|
on Regulation |
| By: | Angelica Gianfreda (Free University of Bozen-Bolzano, Faculty of Economics and Management); Derek Bunn (London Business School, Energy Markets Group) |
| Abstract: | The wide range of models needed to support the various short-term operations for electricity generation demonstrates the importance of accurate specifications for the uncertainty in market prices. This is becoming increasingly challenging, since electricity hourly price densities exhibit a variety of shapes, with their characteristic features changing substantially within the day and over time, and the in ux of renewable power, wind and solar in particular, has amplified these effects. A general-purpose, analytically tractable representation of the stochastic price formation process would have considerable value for operations control and trading, but existing empirical approaches or the application of standard density functions are unsatisfactory. We develop a general four parameter stochastic model for hourly prices, in which the four moments of the density function are dynamically estimated as latent state variables and furthermore modelled as functions of several plausible exogenous drivers. This provides a transparent and credible model that is suffciently exible to capture the shape-shifting effects, particularly with respect to the wind and solar output variations causing dynamic switches in the upside and downside risks. Extensive testing on German wholesale price data, benchmarked against quantile regression and other models in out-of-sample backtesting, validated the approach and its analytical appeal. |
| Keywords: | Electricity Prices, Density Estimation, Skewness, Quantiles, Risk |
| JEL: | C01 C21 C22 C32 C53 Q41 Q47 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:bzn:wpaper:bemps46&r=reg |
| By: | Löschel, Andreas; Lutz, Benjamin Johannes; Massier, Philipp |
| Abstract: | We analyze the drivers and barriers that influence investments increasing the energy efficiency of firms' production processes or buildings in the German manufacturing sector based on microdata. In particular, we shed light on the relationship between financial barriers (e. g. credit constraints), information and knowledge (e. g. energy management practices), salience of energy-related topics, and the investments in energy saving technologies. A better understanding of firms' investment behavior regarding energy saving technologies is crucial to design efficient policy measures, which are necessary to achieve the imposed ambitious climate and energy policy targets. We use data from 701 structured telephone interviews in combination with commercial and confidential firm-level data. Our results suggest that energy management practices have a statistically significant positive relationship with investment decisions on energy saving technologies for production processes and buildings. Credit constraints are a barrier to investments in the energy efficiency of firms' production processes. Furthermore, high energy cost shares of heating or cooling, high energy intensity, energy self-generation and structured internal decision making processes influence the investments in energy efficiency positively. |
| Keywords: | Energy efficiency,Credit constraints,Energy management,Manufacturing,industry,Investment behavior |
| JEL: | D22 H23 Q41 Q48 Q58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:17072&r=reg |
| By: | Angelica Gianfreda (Free University of Bozen-Bolzano, Faculty of Economics and Management); Lucia Parisio (University of Milano-Bicocca, DEMS); Matteo Pelagatti (University of Milano-Bicocca, DEMS) |
| Abstract: | The massive introduction of RES in electricity markets is recognized to have induced a merit order effect on wholesale prices. While day-ahead prices are likely to decline as RES-E production increases, the effects on balancing market sessions are more ambiguous. Taking into account the Northern Italian zone characterized by a high solar PV and hydro penetration, we provide empirical evidence that balancing quantities decreased while costs increased between two samples associated with low (2006-08) and high (2013-15) RES levels. We estimate balancing costs for different technologies and compare their dynamics across specific hours. We find evidence of increasing balancing prices in particular market conditions, that we interpret as a signal of strategic use of real time sessions by conventional producers prone to the merit order effect in the day-ahead market. We compare our results to those obtained in the German market (where, on the contrary, balancing costs have decreased) and postulate that the different market designs may explain these results. Our findings suggest that Italian policy makers should 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, additionally, to promptly adopt a capacity market. |
| Keywords: | Electricity market, Merit order effect, Balancing Cost, Up-regulation, Down-regulation, Uplift |
| JEL: | D04 D24 L1 O13 Q41 Q42 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:bzn:wpaper:bemps45&r=reg |
| By: | Mbéa Bell; Sylvain Dessy |
| Abstract: | This paper compares a clean energy standard (CES) and a carbon tax (CT), using theory and quantitative experiments. A two-stage duopolistic competition in the electricity sector between a polluting plant and its non-polluting rival anchors the model underlying these experiments. The CT induces both plants to contribute to clean electricity, whereas the CES only incentivizes the non-polluting plant. Ultimately, what matters for the ranking of these instruments is the size of the pre-existing competitive gap between the two rival plants. When this gap is sufficiently small, the CES becomes the more cost-effective instrument, irrespective of the pre-specified emissions reduction target. |
| Keywords: | Electricity, Cost-effectiveness, Duopoly, Innovation, Quantitative analysis. |
| JEL: | H20 H32 L13 L51 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:crrecr:1704&r=reg |
| By: | Izabela Jelovac (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Samuel Kembou Nzale (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique - ECM - Ecole Centrale de Marseille) |
| Abstract: | We study optimal contracts in a regulator-agent setting with joint production, altruistic and selfish agents, and uneasy outcome measurement. Such a setting represents sectors of activities such as education and health care provision. The agents and the regulator jointly produce an outcome for which they all care to some extent that is varying from agent to agent. Some agents, the altruistic ones, care more than the regulator does while others, the selfish agents, care less. Moral hazard is present due to the agent’s effort that is not contractible. Adverse selection is present too since the regulator cannot a priori distinguish between altruistic and selfish agents. Contracts consist of a simple transfer from the regulator to the agents together with the regulator’s input in the joint production. We show that a screening contract is not optimal when we face both moral hazard and adverse selection. |
| Keywords: | altruism,moral hazard,adverse selection,regulator-agent joint production |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01616193&r=reg |
| By: | Belleflamme, Paul; Peitz, Martin |
| Abstract: | Competition between two-sided platforms is shaped by the possibility of multihoming. If users on both sides singlehome, each platform provides users on either side exclusive access to its users on the other side. In contrast, if users on one side can multihome, platforms exert monopoly power on that side and compete on the singlehoming side. This paper explores the allocative effects of such a change from single- to multihoming. Our results challenge the conventional wisdom, according to which the possibility of multihoming hurts the side that can multihome, while benefiting the other side. This is not always true: the opposite may happen or both sides may benefit. |
| Keywords: | competitive bottleneck; multihoming; network effects; platform competition; Two-sided markets |
| JEL: | D43 L13 L86 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12452&r=reg |
| By: | Christian Pape (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen)) |
| Abstract: | An increasing share of variable renewable energy sources (VREs) basically affects the electricity price formation in two ways: (1) The so-called merit order effect tends to lower the base price level and challenges conventional plants to remain profitable. (2) Due to the variable nature of renewable energy infeed, the shortterm demand for flexibility increases and changes the volatility of electricity prices. The more variable prices offer opportunities for controllable electricity producers (CEPs) to provide up- and down-ramping flexibility to increase their revenues. In contrast, the VREs with high degrees of simultaneity tend to pay for this flexibility in the electricity spot market to reduce their imbalance exposure. The intraday market (IDM) for electricity has gained importance for the market value of different technologies lately and continues to expand due to the increasing efforts to balance within-day deviation from day-ahead schedules. This article presents a combination and extension of two existing models to capture the peculiarities of the intraday price formation and to analyse the impact of the IDM on the market value of VREs and CEPs. Doing so, the paper suggests an adjustment of the classical market value factor metric and to go beyond classical day-ahead market (DAM) information. The article shows that market value factors (MVFs) can be stabilized if the IDM delivers ‘marketbased’ price signals for the costs of flexibility, that are sufficient to activate flexibilities prior to the usually more expensive imbalance mechanism (IBM). Yet, the MVFs from single VRE technologies will worsen if their market share is high enough to outweigh forecast errors from other technologies and if they become a permanent price maker in the IDM and the IBM. |
| Keywords: | intraday markets, imbalance mechanism, market value, renewable energy |
| JEL: | Q47 N74 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:dui:wpaper:1711&r=reg |
| By: | Hannula, I.; Reiner, D. |
| Abstract: | Carbon-neutral synthetic fuels (CNSFs) could offer sustainable alternatives to petroleum distillates that currently dominate the transportation sector, and address the challenge of decarbonising the fuel mix. CNSFs can be divided into synthetic biofuels and 'electrofuels' produced from CO2 and water with electricity. We provide a framework for comparing CNSFs to battery electric vehicles (BEVs) as alternatives to reduce vehicle emissions. Currently, all three options are significantly more expensive than conventional vehicles using fossil fuels, and would require carbon prices in excess of $250/tCO2 or oil prices in excess of $150/bbl to become competitive. BEVs are emerging as a competitive option for short distances, but their competitiveness quickly deteriorates at higher ranges where synthetic biofuels are a lower-cost option. For electrofuels to be viable, the challenge is not simply technological learning, but access to a low-cost ultra-low-carbon electric power system, or to low-carbon electric generators with high annual availability. |
| Keywords: | Carbon-neutral synthetic fuels, electrofuels, advanced biofuels, battery electric vehicles, low-carbon transportation alternatives |
| JEL: | Q41 Q42 Q55 R41 R48 O33 |
| Date: | 2017–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1758&r=reg |
| By: | Jan Horst Keppler (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Sébastien Phan (Autre - non renseigné); Yannick Le Pen (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Charlotte Boureau (Autre - non renseigné) |
| Abstract: | Interconnecting two adjacent areas of electricity production generates benefits in combined consumer surplus and welfare by allowing electricity to flow from the low cost area to the high cost area. It will lower prices in the high cost area, raise them in the low cost area and will thus have prices in the two areas converge. With unconstrained interconnection capacity, price convergence is, of course, complete and the two areas are merged into a single area. With constrained interconnection capacity, the challenge for transport system operators (TSOs) and market operators is using the available capacity in an optimal manner. This was the logic behind the “market coupling” mechanism installed by European power market operators in November 2009 in the Central Western Europe (CWE) electricity market, of which France and Germany constitute by far the two largest members. Market coupling aims at optimising welfare by ensuring that buyers and sellers exchange electricity at the best possible price taking into account the combined order books all power exchanges involved as well as the available transfer capacities between different bidding zones. By doing so, interconnection capacity is allocated to those who value it most. |
| Keywords: | Electricity market |
| Date: | 2017–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01599700&r=reg |
| By: | Luigi Brighi; Marcello D'Amato |
| Abstract: | We study a two-period entry model where the incumbent, privately informed about his cost of production, makes a long run investment choice along with a pricing decision. Investment is costreducing and its effects are assumed to differ across incumbent’s types, as a result investment plays a double role as a commitment variable and, along with price, as a signal. We ask whether and how investment decisions allow the incumbent to limit entry into the market. We find that the incumbent will never undertake strategic investment to deter profitable entry, because when incumbent’s costs are private information the signaling role of investment cancels out its value of commitment. |
| Keywords: | Entry deterrence, commitment, limit pricing, multiple signaling |
| JEL: | D58 L51 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:mod:recent:134&r=reg |
| By: | Vogt-Schilb, Adrien; Meunier, Guy; Hallegatte, Stéphane |
| Abstract: | This paper finds that it is optimal to start a long-term emission-reduction strategy with significant short-term abatement investment, even if the optimal carbon price starts low and grows progressively over time. Moreover, optimal marginal abatement investment costs differ across sectors of the economy. It may be preferable to spend $25 to avoid the marginal ton of carbon in a sector where abatement capital is expensive, such as public transportation, or in a sector with large abatement potential, such as the power sector, than $15 for the marginal ton in a sector with lower cost or lower abatement potential. The reason, distinct from learning spillovers, is that reducing greenhouse gas emissions requires investment in long-lived abatement capital such as clean power plants or public transport infrastructure. The value of abatement investment comes from avoided emissions, but also from the value of abatement capital in the future. The optimal levelized cost of conserved carbon can thus be higher than the optimal carbon price. It is higher in sectors with higher investment needs: those where abatement capital is more expensive or sectors with larger abatement potential. We compare our approach to the traditional abatement-cost-curve model and discuss implications for policy design. |
| Keywords: | climate change mitigation, transition to clean capital, path dependence, social cost of carbon, marginal abatement cost, timing |
| JEL: | Q52 Q54 Q58 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82608&r=reg |
| By: | Spodniak, Petr; Bertsch, Valentin |
| Abstract: | The growth in variable renewable energy (vRES) and the need for flexibility in power systems go hand in hand. We study how vRES and other factors, namely the price of substitute fuels, power price volatility, structural breaks, and seasonality impact the hedgeable power spreads (profit margins) of the main dispatchable flexibility providers in the current power systems – gas and coal power plants. We particularly focus on power spreads that are hedgeable in futures markets in three European electricity markets (Germany, UK, Nordic) over the time period 2009-2016. We find that market participants who use power spreads need to pay attention to the fundamental supply and demand changes in the underlying markets (electricity, CO2, and coal/gas). Specifically, we show that the total vRES capacity installed during 2009-2016 is associated with a drop of 3-22% in hedgeable profit margins of coal and especially gas power generators. While this shows that the expansion of vRES has a significant negative effect on the hedgeable profitability of dispatchable, flexible power generators, it also suggests that the overall decline in power spreads is further driven by the price dynamics in the CO2 and fuel markets during the sample period. We also find significant persistence (and asymmetric effects) in the power spreads volatility using a univariate TGARCH model. |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp580&r=reg |
| By: | GAUTIER Axel (Université de Liège, HEC Liège, LCII and CORE); JACQMIN Julien (Université de Liège, HEC Liège, and LCII); POUDOU Jean-Christophe (LAMETA, Université de Montpellier) |
| Abstract: | Prosumers are households that are both producers and consumers of electricity. A prosumer has a grid-connected decentralized production unit (DPU) and makes two types of exchanges with the grid: energy imports when the local production is insu cient to match the local consumption and energy exports when local production exceeds it. There exists two systems to measure the exchanges : a net metering system that uses a single meter to measure the balance between exports and imports and a net purchasing system that uses two meters to measure separately power exports and im-ports. Both systems are currently used for residential consumption. We build a model to compare the two metering systems. Under net metering, the price of exports paid to prosumers is implicitly set at the price of the electricity that they import. We show that net metering leads to (1) too many prosumers, (2) a decrease in the bills of prosumers, compensated via a higher bill for traditional consumers, and (3) a lack of incentives to synchronize local production and consumption. |
| Keywords: | decentralized production unit, grid regulation, solar panel, grid tari , storage |
| JEL: | D13 L51 L94 Q42 |
| Date: | 2017–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2017018&r=reg |
| By: | Lynch, Muireann A |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:esr:resnot:rn20170201&r=reg |
| By: | Achtnicht, Martin; Germeshausen, Robert; von Graevenitz, Kathrine |
| Abstract: | In this paper, we investigate the effect of the state-level renewable heating mandate for existing homes in Baden-Wuerttemberg, Germany's third largest federal state. The mandate requires homeowners to supply at least 10 % of their heat demand with renewable energy when they replace their existing heating system. To assess the impact of the renewable heating standard on the uptake of renewable heating systems, we use unique data on a federal government subsidy scheme and exploit geographic differences in state laws over time. We find no evidence of an effect of the mandate even after restricting distance to the state border and refining the data set through matching on population and building characteristics. These findings are unchanged, when we allow effects to vary across space or over time. While energy efficiency and renewable standards are often criticized for not being cost-effective, our results challenge the widespread view that a standard is nevertheless successful in achieving its policy goal. |
| Keywords: | Technology diffusion,Building regulations,Subsidies,Renewable energy sources |
| JEL: | Q4 Q48 O33 Q58 H23 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:17067&r=reg |
| By: | Lutz, Benjamin Johannes; Massier, Philipp; Sommerfeld, Katrin; Löschel, Andreas |
| Abstract: | Increasing energy efficiency is one of the main goals in current German energy and climate policies. We study the determinants of energy efficiency in the German manufacturing sector based on official firm-level production census data. By means of a stochastic frontier analysis, we estimate the cost-minimizing energy demand function at the two-digit industry level using firm-level heterogeneity. Apart from the identification of the determinants of the energy demand function, we also analyze potential drivers of energy efficiency. Our results suggest that there is still potential to increase energy efficiency in most industries of the German manufacturing sector. Furthermore, we find that in most industries exporting and innovating firms as well as those investing in environmental protection measures are more energy efficient than their counterparts. In contrast, firms which are regulated by the European Union Emissions Trading System are mostly less energy efficient than non-regulated firms. |
| Keywords: | Stochastic Frontier Analysis,Stochastic Demand Frontier,Energy Efficiency,Climate Policy,Manufacturing |
| JEL: | D22 D24 L60 Q41 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:17068&r=reg |