examination of its aggressive top-down approach to the promotion of renewable energy reveals that China has fallen far short of its ambitious goals. Turbines were quickly installed—but many of them were not connected to the power grid. After some turbines were connected, the state-owned enterprises that operate the national grid often refused to accept energy from them. These problems led to inefficiencies that are without precedent in the Western world. The authors find that although its installed wind energy capacity is 75 percent larger than that of the United States, China produces 14 percent less wind energy than the United States. Even in a political system with a strong centralized government, China’s push for renewable power faltered in the face of entrenched interests, weak incentives, and conflicting policy priorities.
    Date: 2017–01
  7. By: Angelica, Gianfreda; Lucia, Parisio; Matteo, Pelagatti;
    Abstract: The massive introduction of RES in electricity markets has influenced the long-run dynamics of electricity prices and their interactions with conventional thermal production sources. Taking into account the Northern Italian zone characterized by a high solar PV and hydro penetration, we firstly provide empirical evidence on the fuels-electricity nexus across two samples characterized by low (2006-08) and high (2013-15) RES levels, both in the dayahead and balancing markets. Then, we estimate the costs for balancing power disentangling for technologies and comparing their dynamics across specific hours in both samples. We show that the fuels-electricity nexus has changed significantly in the day-ahead sessions and selectively in the balancing sessions. We also find evidence of high balancing prices that we interpret as a signal of strategic use of real time sessions by conventional producers. Our findings suggest policy makers to carefully monitor all trading sessions, especially those close to real time, to avoid the exercise of market power by few operators allowed to guarantee system security and to promptly adopt a capacity market.
    Keywords: Electricity, Natural Gas, Coal, Oil, Cointegration, Balancing Costs
    Date: 2017–02–03
  8. By: Foarta, Dana (Stanford University); Sugaya, Takuo (Stanford University)
    Abstract: Why might a country choose a decentralized rather than a centralized regulatory structure? And what might reverse this choice? We consider a core institutional relationship in regulation. A regulator exerts effort towards a final outcome, but an oversight authority can intervene, which prevents the final outcome from being reached. We examine the choice between institutional centralization and separation, where centralization affords the oversight authority more information on the probable outcome. This creates a static trade-off in which more information lowers regulatory effort. Dynamically, institutional separation improves the screening of regulators. This leads to switching between centralization and separation in equilibrium.
    Date: 2016–12
  9. By: Judson P. Boomhower; Lucas W. Davis
    Abstract: Electricity cannot be cost-effectively stored even for short periods of time. Consequently, wholesale electricity prices vary widely across hours of the day with peak prices frequently exceeding off-peak prices by a factor of ten or more. Most analyses of energy-efficiency policies ignore this variation, focusing on total energy savings without regard to when those savings occur. In this paper we demonstrate the importance of this distinction using novel evidence from a rebate program for air conditioners in Southern California. We estimate electricity savings using hourly smart-meter data and show that savings tend to occur during hours when the value of electricity is high. This significantly increases the overall value of the program, especially once we account for the large capacity payments received by generators to guarantee their availability in high-demand hours. We then compare this estimated savings profile with engineering-based estimates for this program as well as a variety of alternative energy-efficiency investments. The results illustrate a surprisingly large amount of variation in economic value across investments.
    JEL: D40 Q41
    Date: 2017–01
  10. By: Andor, Mark; Gerster, Andreas; Sommer, Stephan
    Abstract: Energy labels have been introduced in many countries to increase consumers' attention to energy use in purchase decisions of durables. In a discrete-choice experiment among about 5,000 households, we implement randomized information treatments to explore how energy labels influence purchasing decisions. Our results show that adding annual operating cost information to the EU energy label promotes the choice of energy-efficient durables. In addition, we find that a majority of participants value efficiency classes beyond the economic value of the underlying energy use differences. Our results further indicate that displaying operating cost affects choices through two distinct channels: it increases the attention to operating cost and reduces the valuation of efficiency class differences.
    Keywords: environmental certification,discrete choice experiment,energy efficiency,energy-using durables
    JEL: D03 D12 D83 Q48 Q50
    Date: 2017
  11. By: Breen, Benjamin; Curtis, John; Hynes, Stephen
    Abstract: This study combines routinely collected water quality data from Ireland and an on-site survey of waterway users to evaluate how water quality affects trip days demanded for recreational activities. Water quality measures employed in the analysis include Water Framework Directive (WFD) ecological status as well as several physio-chemical measures. The analysis finds some evidence that higher levels of recreational demand occur at sites with the highest quality metric measures. However, in many of the estimated models there is no statistical association between the water quality metric (e.g. WFD status, BOD, ammonia, etc.) and the duration of the recreational trip. As most sites considered in the analysis have relatively high levels of water quality this result possibly suggests that above an unspecified threshold level that water quality is not a significant determinant of recreational trip duration. Model estimates also reveal a relatively high valuation among participants for water-based recreational activity with an estimate of mean willingness to pay equivalent to €204/day
    Date: 2017–01
  12. By: Psarras, Peter C. (Stanford University); Bains, Praveen (Stanford University); Charoensawadpong, Panunya (Stanford University); Carrington, Mark (Stanford University); Comello, Stephen (Stanford University); Reichelstein, Stefan (Stanford University); Wilcox, Jennifer (CO School of Mines)
    Abstract: It is well documented that a concerted effort is required to reduce the threat of climate change. One vital component in this portfolio of solutions--carbon capture and utilization--has been stalled by significant economic and technical barriers. To overcome these obstacles, it is necessary to identify economically viable capture opportunities--targets that can serve as a driver to lower life cycle costs, increase commercialization efforts and provide an impetus for development in the utilization arena. This study presents a methodology for assessing the levelized cost of CO2 capture, compression, and transport from industrially-sourced capture to regional utilization (sink) opportunities. Industrial sources are targeted over coal and gas-fired power plants given industrial sources often have exhausts with higher CO2 purity, a factor that lends to a lower minimum work of separation and, hence, lower cost of capture. The greater concentration in CO2 results from combination of process emissions with those associated with stationary combustion. These industrial sources, together with a full inventory of geo-referenced utilization opportunities, serve as inputs to a robust cost model that accommodates for differences in source exhaust composition, flow rate, and source-sink geographical relationships. A case-study conducted for the US state of Pennsylvania yields a cost-based ranking of 47 industrial sites, whereby steel and cement manufacturing dominated the least levelized cost options, anchored by high CO2 exhaust content (14 - 33% CO2). Further, we find truck transport is cost-competitive with pipeline for small volumes (
    Date: 2017–01
  13. By: Lips, Johannes
    Abstract: During the last years, the German energy sector and especially its electricity market was affected by a major energy transition, the so called „Energiewende“. This transition led to an increase of electricity production from renewable sources and thereby affected the whole electricity market. Therefore, it provides lessons for countries, which are only beginning a similar transition away from fossil fuels to renewable energy sources. The aim of this analysis is to assess if there still exists a relationship between fossil fuel and electricity prices. Due to possible structural breaks in the time series a minimum Lagrange Multiplier (LM) stationarity test is applied, which endogenously determines possible structural breaks. Subsequently a bootstrap approach is used to estimate con- fidence intervals (C.I.s) for the test statistic and the possible break dates. Furthermore, the stability of the cointegration vector is assessed with the test by Hansen and Jo- hansen (1999). The results indicate that the cointegration relationship is not stable over time. To incorporate these findings, the cointegration analysis is based on Johansen et al. (2000), which allows structural breaks in the deterministic part of the cointegra- tion relation. These results supports the assumption that the energy transition affected the relationship between fossil fuels and electricity prices, although there still exists a relatively strong cointegration relation between fossil fuel and electricity prices in the long run.
    JEL: C58 Q40 Q41
    Date: 2016
  14. By: SOMOGYI, Robert (Université catholique de Louvain, CORE, Belgium)
    Abstract: This paper studies zero-rating, an emerging business practice consisting in a mobile internet service provider (ISP) excluding the data generated by certain content providers (CPs) from its consumers' monthly data cap. Being at odds with the principle of net neutrality, these arrangements have recently attracted regulatory scrutiny all over the word. I analyze zero-rating incentives of a monopolistic ISP facing a capacity constraint in a two-sided market where consumption provides utility for homogeneous consumers as well as advertising revenue for CPs. Focusing on a market with two CPs competing with each other and all other content which is never zero-rated, I identify parameter regions in which zero, one or two CPs are zero-rated. Surprisingly, the ISP may zero rate content when content is either very unattractive or very attractive for consumers, but not in the intermediary region. I show that zero-rating harms consumers if content is unattractive, whereas it improves social welfare in the case of attractive content.
    Keywords: Zero-rating; Sponsored Data; Net Neutrality; Data Cap; Capacity Constraint
    JEL: D21 L12 L51 L96
    Date: 2016–12–31

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