nep-reg New Economics Papers
on Regulation
Issue of 2017‒03‒19
ten papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Wind, Storage, Interconnection and the Cost of Electricity Generation By Di Cosmo, Valeria; Malaguzzi Valeri, Laura
  2. Providing efficient network access to green power generators: : A long-term property rights perspective. By Petropoulos, G.; Willems, Bert
  3. Consumer switching intentions for telecoms services: evidence from Ireland By Peter D., Lunn; Sean, Lyons
  4. Phasing out coal and phasing in renewables – good or bad news for arctic gas producers? By Lars Lindholt; Solveig Glomsrød
  5. Investment in Energy Efficiency, Adoption of Renewable Energy and Household Behaviour: Evidence from OECD countries By Prudence Dato
  6. The French nuclear bet By Quentin Perrier
  7. System Integration of Wind and Solar Power in Integrated Assessment Models: a Cross-model Evaluation of New Approaches By Pietzcker, Robert C.; Ueckerdt, Falko; Carrara, Samuel; de Boer, Harmen Sytze; Després, Jacques; Fujimori, Shinichiro; Johnson, Nils; Kitous, Alban; Scholz, Yvonne; Sullivan, Patrick; Luderer, Gunnar
  8. Pass-Through By Multiproduct Firms By Romahn, André; Friberg, Richard
  9. Commuting and internet traffic congestion By Berliant, Marcus
  10. Dirty Little Secrets: Inferring Fossil-Fuel Subsidies from Patterns in Emission Intensities By Radoslaw Stefanski

  1. By: Di Cosmo, Valeria; Malaguzzi Valeri, Laura
    Abstract: We evaluate how increasing wind generation affects wholesale electricity prices, balancing payments and the cost of subsidies using the Irish Single Electricity Market (SEM) as a test system, with hourly data from 1 January 2008 to 28 August 2012. We model the spot market using a system of seemingly unrelated regressions (SUR) where the regressions are the 24 hours of the day. Wind has a negative impact on the system marginal price, with every MWh increase in wind generation (equal to about 0.2% of the average wind generation in our sample) leading to a decrease of the system marginal price of €0.018/MWh, or about 0.3% of its average value. We use time series models to analyse the balancing market and show that wind generation increases balancing payments, as do the forecast errors of demand and wind. Every MWh of additional wind generation is associated with an increase in constraint payments of €3.2, or about 0.01%. Lack of storage increases the impact of wind on balancing payments whereas the lack of interconnection has no effect. Overall, wind decreases costs through its effect on the electricity price more than it increases constraint payments, even when storage is on outage. The effect of wind remains positive after including the cost of subsidies given to wind generation.
    Keywords: Wind Generation, Constraints, Storage, Interconnection, Subsidies, Resource /Energy Economics and Policy, L94, Q42,
    Date: 2017–03–03
  2. By: Petropoulos, G.; Willems, Bert
    Abstract: Coordinating the timing of new production facilities is one of the challenges of liberalized power sectors. It is complicated by the presence of transmission bottlenecks, oligopolistic competition and the unknown prospects of low-carbon technologies. We build a model encompassing a late and early investment stage, an existing dirty (brown) and a future clean (green) technology and a single transmission bottleneck, and compare dynamic efficiency of several market designs. Allocating network access on a short-term competitive basis distorts investment decisions, as brown firms will preempt green competitors by investing early. Dynamic efficiency is restored with long-term transmission rights that can be traded on a secondary market. We show that dynamic efficiency does not require the existence of physical rights for accessing the transmission line, but financial rights on receiving the scarcity revenues generated by the transmission line suffice.
    Keywords: network access, congestion management, renewable energy sources, power markets
    JEL: C72 D43 L13 L94
    Date: 2017–02
  3. By: Peter D., Lunn; Sean, Lyons
    Abstract: Despite long-standing market liberalisation and efforts to reduce switching costs, many consumers have never switched telecoms provider. This paper investigates how consumer and service characteristics relate to switching intentions, using a sample of fixed-line broadband, mobile telephony and landline telephony customers from a 2015 survey conducted by ComReg, Ireland’s National Regulatory Authority. We add to previous work by examining a rich array of personal and service characteristics while controlling for both bill shock and expected gains from switching. We find that long-standing subscribers who have never switched are exceptionally resistant to switching. Bill shock is strongly associated with intention to switch, especially among those more inclined to switch. A similar effect arises for expected gains, especially gains over 20%. These results are consistent with both a preference for fair treatment and with behavioural barriers to switching that require large gains to overcome. The effects of bundling and of the few socioeconomic, supplier or application use characteristics that are statistically significant are smaller and not consistent across markets. This implies that willingness to switch is not simply a characteristic of certain social groups, but is more complex and context dependent.
    Keywords: telecommunications services, consumer switching, Ireland
    JEL: D03 D12 L96
    Date: 2017–03–10
  4. By: Lars Lindholt; Solveig Glomsrød (Statistics Norway)
    Abstract: This paper examines to what extent downscaling of global coal based electricity generation encourages gas demand and affects regional activity in gas production, with emphasis on the arctic regions. In our reference scenario up to 2050 we take into consideration that renewables is set to increase its contribution to global electricity production over time, while coal will contribute less. We find that a policy scenario with further phasing out of coal and phasing in of renewables in line with the 2 degrees scenario for the power sector up to 2050, will lead to reduced arctic gas production compared to the reference scenario, although total worldwide electricity production doubles over the same period. However, even in a situation with less resources and higher costs in the Arctic, future investments in new reserves in the region are still profitable in our policy scenario, as total arctic gas production then is only marginally lower in 2050 than today.
    Keywords: Arctic; Coal market; Gas market; Electricity market; Equilibrium model
    JEL: Q31 Q41 Q58
    Date: 2017–03
  5. By: Prudence Dato (IREGE-Université Savoie Mont Blanc)
    Abstract: There are possible synergies between the decision to invest in energy efficiency measures and to adopt renewable energy, in the sense that the former reduces energy demand so that the latter can further cut future greenhouse gas (GHG) emissions, and which has great potential in the residential sector. Much work has been done in the residential sector on demand for clean energy and on investment in energy efficiency, but to our knowledge there is no specific study that investigates the interaction between the two. This paper fills a gap in the literature, and first shows theoretically that there are interactions between the two decisions depending on the threshold of the cross effect related to the environmental motivation of the consumer. Second, the paper empirically shows that the two decisions are positively interrelated and cannot be estimated independently. As a result, univariate methods that estimate the decision to adopt renewable energy and investment in energy efficiency separately may produce biased results, because there may be unobserved characteristics that determine both decisions. Third, the paper investigates household characteristics that significantly affect the interaction between the two decisions using a generalised ordered logit model. Specifically, the paper provides evidence of factors that affect the joint probability of adopting renewable energy and investing in energy efficiency, and the probability of doing nothing. This contribution can serve to define incentive policies to advance the energy transition.
    Keywords: Energy efficiency, Renewable energy, Bivariate probit, Generalised ordered logit
    JEL: Q42 Q21 C35 D11
    Date: 2017–02
  6. By: Quentin Perrier (CIRED; Engie)
    Abstract: After the first oil shock, France fully engaged in the world’s largest nuclear program, ordering 36 reactors within two years. These reactors are now reaching the end of their lifetime, so a new policy must be defined: Should they be retrofitted or decommissioned? What are the prospects for nuclear afterwards? The best economic decision crucially depends on the future costs of nuclear, demand levels and CO2 price, which are all subject to significant uncertainty. To deal with these uncertainties, we apply the framework of Robust Decision Making to determine which plants should be retrofitted. We build an optimization model of investment and dispatch, calibrated for France. Then we use it to study 27 retrofit strategies for all combinations of uncertain parameters. Based on nearly 3,000 runs, our analysis reveals one robust strategy, which is to shut down from 7 to 14 of the oldest 14 reactors, and then extend the lifetime of all remaining reactors. Departing from cost-minimization strategies and from the French official scenarios, this provides a hedge against unexpected high retrofit cost, decreasing demand or low CO2 price. But we also show how this strategy remains vulnerable to a combination of these three elements, which helps understand and put numbers on the current debate. In the longer term, we show that the optimal share of nuclear in the power mix decreases. If the cost of new reactors (EPR or else) remains higher than 80 €/MWh, this optimal share drops below 40% in 2050. A combination of variable renewables, hydropower and gas becomes competitive, even if the price of CO2 reaches 200 €/tCO2.
    Keywords: Electricity, Nuclear, Investment, Uncertainty, Robust Decision Making
    JEL: Q41 Q48 C61 D81
    Date: 2017–02
  7. By: Pietzcker, Robert C.; Ueckerdt, Falko; Carrara, Samuel; de Boer, Harmen Sytze; Després, Jacques; Fujimori, Shinichiro; Johnson, Nils; Kitous, Alban; Scholz, Yvonne; Sullivan, Patrick; Luderer, Gunnar
    Abstract: Mitigation-Process Integrated Assessment Models (MP-IAMs) are used to analyze long-term transformation pathways of the energy system required to achieve stringent climate change mitigation targets. Due to their substantial temporal and spatial aggregation, IAMs cannot explicitly represent all detailed challenges of integrating the variable renewable energies (VRE) wind and solar in power systems, but rather rely on parameterized modeling approaches. In the ADVANCE project, six international modeling teams have developed new approaches to improve the representation of power sector dynamics and VRE integration in IAMs. In this study, we qualitatively and quantitatively evaluate the last years’ modeling progress and study the impact of VRE integration modeling on VRE deployment in IAM scenarios. For a comprehensive and transparent qualitative evaluation, we first develop a framework of 18 features of power sector dynamics and VRE integration. We then apply this framework to the newly-developed modeling approaches to derive a detailed map of strengths and limitations of the different approaches. For the quantitative evaluation, we compare the IAMs to the detailed hourly-resolution power sector model REMIX. We find that the new modeling approaches manage to represent a large number of features of the power sector, and the numerical results are in reasonable agreement with those derived from the detailed power sector model. Updating the power sector representation and the cost and resources of wind and solar substantially increased wind and solar shares across models: Under a carbon price of 30$/tCO2 in 2020 (increasing by 5% per year), the model-average cost-minimizing VRE share over the period 2050-2100 is 62% of electricity generation, 24%-points higher than with the old model version.
    Keywords: Integrated Assessment Models (IAM), Variable Renewable Energy (VRE), Wind and Solar Power, System Integration, Power Sector Model, Flexibility Options (Storage, Transmission Grid, Demand Response), Model Evaluation, Model Validation, Resource /Energy Economics and Policy, C6, C61, Q40, Q42, Q47, Q49,
    Date: 2017–03–03
  8. By: Romahn, André; Friberg, Richard
    Abstract: How does cost pass-through to prices depend on the set of products a multiproduct firm owns? Using a structural demand model for the Swedish beer market, we simulate equilibrium cost pass-through for varying counterfactual ownership patterns. We find that a firm with a larger number of products in its portfolio and a higher degree of substitutability among these products adopts a lower pass-through of costs. While the direction of results is robust, our simulations show that the muting effect on pass-through is limited when comparing pass-through by stand-alone firms to pass-through under the actual, moderately concentrated, market structure.
    JEL: L11 L13 E31
    Date: 2016
  9. By: Berliant, Marcus
    Abstract: We examine the fine microstructure of commuting in a game-theoretic setting with a continuum of commuters. Commuters' home and work locations can be heterogeneous. A commuter transport network is exogenous. Traffic speed is determined by link capacity and by local congestion at a time and place along a link, where local congestion at a time and place is endogenous. The model can be reinterpreted to apply to congestion on the internet. We find sufficient conditions for existence of equilibrium, that multiple equilibria are ubiquitous, and that the welfare properties of morning and evening commute equilibria differ.
    Keywords: Commuting; Congestion externality; Efficient Nash equilibrium
    JEL: L86 R41
    Date: 2017–03–09
  10. By: Radoslaw Stefanski (University of St Andrews)
    Abstract: I develop a unique database of international fossil-fuel subsidies by examining country specific patterns in carbon emission-to-GDP ratios, known as emission-intensities. For most - but not all - countries, intensities tend to be hump-shaped with income. I construct a model of structural-transformation that generates this hump-shaped intensity and then show that deviations from this pattern must be driven by distortions to sectoral-productivity and/or fossil-fuel prices. Finally, I use the calibrated-model to measure these distortions for 170 countries for 1980-2010. This methodology reveals that fossil-fuel price-distortions are large, increasing and often hidden. Furthermore, they are major contributors to higher carbon-emissions and lower GDP.
    Keywords: Carbon Subsidies; Subsidies; Fossil Fuels; Pollution; Energy; Energy Intensity; Industrialization; Structural Transformation; Climate Change; Global Warming; Emissions
    JEL: O1 O44 O41 Q53 Q54 H23
    Date: 2017–03–06

This nep-reg issue is ©2017 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.
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