nep-reg New Economics Papers
on Regulation
Issue of 2019‒12‒16
twelve papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Leakage in Regional Climate Policy? Implications of Electricity Market Design By Brittany Tarufelli; Ben Gilbert
  2. Balancing RES generation: Profitability of an energy trader By Christopher Kath; Weronika Nitka; Tomasz Serafin; Tomasz Weron; Przemyslaw Zaleski; Rafal Weron
  3. "Compatible Mergers: Assets, Service Areas, and Market Power" By Tetsuji Okazaki; Ken Onishi; Naoki Wakamori
  4. Enhancing load, wind and solar generation forecasts in day-ahead forecasting of spot and intraday electricity prices By Katarzyna Maciejowska; Weronika Nitka; Tomasz Weron
  5. A Principal-Agent approach to study Capacity Remuneration Mechanisms By Cl\'emence Alasseur; Heythem Farhat; Marcelo Saguan
  6. The Impact of the General Data Protection Regulation on Internet Interconnection By Ran Zhuo; Bradley Huffaker; kc claffy; Shane Greenstein
  7. Lessons Learned for Designing Programs to Charge for Road Use, Congestion, and Emissions By Jenn, Alan
  8. Smart hedging against carbon leakage By Christoph Böhringer; Knut Einar Rosendahl; Halvor Briseid Storrøsten
  9. A new rationale for not picking low hanging fruits: The separation of ownership and control By Denis Claude; Mabel Tidball
  10. Telecommunication Pricing Regulation Theory and Problem Solution Examples By Haryadi, Sigit
  11. Learning about climate change uncertainty enables flexible water infrastructure planning By Fletcher, Sarah Marie; Lickley, Megan; Strzepek, Kenneth
  12. Renewable Energy and Employment: The Experience of Egypt, Jordan and Morocco By Sylvain Cote

  1. By: Brittany Tarufelli (Louisiana State University); Ben Gilbert (Division of Economics and Business, Colorado School of Mines)
    Abstract: We study how the expansion of a centralized real-time electricity market affects emissions leakage from a regional cap-and-trade program. We find the expansion caused modest leakage increases, despite relatively small trading volumes. Natural gas plants just outside the cap-and-trade region increasingly balance intermittent renewables. Generation from these plants increases at night when average wind generation is high. These same plants systematically ramp down in response to unexpected solar generation because of friction between how the day-ahead and real-time markets commit resources. Our results suggest that reduced transactions costs in trade between regulated and unregulated regions may exacerbate leakage.
    Keywords: Electricity market design, Carbon leakage, Emissions, Solar power
    JEL: L1 H23 Q48 Q52
    Date: 2019–11
  2. By: Christopher Kath; Weronika Nitka; Tomasz Serafin; Tomasz Weron; Przemyslaw Zaleski; Rafal Weron
    Abstract: Motivated by a practical problem faced by an energy trading company in Poland, we investigate the profitability of balancing intermittent generation from renewable energy sources (RES). We consider a company that buys electricity generated by a pool of wind farms and pays their owners the day-ahead system price minus a commission, then sells the actually generated volume in the day-ahead and balancing markets. We evaluate the profitability (measured by the Sharpe ratio) and market risk faced by the energy trader as a function of the commission charged and the adopted trading strategy. We show that publicly available, country-wide RES generation forecasts can be significantly improved using a relatively simple regression model and that trading on this information yields significantly higher profits for the company. Moreover, we address the issue of contract design as a key performance driver. We argue that by offering tolerance range contracts, which transfer some of the risk to the wind farm owners, both parties can bilaterally agree on a suitable framework that meets individual risk appetite and profitability expectations.
    Keywords: Electricity price; Day-ahead market; Balancing market; RES generation; Wind power forecast; Profitability; Sharpe ratio; Value-at-Risk; Trading strategy; Contract design
    JEL: C51 C52 C53 G11 Q41 Q47
    Date: 2019–12–10
  3. By: Tetsuji Okazaki (The University of Tokyo); Ken Onishi (Federal Reserve Board); Naoki Wakamori (The University of Tokyo)
    Abstract: This paper empirically examines the discrepancy between the incentive of firms to merge and the social value of mergers using detailed data on merger waves in the pre-WWII Japanese electricity industry when a competition authority did not yet exist. We find that firms could enjoy cost synergies when merging with firms with greater differences in production asset composition and/or reachable customers. Such mergers resulted in increases in capital utilization and total output. However, the sources of these cost synergies did not affect the merger decision of firms; instead, geographical proximity increased the likelihood of mergers. These results imply that the merger incentive may not align with social welfare and thus policy intervention to allow selective mergers for particular combinations of firms may help increase social welfare.
    Date: 2019–12
  4. By: Katarzyna Maciejowska; Weronika Nitka; Tomasz Weron
    Abstract: In recent years, a rapid development of renewable energy sources (RES) has been observed across the world. Intermittent energy sources, which depend strongly on weather conditions, induce additional uncertainty to the system and impact the level and variability of electricity prices. Predictions of RES, together with the level of demand, have been recognized as one of the most important determinants of future electricity prices. In this research, it is shown that forecasts of these fundamental variables, which are published by Transmission System Operators (TSO), are biased and could be improved with simple regression models. Enhanced predictions are next used for forecasting of spot and intraday prices in Germany. The results indicate that improving the forecasts of fundamentals does not bring any gains in case of the spot market, but leads to more accurate predictions of intraday prices. Finally, it is demonstrated that utilization of enhanced forecasts is helpful in a day-ahead choice of a market (spot or intraday) and results in a substantial increase of profits.
    Keywords: Renewables; Electricity prices; Day-ahead market; Intraday market; Forecasting
    JEL: C51 C52 C53 G11 Q41 Q47
    Date: 2019–12–10
  5. By: Cl\'emence Alasseur; Heythem Farhat; Marcelo Saguan
    Abstract: We propose to study electricity capacity remuneration mechanism design through a Principal-Agent approach. The Principal represents the aggregation of electricity consumers (or a representative entity), subject to the physical risk of shortage, and the Agent represents the electricity capacity owners, who invest in capacity and produce electricity to satisfy consumers' demand, and are subject to financial risks. Following the methodology of Cvitanic et al. (2017), we propose an optimal contract, from consumers' perspective, which complements the revenue capacity owners achieved from the spot energy market, and incentivizes both parties to perform an optimal level of investments while sharing the physical and financial risks. Numerical results provide insights on the necessity of a capacity remuneration mechanism and also show how this is especially true when the level of uncertainties on demand or production side increases.
    Date: 2019–11
  6. By: Ran Zhuo; Bradley Huffaker; kc claffy; Shane Greenstein
    Abstract: The Internet comprises thousands of independently operated networks, where bilaterally negotiated interconnection agreements determine the flow of data between networks. The European Union’s General Data Protection Regulation (GDPR) imposes strict restrictions on processing and sharing of personal data of EU residents. Both contemporary news reports and simple bilateral bargaining theory predict reduction in data usage at the application layer would negatively impact incentives for negotiating interconnection agreements at the internet layer due to reduced bargaining power of European networks and increased bargaining frictions. Considerable empirical evidence at the application layer confirms this prediction. Using a large sample of interconnection agreements between networks around the world in 2015–2019, we empirically investigate the impact of the GDPR on interconnection behavior of network operators in the European Economic Area (EEA) compared to network operators in non-EEA OECD countries. All evidence estimates precisely zero effects across multiple measures: the number of observed agreements per network, the inferred agreement types, and the number of observed IP-address-level interconnection points per agreement. We also find economically small effects of the GDPR on the entry and the observed number of customers of networks. We conclude that the short-run costs for GDPR are concentrated at the application layer.
    JEL: L00 L51 L86
    Date: 2019–11
  7. By: Jenn, Alan
    Abstract: Driving is associated with a series of costs to society, or externalities. These include road damages, traffic congestion, and vehicle emissions (of both local pollutants and greenhouse gases). A fuel tax has been used in the United States to account for some of these costs, particularly road damage. However, other methods of pricing may be more effective and able to cover a variety of externalities. While several successful programs have been implemented in other countries, very few have been attempted in the United States. To inform the optimal design of programs to price road use/damage, emissions, and congestion, researchers at UC Davis reviewed published studies, examined existing programs, and investigated potential design choices for such programs. This policy brief summarizes the findings of that study. View the NCST Project Webpage
    Keywords: Law, Social and Behavioral Sciences, Vehicle pricing, congestion charges, mileage fees
    Date: 2019–12–01
  8. By: Christoph Böhringer; Knut Einar Rosendahl; Halvor Briseid Storrøsten (Statistics Norway)
    Abstract: Policy makers in the EU and elsewhere are concerned that unilateral carbon pricing induces carbon leakage through relocation of emission-intensive and trade-exposed industries to other regions. A common measure to mitigate such leakage is to combine an emission trading system (ETS) with output-based allocation (OBA) of allowances to exposed industries. We first show analytically that in a situation with an ETS combined with OBA, it is optimal to impose a consumption tax on the goods that are entitled to OBA, where the tax is equivalent in value to the OBA-rate. Then, using a multiregion, multi-sector computable general equilibrium (CGE) model calibrated to empirical data, we quantify the welfare gains for the EU to impose such a consumption tax on top of its existing ETS with OBA. We run Monte Carlo simulations to account for uncertain leakage exposure of goods entitled to OBA. The consumption tax increases welfare whether the goods are highly exposed to leakage or not, and can hence be regarded as smart hedging against carbon leakage.
    Keywords: Carbon leakage; output-based allocation; consumption tax
    JEL: D61 F18 H23 Q54
    Date: 2019–11
  9. By: Denis Claude (LEG - Laboratoire d'Economie et de Gestion - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique); Mabel Tidball (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - UM - Université de Montpellier - INRA - Institut National de la Recherche Agronomique)
    Abstract: Recent attempts at explaining the energy-efficiency gap rely on considerations related to organizational and behavioral/cognitive failures. In this paper, we build on the strategic delegation literature to advance a complementary explanation. It is shown that strategic market interaction may encourage business owners to instill a bias against energy efficiency in managerial compensation contracts. Since managers respond to financial incentives, their decisions will reflect this bias, resulting in lack of investment.
    Keywords: energy efficiency,strategic delegation,behavioral bias,energy paradox
    Date: 2019
  10. By: Haryadi, Sigit (Institut Teknologi Bandung)
    Abstract: The paper explains the general theory of pricing regulation for telecommunication networks and services, which are compared to its practical condition, accompanied by several problems and solutions.
    Date: 2018–03–03
  11. By: Fletcher, Sarah Marie; Lickley, Megan; Strzepek, Kenneth
    Abstract: Water resources planning requires making decisions about infrastructure development under substantial uncertainty in future regional climate conditions. However, uncertainty in climate change projections will evolve over the 100-year lifetime of a dam as new climate observations become available. Flexible strategies in which infrastructure is proactively designed to be changed in the future have the potential to meet water supply needs without over-building expensive infrastructure. Evaluating tradeoffs between flexible and traditional robust planning approaches requires extension of current scenario-based paradigms for water resources planning under climate uncertainty which take a static view of uncertainty. We develop a new dynamic planning framework that assesses the potential to learn about regional climate change over time and evaluates flexible approaches. We demonstrate it on a reservoir planning problem in Mombasa, Kenya. This approach identifies opportunities to reliably use flexible, incremental approaches, enabling climate adaptation investments to reach more vulnerable communities with fewer resources.
    Date: 2018–09–29
  12. By: Sylvain Cote (King Abdullah Petroleum Studies and Research Center)
    Abstract: While the renewable energy sector needs more workers per megawatt of energy generated than fossil fuel-based energy sectors, a sound and dynamic labor market is necessary for local populations to enjoy the benefits of employment. A well-functioning market can help improve labor market information and assess the training needs of employees in the renewable energy sector.
    Keywords: Renewables, Labor, Labor Market, Employment, Morocco, Jordan, Eqypt
    Date: 2019–12–03

This nep-reg issue is ©2019 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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