|
on Regulation |
| By: | Ruhnau, Oliver; Hirth, Lion; Praktiknjo, Aaron |
| Abstract: | The electrification of heat is discussed as a promising option to integrate a growing share of variable renewable electricity and to decarbonize heating. Wind power potentially benefits from the positive seasonal correlation with heat demand and from thermal storages providing low-cost flexibility. However, intrinsic fluctuations in electric heating may also challenge the power system. This study assesses the impacts of building heat pumps on the economics of wind energy, and vice versa. Using a numerical electricity market model, we estimate the marginal economic value of wind energy and its counterpart, the marginal cost of heat pump load. We find that, just as increasing the wind energy market share depresses its market value, the diffusion of heat pumps implies a rise in their load cost. This rise can be mitigated by synergistic effects with wind power, “system-friendly” heat pump technology, and thermal storage. Additional heat pumps raise the wind value, but this effect vanishes as additional wind energy is needed to serve their load. Thermal storage facilitates wind integration but competes with other flexibility options. We argue that efficient heat pump tariffs should reflect the economic cost of their load. |
| Keywords: | Heat electrification,Renewable integration,Decarbonization,Flexible electricity demand,Electric heat pumps,Thermal storage,Wind energy,Power system modeling |
| JEL: | Q41 Q42 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:206688&r=all |
| By: | Erica Myers; Steven L. Puller; Jeremy D. West |
| Abstract: | Mandatory disclosure policies are increasingly prevalent despite sparse evidence that they improve market outcomes. We study the effects of requiring home sellers to provide buyers with certified audits of residential energy efficiency. Using similar nearby homes as a comparison group, we find this requirement increases price capitalization of energy efficiency and encourages energy-saving residential investments. We present additional evidence characterizing the market failure as symmetrically incomplete information, which is ameliorated by government intervention. More generally, we formalize and provide empirical support for seller ignorance as a motivation for disclosure policies in markets with bilaterally incomplete information about quality. |
| JEL: | D83 K32 L15 Q48 R31 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26436&r=all |
| By: | Jane Ellis (OECD); Daniel Nachtigall (OECD); Frank Venmans |
| Abstract: | This paper reviews ex-post empirical assessments on the impact of carbon pricing on competitiveness in OECD and G20 countries in the electricity and industrial sectors. Most of these assessments find no statistically significant effects of carbon pricing or energy prices on different dimensions of competitiveness, including net imports, foreign direct investments, turnover, value added, employment, profits, productivity, and innovation. When statistically significant results have been found, the magnitude of such effects tends to be small - either positive or negative. Thus, concerns about negative short-term effects of carbon pricing on firms’ or sectors’ international competitiveness have not come to pass, at least to date. These findings are in part because carbon price levels have been low and because of exemptions to carbon taxes for industry, or generous levels of free allowances to firms covered by emissions trading schemes. |
| Keywords: | carbon markets, carbon pricing, competitiveness, environmental regulation |
| JEL: | H23 Q54 Q56 Q58 |
| Date: | 2019–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:oec:envaaa:152-en&r=all |
| By: | Ojo, Marianne |
| Abstract: | As well as highlighting factors which should be taken into consideration in the Design of a UK Emissions Trading System, This paper aims to address particularly, the question relating to how “in the absence of historical emissions data, the regulator is able to make an environmentally robust assessment of the eligibility and emissions target of a new entrant for the Small Emitter Opt-Out or the Ultra-Small Emitters Exemption, without undermining the environmental integrity of the system”. |
| Keywords: | Emissions Trading System; Artificial Intelligence; Vertical Integration; Block chain systems; Sustainable Development; energy; climate, environment; Ultra-Small Emitters Exemption; trade relationships; transparency; information disclosure |
| JEL: | E6 E62 F1 F17 F18 G3 G38 K2 M4 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94887&r=all |
| By: | Chen Lin; Thomas Schmid; Michael S. Weisbach |
| Abstract: | Extreme temperatures lead to large fluctuations in electricity demand and wholesale prices of electricity, which in turn affects the optimal production process for firms to use. Using a large international sample of planned power plant projects, we measure the way that electric utilities’ investment decisions depend on the frequency of extreme temperatures. We find that they invest more in regions with more extreme temperatures. These investments are mostly in flexible gas and oil-fired power plants that can easily adjust their output, to improve their operating flexibility. Our results suggest that climate change is becoming a meaningful factor affecting firms’ behavior. |
| JEL: | G30 G31 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26441&r=all |
| By: | Suphi Sen; Marie-Theres von Schickfus |
| Abstract: | Climate policies to keep global warming below 2℃ might render some of the world’s fossil fuels and related infrastructure worthless prior to the end of their economic life time. Therefore, some energy-sector assets are at risk of becoming stranded. This paper investigates whether and how investors price in this risk of asset stranding. We exploit the gradual development of a German climate policy proposal aimed at reducing electricity production from coal and analyze its effect on the valuation of energy utilities. We find that investors take stranded asset risk into consideration, but that they also expect a financial compensation for their stranded assets. |
| Keywords: | stranded assets, climate policy, expectations, utilities, event study |
| JEL: | Q35 Q38 G14 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7945&r=all |
| By: | BELLEFLAMME Paul, (CORE, UCLouvain); PEITZ Martin, (Universität Mannheim) |
| Abstract: | We consider two-sided platforms with the feature that some users on one or both sides of the market lack information about the price charged to participants on the other side of the market. With positive cross-group external effects, such lack of pricie information makes demand less elastic. A monopoly platform does not benefit from opaqueness and optimality reveals price information. By contrast, in a two-sided singlehoming duopoly, platforms benefit from opaqueness and, thus, do not have an incentive to disclose price information. In competitive bottleneck markets, results are more nuanced: if one side is fully informed (for exogenous reasons), plaltforms may decide to inform users on the other side either fully, partially or not at all, depending on the strength of cross-group external effects and hte degree of horizontal differentiation. |
| Keywords: | price transparency, two-sided markets, competitive bottleneck, platform competition, price information, strategic disclosure |
| Date: | 2019–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2019011&r=all |
| By: | Ben Wealer; Simon Bauer; Leonard Göke; Christian von Hirschhausen; Claudia Kemfert |
| Abstract: | This paper analyzes nuclear power plant investments using Monte Carlo simulations of economic indicators such as net present value (NPV) and levelized cost of electricity (LCOE). In times of liberalized electricity markets, largescale decarbonization and climate change considerations, this topic is gaining momentum and requires fundamental analysis of cost drivers. We adopt the private investors’ perspective and ask: What are the investors’ economics of nuclear power, or - stated differently - would a private investor consider nuclear power as an investment option in the context of a competitive power market? By focusing on the perspective of an investor, we leave aside the public policy perspective, such as externalities, cost-benefit analysis, proliferation issues, etc. Instead, we apply a conventional economic perspective, such as proposed by Rothwell (2016) to calculate NPV and LCOE. We base our analysis on a stochastic Monte Carlo simulation to nuclear power plant investments of generation III/III+, i.e. available technologies with some experience and an extensive scrutiny of cost data. We define and estimate the main drivers of our model, i.e. overnight construction costs, wholesale electricity prices, and weighted average cost of capital, and discuss reasonable ranges and distributions of those parameters. We apply the model to recent and ongoing investment projects in the Western world, i.e. Europe and the United States; cases in non-market economies such as China and Russia, and other non-established technologies (Generation IV reactors and small modular reactors) are excluded from the analysis due to data issues. Model runs suggest that investing in nuclear power plants is not profitable, i.e. expected net present values are highly negative, mainly driven by high construction costs, including capital costs, and uncertain and low revenues. Even extending reactor lifetimes from currently 40 years to 60 years does not improve the results significantly. We conclude that the economics of nuclear power plants are not favorable to future investments, even though additional costs (decommissioning, long-term storage) and the social costs of accidents are not even considered. |
| Keywords: | nuclear power; nuclear financing; investment; levelized cost of electricity; monte carlo simulation; uncertainty |
| JEL: | Q40 D24 G00 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1833&r=all |
| By: | Joshua Blonz |
| Abstract: | In many settings, misaligned incentives and inadequate monitoring lead employees to take self-interested actions contrary to their employer's wishes, giving rise to the classic principal-agent problem. In this paper, I identify and quantify the costs of misaligned incentives in the context of an energy efficiency appliance replacement program. I show that contractors (agents) hired by the electric utility (the principal) increase their compensation by intentionally misreporting program data to deliberately authorize replacement of non-qualified refrigerators. I provide empirical estimates of the impacts of misaligned incentives on (1) the effectiveness of energy efficiency retrofits and (2) welfare. I estimate that unqualified replacements reduce welfare by an average of $106 and save only half as much electricity as replacements that follow program guidelines. The same program without a principal-agent distortion would increase welfare by $60 per replacement. The resul ts provide novel evidence of how principal-agent distortions in the implementation of a potentially beneficial program can undermine its value. |
| Keywords: | Energy efficiency ; Firm behavior ; Principal-agent problem |
| JEL: | D22 H32 Q48 Q5 |
| Date: | 2019–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-71&r=all |
| By: | Choi, Jay Pil (Michigan State University, Department of Economics); Mukherjee, Arijit (Michigan State University, Department of Economics) |
| Abstract: | We explore the optimal disclosure policy of a certification intermediary in an environment where (i) the seller's decision on entry and investment in product quality are endogenous and (ii) the buyers observe an additional public signal on quality. The intermediary mutes the seller's entry incentives but enhances investment incentives following entry, and the optimal policy maximizes rent extraction from the seller in the face of this trade-off. We identify conditions under which full, partial or no disclosure can be optimal. The intermediary's report becomes noisier as the public signal gets more precise, but if the public signal becomes too precise, the intermediary resorts to full disclosure. In the presence of an intermediary, a more precise public signal may also lead to lower social welfare. |
| Keywords: | Certification intermediaries; optimal disclosure policy; investment and entry incentives; public signal |
| JEL: | D04 L12 L40 L43 L51 L52 |
| Date: | 2019–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:ris:msuecw:2019_006&r=all |