nep-reg New Economics Papers
on Regulation
Issue of 2019‒09‒02
fifteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Use and Abuse of Regulated Prices in Electricity Markets: "How to Regulate Regulated Prices?" By Martimort, David; Pouyet, Jérôme; Staropoli, Carine
  2. Competition in Markets for Ancillary Services? The implications of rising distributed generation By Pollitt, M., Anaya, K.; Anaya, K.
  3. The Cost of a Carbon-Free Electricity System in the U.S. By Geoffrey Heal
  4. Estimating the Economy-Wide Rebound Effect Using Empirically Identified Structural Vector Autoregressions By Stephan B. Bruns; Alessio Moneta; David I. Stern
  5. Assessing Market Power in the Italian Electricity Market: A synthetic supply approach By Rossetto, F.; Grossi, L.; Pollitt, M.
  6. Heterogeneous welfare and emission effects of energy tax policies in Brazil By Paula Pereda; Maria Alice Christofoletti
  7. The Impact of High Renewable Energy Mandates on Water Use in Electricity Generation By Reed, Michael E.; Elbakidze, Levan
  8. Does competition increase pass-through? By Ritz, R.
  9. Reforming the Electric Power Industry in Developing Economies By Dertinger, Andrea; Hirth, Lion
  10. A free rider problem? The effect of electric vehicles on urban toll prices in Norway By Lana Krehic
  11. Coexistence between Digital TV Broadcasting and Cellular Systems in UHF: Policy Implications By Abdelghany, M.; Digham, F.
  12. Spectrum Sharing Proposal for Maximizing Cellular Networks’ Spectral Efficiency By Metwally, Mohamed; Abu-Gabal, Mohamed
  13. Access to Electricity and ICT Usage: A Country-level Assessment on Sub-Saharan Africa By Houngbonon, Georges V.; Le Quentrec, Erwan
  14. Revenue Sharing in the Internet: A Moral Hazard Approach and a Net-neutrality Perspective By Fehmina Malik; Manjesh K. ~Hanawal; Yezekael Hayel; Jayakrishnan Nair
  15. Output and Attribute-Based Carbon Regulation Under Uncertainty By Ryan Kellogg

  1. By: Martimort, David; Pouyet, Jérôme; Staropoli, Carine
    Abstract: We consider the regulation of the tariffs charged by a public utility in the electricity sector. Consumers differ in terms of their demands which are private information. When regulating the firm's tariffs, the government is concerned by redistribution across consumers classes. A conflict between redistribution and screening induces production distortions even when the firm is a monopoly. Introducing competition with an unregulated fringe may improve efficiency but jeopardizes redistribution. In response, the government may now want to manipulate information about the incumbent's cost so as to restrict entry and better promote its own redistributive objective. To prevent such obstacle to entry, the government's discretion in fixing regulated tariffs of the incumbent should be restricted. This can be done by imposing floors or caps on those tariffs and/or by controlling the market share left to the competitive fringe. We highlight the determinants of such limits on discretion and unveil to what extent they depend on the government's redistributive concerns.
    Keywords: Electricity markets; government's redistributive concerns; optimal discretion; regulated tariffs
    JEL: L51 L94 L98 Q41 Q48
    Date: 2019–06
  2. By: Pollitt, M., Anaya, K.; Anaya, K.
    Abstract: Ancillary services are electricity products which include balancing energy, frequency regulation, voltage support, constraint management and reserves. Traditionally they have been procured by system operators from large conventional power plants, as by-products of the production of energy. This paper discusses the use of markets to procure ancillary services in the face of potentially higher demand for them, caused by rising amounts of intermittent renewable generation. We discuss: the nature of markets for ancillary services; what we really mean by ancillary services; how they are impacted by the rise of distributed generation; how they are currently procured; how they relate to the rest of the electricity system; the current state of evidence on ancillary services markets; whether these markets ever be as competitive as conventional wholesale energy markets, and offer some conclusions.
    Keywords: ancillary services, balancing energy, frequency regulation, reactive power, constraint management, reserves
    JEL: L94
    Date: 2019–08–21
  3. By: Geoffrey Heal
    Abstract: I calculate the cost of replacing all power stations in the U.S. using coal and gas by wind and solar power stations by 2050, leaving electric power generation in the U.S. carbon free. Allowing for the savings in the cost of fossil fuel arising from the replacement of fossil fuel plants this is roughly $150 billion annually. Allowing in addition for the fact that most fossil plants in the U.S. are already old and would have to be replaced before 2050 even if we were not to go fossil free, this annual cost is reduced to $23 billion.
    JEL: Q0 Q01 Q50
    Date: 2019–07
  4. By: Stephan B. Bruns; Alessio Moneta; David I. Stern
    Abstract: The size of the economy-wide rebound effect is crucial for estimating the contribution that energy efficiency improvements can make to reducing greenhouse gas emissions and for understanding the drivers of energy use. Existing estimates, which vary widely, are based on computable general equilibrium models or partial equilibrium econometric estimates. The former depend on many a priori assumptions and the parameter values adopted, and the latter do not include all mechanisms that might increase or reduce the rebound and mostly do not credibly identify the rebound effect. Using a structural vector autoregressive (SVAR) model, we identify the dynamic causal impact of structural shocks, including an energy efficiency shock, applying identification methods developed in machine learning. In this manner, we are able to estimate the rebound effect with a minimum of a priori assumptions. We apply the SVAR to U.S. monthly and quarterly data, finding that after four years rebound is around 100%. This implies that policies to encourage cost-reducing energy efficiency innovation are not likely to significantly reduce energy use and greenhouse gas emissions in the long run.
    Keywords: Energy efficiency; Rebound effect; Structural VAR; Impulse response functions; Independent component analysis.
    Date: 2019–08–19
  5. By: Rossetto, F.; Grossi, L.; Pollitt, M.
    Abstract: The aim of this article is to investigate the effects of the bidding strategies of leading firms on market equilibria. The analysis focuses on the Italian wholesale electricity market from 2015 to 2018. The purpose is to assess if the observed market equilibria are the results of a competitive setting or if more competitive equilibria could have occurred. We use the methodology of synthetic supply proposed by Ciarreta et al. (2010a). This way, a new set of synthetic prices and quantities is computed. The comparison between the actual and synthetic prices allows us to assess the effects of market power on the actual equilibria. Results suggest that whilst there is a significant impact on prices, quantities seem not to be affected, due to the inelastic demand. Moreover, our findings suggest that the main impacts occurred during 2017 especially during those months where above average heating and cooling were required.
    Keywords: Electricity Wholesale Market, Market Power, Bidding Strategy, Synthetic Supply
    JEL: L94
    Date: 2019–08–21
  6. By: Paula Pereda; Maria Alice Christofoletti
    Abstract: The consolidation of the energy sector as one of the main emitters of greenhouse gases in Brazil is directly related to the expansion of fuel consumption in passenger and cargo transport and to the higher use of thermal power plants for electricity generation. This fact reflects a detachment from the historical renewable energy and biofuels production and goes against the global efforts to reduce GHG emissions. Our paper analyzes the short run emissions and distributional effects of energy price changes in a partial equilibrium framework. Our findings suggest that taxes and subsidies in fuel prices (oil and diesel, respectively) are progressive, but have positive impact on total household emissions due to substitution effects. Despite being regressive, changes in electricity price have large effects on household emissions due to the characteristics of electric energy supply in Brazil. More environment-friendly policies that subsidize ethanol have a small but positive effect on the economy and tend to reduce households emissions. However, large substitution effects - due to an increase in the demand for CO2eq intensive goods, such as commuting and transportation services - when also taxing oil do not offset the reduction in emissions caused by a lower ethanol price. Therefore, understanding who benefits from energy price taxes and subsidies and their welfare impacts policies are key to gaining public support for a greener energy matrix.
    Keywords: Energy policies; CO2eq emissions; households
    JEL: Q48 D12 D61
    Date: 2019–08–21
  7. By: Reed, Michael E.; Elbakidze, Levan
    Keywords: Resource/ Energy Economics and Policy
    Date: 2019–06–25
  8. By: Ritz, R.
    Abstract: How does market power affect the rate of pass-through from marginal cost to the market price? A standard intuition is that more competition makes prices more “cost-reflective” and thus raises cost pass-through. This paper shows that this intuition is sensitive to the common assumption in the literature that firms’ marginal costs are constant. If firms have even modestly increasing marginal costs, more intense competition actually reduces pass through. These results apply to the “normal” case where pass-through is less than 100%. They have implications for competition policy and environmental regulation.
    Keywords: Cost pass-through, imperfect competition, perfect competition, production technology
    JEL: D24 D41 D42 D43
    Date: 2019–08–21
  9. By: Dertinger, Andrea; Hirth, Lion
    Abstract: Since the 1990s, many developing countries have restructured their electric power industry. Policies such as break-ing up, commercializing and privatizing utilities, allowing for independent power producers, installing independent regulators, and introducing competitive wholesale markets were meant to improve the industry’s efficiency and service quality. We exploit more than 30 years of data from over 100 countries to investigate the impact of power sector reforms on efficiency (represented by network losses) and access to electricity (represented by connection rates and residential power consumption). Crucially, reforms are likely to be endogenous with respect to sector performance: a crisis in electricity supply might well trigger reform efforts. We deal with endogeneity using reform activity in neighboring countries as an instrument. Our results suggest that reforms strongly and positively impact electricity access. According to our preferred specification, a full reform program would increase connection rates by 20 percentage points and per capita consumption by 62 percent: these are large effects that are stable across a range of robustness checks. Moreover, the effect of improving access is largest in South Asian countries. In con-trast to previous studies, we do not find robust evidence to support the theory that reforms reduce network losses.
    Date: 2019
  10. By: Lana Krehic (Department of Economics, Norwegian University of Science and Technology)
    Abstract: Several cities around the world try to internalise congestion costs from road traffic by instituting charges for entering their city centres. The revenues collected from these charges are often redistributed to improve conditions for motorists, cy- clists, pedestrians and public transport. At the same time, many schemes allow for exemption of cleaner vehicles, which might offset the reduction in congestion and reduce revenue. In this paper, I assess the effects of exempting electric vehicles from charge on the charge level. Using panel data of Norwegian cities with urban toll rings, I exploit regional variation, and and that a higher share of electric vehicles increase toll charges. The results imply that owners of conventional cars pay 2.5 NOK (0.3 USD) more per passing because of the exemption. The estimates are robust to variations in estimation method and sample. As the majority of electric vehicle owners have above-average income, exempting electric cars from toll charges suggests a distribution effect that have implications for social welfare.
    Keywords: Electric vehicles, Toll road, Distributional effects
    JEL: H23 R40 R42
    Date: 2019–07–25
  11. By: Abdelghany, M.; Digham, F.
    Abstract: The World Radiocommunication Conference (WRC-15) decided to conduct a review of the spectrum usage in the 470-694 MHz frequency band at WRC-23 to study possible introduction of primary mobile service allocation in this frequency band that is currently utilized by Digital terrestrial TV broadcasting systems. Introducing new primary allocation for a service in a frequency band would require an examination of the coexistence between the new service and other incumbents. The frequency band 470-694 MHz is currently allocated to the broadcasting service on a primary basis in all three ITU regions and is used predominantly for the delivery of television broadcasting. In this case, it is required to assess the coexistence possibility between the incumbent broadcasting service (represented by DVB-T as digital TV system) and the new mobile service (represented by LTE as cellular system) in UHF below 694 MHz. The objective of this paper is to recommend a minimum frequency separation (guard band) between DVB-T and LTE based on a coexistence approach that promotes global spectrum harmonization in the 470-694 MHz frequency band, and to highlight the possible implications of this approach on the work of WRC-23 towards having a new co-primary mobile service allocation below 694 MHz in UHF.
    Keywords: Cellular-Broadcasting coexistence,Spectrum harmonization,UHF spectrum policy,Digital Dividend 3,WRC-23
    Date: 2019
  12. By: Metwally, Mohamed; Abu-Gabal, Mohamed
    Abstract: This work describes the potential gain of spectrum sharing between different mobile technologies. A new bandwidth allocation technique is introduced, allows coexistence and overlap between old and new (relative) mobile generations, operating over the same frequency band. The new proposed technique is tested over UMTS and LTE systems to enhance the overall spectral efficiency. LTE bandwidth is maximized allowing carrier overlap with UMTS. Spectrum sharing feasibility is being assessed in 2100MHz band. The proposed UMTS and LTE coexisting setup allows carrier overlapping in both uplink and downlink channels. Performance is evaluated in terms of statistical analysis and field measurements. The proposed test case evaluate the system's performance and measure the induced interference from each system on the other. Results have shown the do-ability of overlapped spectrum sharing between different mobile generations, in order to enhance the system performance.
    Keywords: Bandwidth Allocation,Coexistence,UMTS,LTE,Bandwidth scalability,spectrum sharing
    Date: 2019
  13. By: Houngbonon, Georges V.; Le Quentrec, Erwan
    Abstract: While several determinants of ICT usage has been investigated in the literature, the impact of access to electricity has been so far overlooked. In this paper, we rely on countrylevel data on the penetration rates of mobile telephony, Internet and smartphones, as well as average revenue per user (ARPU) to evaluate the impact of access to electricity on ICT usage in Sub-Saharan Africa. Using a panel of 40 countries from 2000 to 2016 and a logistic diffusion model, we find a positive and statistically significant impact of access to electricity on the penetration rate of the Internet and smartphones, but no significant effect on the diffusion of basic mobile telephony. Accounting for both the extensive and intensive margins, we find that ICT usage increases by 0.43 US dollar per connected user, meaning that mobile ARPU would have declined by 0.1 percentage point more per year without the expansion of access to electricity. These findings are robust to the measurement of access to electricity, and to the inclusion of controls for income, education, urbanization, price, competition and network investment.
    Keywords: Electricity,ICT,Africa
    JEL: L94 L96
    Date: 2019
  14. By: Fehmina Malik; Manjesh K. ~Hanawal; Yezekael Hayel; Jayakrishnan Nair
    Abstract: Revenue sharing contracts between Content Providers (CPs) and Internet Service Providers (ISPs) can act as leverage for enhancing the infrastructure of the Internet. ISPs can be incentivized to make investments in network infrastructure that improve Quality of Service (QoS) for users if attractive contracts are negotiated between them and CPs. The idea here is that part of the net profit gained by CPs are given to ISPs to invest in the network. The Moral Hazard economic framework is used to model such an interaction, in which a principal determines a contract, and an agent reacts by adapting her effort. In our setting, several competitive CPs interact through one common ISP. Two cases are studied: (i) the ISP differentiates between the CPs and makes a (potentially) different investment to improve the QoS of each CP, and (ii) the ISP does not differentiate between CPs and makes a common investment for both. The last scenario can be viewed as \emph{network neutral behavior} on the part of the ISP. We analyse the optimal contracts and show that the CP that can better monetize its demand always prefers the non-neutral regime. Interestingly, ISP revenue, as well as social utility, are also found to be higher under the non-neutral regime.
    Date: 2019–08
  15. By: Ryan Kellogg
    Abstract: Output-based carbon regulations—such as fuel economy standards and the rate-based standards in the Clean Power Plan—create well-known incentives to inefficiently increase output. Similar distortions are created by attribute-based regulations. This paper demonstrates that, despite these distortions, output and attribute-based standards can always yield greater expected welfare than “flat” emission standards given uncertainty in demand for output (or attributes), assuming locally constant marginal damages. For fuel economy standards, the welfare-maximizing amount of attribute or mileage-basing is likely small relative to current policy. For the electricity sector, however, an intensity standard may yield greater expected welfare than a flat standard.
    JEL: D81 Q54 Q58
    Date: 2019–08

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