nep-reg New Economics Papers
on Regulation
Issue of 2020‒08‒31
sixteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Are renewables profitable in 2030 and do they reduce carbon emissions effectively? A comparison across Europe By Bertsch, Valentin; Di Cosmo, Valeria
  2. Renewable Energy Technology Uptake: Public Preferences and Policy Design in Early Adoption By Sanghamitra Mukherjee; Séin Healy; Tensay Meles; L. (Lisa B.) Ryan; Robert Mooney; Lindsay Sharpe; Paul Hayes
  3. Energy integration across electricity, heating & cooling and the transport sector - Sector coupling By Wietschel, Martin; Held, Anne; Pfluger, Benjamin; Ragwitz, Mario
  4. Estimating the impact of energy efficiency on housing prices in Germany: Does regional disparity matter? By Lisa Taruttis; Christoph Weber
  5. Business models for interoperable mobility services By Vincent A.C. van den Berg; Henk Meurs; Erik T. Verhoef
  6. A Counterfactual Analysis of Regional Renewable Energy Auctions Taking the Spatial Dimension into Account By Shyekhha, Siamak; Borggrefe, Frieder; Madlener, Reinhard
  7. A Postcode Lottery? Regional Variations in Electricity Prices for Inactive Consumers By David Deller; Glen Turner; Catherine Waddams Price
  8. Competition for Flexible Distribution Resources in a ’Smart’ Electricity Distribution Network By Tangerås, Thomas
  9. The Effect of Blackouts on Households Electrification Status: evidence from Kenya By Raul Bajo Buenestado
  10. COVID-19 and EU Climate Targets: Going Further with Less? By Tensay Meles; L. (Lisa B.) Ryan; Joe Wheatley
  11. The Role of Government in the Market for Electric Vehicles : Evidence from China By Li,Shanjun; Zhu,Xianglei; Ma,Yiding; Zhang,Fan; Zhou,Hui
  12. Reforming Inefficient Energy Pricing: Evidence from China By ITO Koichiro; ZHANG Shuang
  13. Optimal Car-related Taxes and Pricing in Beijing Considering the Marginal Cost of Public Funds By Yoshida, Jun; Kono, Tatsuhito
  14. Substituting Clean for Dirty Energy: A Bottom-Up Analysis By Fabian Stöckl; Alexander Zerrahn
  15. A Portfolio approach to wind and solar deployment in Australia By Chyong, C K.; Li, C.; Reiner, D.; Roques, F.
  16. Energy Affordability in the UK: Corrected Energy Expenditure Shares 1992-2014 By David Deller; Catherine Waddams Price

  1. By: Bertsch, Valentin; Di Cosmo, Valeria
    Abstract: The European Union has set ambitious targets for expanding renewable energy to meet emission reduction goals. After a period of subsidy-driven investments, the costs of renewables decreased strongly and renewable support schemes shift towards more market-based approaches. We therefore analyse the market-based profitability of wind onshore and offshore and solar PV across Europe to determine where it is optimal to invest and understand which factors drive the profitability of investments. We use a power systems model to simulate the whole European electricity market in 2030. Using the renewables’ revenues determined by the model, we calculate the profitability of each technology in each country. We also analyse how effective renewables are in terms of emission reduction. Investments are found not to be homogeneously profitable across Europe, i.e. cooperation between European countries can be expected to achieve the overall targets at lower costs than nationally-driven approaches. We also find that in many countries, wind onshore and solar PV are profitable by 2030 in absence of any financial support, whereas wind offshore does never seem profitable without support. Finally, RES expansion alone will not guarantee an effective reduction of CO2 emissions.
    Keywords: Renewable Energy; Renewable Energy Target; Renewable Electricity Target; EU Electricity Market; Profitability; Emission Reduction; Carbon Price; Carbon Price Floor
    JEL: Q42 Q52 Q58
    Date: 2020–07–13
  2. By: Sanghamitra Mukherjee; Séin Healy; Tensay Meles; L. (Lisa B.) Ryan; Robert Mooney; Lindsay Sharpe; Paul Hayes
    Abstract: This paper aims to understand what motivates the adoption of key renewable energy technologies (RET) in early adopter markets. Electrification of heat and transport, through the deployment of heat pumps, electric vehicles and solar photovoltaic panels, combined with renewable sources of electricity is a key strategy for policymakers to combat climate change. Notwithstanding their social benefits, uptake remains low. Thus, targeted policy measures are needed to address this. We conduct a survey of a nationally representative sample of Irish households to better understand the motivations behind RET adoption and find fundamental differences between adopters and non-adopters. Current adopters tend to be younger, highly educated, of higher socio-economic status, and are likely to live in newer buildings of generous size. While non-adopters self-report as being more sustainable, adopters appear to be stronger believers that their own decisions impact climate change. Thus, environmental attitudes are an insufficient predictor of uptake. Instead, poor understanding of new technologies often inhibits uptake. Word-of-mouth recommendation matters greatly in communicating the use and benefits of new technology as evident from the significantly larger social networks that adopters enjoy. With this information, a range of monetary and non-monetary policy incentives can be designed according to public preferences.
    Keywords: Household survey; Technology adoption policy; Heat pumps; Solar PV; Electric vehicles; Consumer behaviour
    JEL: D1 D9 O3 Q4
    Date: 2020–02
  3. By: Wietschel, Martin; Held, Anne; Pfluger, Benjamin; Ragwitz, Mario
    Abstract: [Summary and conclusions] A stronger integration across energy sectors can contribute to achieving climate targets, provided that fossil fuels are substituted by renewable energy sources. One analysis for the German energy market estimates the potential GHG-emission savings due to sector coupling to 50 Mio t of CO2 emissions by 2030 (see Wietschel et al. 2017). A high potential to reduce GHG-emissions in the short and medium term is provided by direct electrification options: e-mobility, heat pumps and electric blast furnace. In the longer term, trolley trucks may also contribute to GHG-emission reductions, but the technology is not yet mature and it will depend on the achievable technology and cost development. There are also options in the industry sector, including methanol, ammonium or refineries, but these options are still far from being economically efficient. Producing electricity mainly based on RES is crucial for exploiting the GHGemission reduction potential of sector coupling technologies. However, we believe that a timely market entry of sector coupling technologies is required in order to exploit potentials on a longer term. The current electricity mix still shows considerable shares of fossil fuels, but a further increase of the RES-E share is a precondition for exploiting the GHG-emission reduction potential of sector coupling technologies. Wietschel et al. (2017) suggest using options with high efficiencies and a high GHG-emission reduction potential in the early phase of the transformation mainly for reasons of public and social acceptance. Sector coupling technologies may also contribute to increasing energy efficiency (e.g. e-mobility, electric steel) and thus reduce GHG-emissions due to efficiency improvements. For example, heat pumps make use of the ambient heat and can therefore improve efficiencies. Wietschel et al. (2017) have estimated for Germany that final energy consumption can be reduced by 180 TWh due to the efficiency effect by 2030, whilst electricity demand of new applications would increase by 50 TWh. Finally, sector-coupling technologies can increase the flexibility of the power system, which can be particularly relevant for systems with high shares of variable RES-E. However, the flexibility potential of different options and technologies strongly differs. According to Wietschel et al. (2017) there are high potentials for e-mobility and electrode boilers in heating networks.
    Date: 2020
  4. By: Lisa Taruttis; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen))
    Abstract: The German government aims at a climate-neutral building stock by 2050 to reach the goals defined in the Climate Action Plan 2050. Increasing the energy efficiency of existing buildings is therefore a high priority. For this purpose, investments of private homeowners will play a major role since about 46.5% of the German dwellings are owner-occupied. To identify potential monetary benefits of investing in energetic retrofits, we investigate whether energy efficiency is reflected in property values of single-family houses in Germany. Thereby we examine possible heterogeneous effects among regions. With 455,413 individual observations on a 1km²-grid level for 2014 to 2018, this study adds to the literature 1) by examining the effect of energy efficiency on housing values for Germany on a more small-scale level and specifically investigating regional disparities in this context and 2) by estimating an energy efficiency value-to-cost ratio. Applying a hedonic analysis, we find a positive relationship between energy efficiency and asking prices. We also find evidence for regional disparities. Effects are significantly weaker in large cities compared to other urban areas, whereas the impact in rural areas is much stronger. Since property values are expected to decline in rural regions, homeowners could alleviate this development by increasing the energy efficiency of their dwellings.
    Keywords: Energy efficiency, residential buildings, regional disparities, German housing market, hedonic analysis, housing value
    JEL: C31 Q40 R21 R31
    Date: 2020–08
  5. By: Vincent A.C. van den Berg (Vrije Universiteit Amsterdam); Henk Meurs (Radboud University); Erik T. Verhoef (Vrije Universiteit Amsterdam)
    Abstract: Travelers often combine transport services from different firms to form trip chains: e.g. first train and then a bus. Integration of different forms of public and private transport into a single service is gaining attention with the concept of Mobility as a Service (MaaS). Usually, the focus is on such things as ease of use, and shifting demand away from the car. We solely focus on the effects on behaviour and welfare via the market structure of transport. In particular, we analyse three archetype ways in which MaaS could be operationalized: Integrator, Platform, and Intermediary. We find that these models differ strongly in how consumers and firms are affected. The Integrator seems best for consumers and social welfare. It always leads to lower prices than Free Competition without Maas and therefore benefits consumers; transport firm profits can be lower or higher. The Platform tends to lead to an outcome that is relatively close to Free Competition without Maas: prices can be higher or lower, while transport firm profits are lower. Finally, the Intermediary tends to lead to much higher prices. Regulation of the price that the MaaS firm has to pay may further lower prices, but compared to the Integrator the difference is often small. So, even without price regulation, MaaS supply can already benefit consumers by increasing competition and removing serial marginalization, even before we consider other benefits of MaaS such as information provision, ease of use and a demand shift towards public transport.
    Keywords: MaaS, market structure, platform, intermediary, integrator, regulation
    JEL: R40 D21 D43
    Date: 2020–08–20
  6. By: Shyekhha, Siamak (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Borggrefe, Frieder (German Aerospace Center (DLR)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: Auctions have recently been introduced in many countries as a useful alternative to accomplish renewable energy supports. However, they are often accompanied by a high concentration of renewable energy power plants at productive sites, at the expense of other, less favorable sites. This paper studies the impact of alternative renewable energy auction designs on the promotion of renewable energy in Germany using a novel multi-level approach. To do so, we analyze auctions on three different spatial levels: the national auction, the regional auction-type I (federal states level) and the regional auction-type II (north/south auction). The initial step for modeling renewable energy auction schemes in Germany is to investigate the onshore wind potential with a high regional and temporal resolution, using the GIS-data-based tool REMix-ENDAT. The results of this analysis show a considerable as yet untapped onshore wind potential in the southern federal states of Germany. Second, an onshore wind auction model is developed using a system dynamics approach. Finally, the comparison of the support payment for different auction designs is evaluated using the electricity market simulation model (HECTOR). Findings indicate that more bidders from the southern federal states can win in the regional auctions. Detailed spatial analysis reveals a trade-off between balanced diversity of bidders and average auction price (the price difference varies from 0.5 €-ct/kWh to 1.5 €-ct/kWh in different scenarios). We conduct that, a noticeable potential support payment saving from regional auctions should be exploited in long-term renewable energy policy designs.
    Keywords: Renewable auction design; System dynamics; Support payment
    JEL: D44 D47 Q28 Q47
    Date: 2019–12–01
  7. By: David Deller (Centre for Competition Policy, University of East Anglia); Glen Turner (Centre for Competition Policy, University of East Anglia); Catherine Waddams Price (Centre for Competition Policy and Norwich Business School, University of East Anglia)
    Abstract: The introduction of a price cap for consumers who have not switched to cheaper deals in the British energy market reflects increasing political concern about the higher prices paid by these consumers compared with their more active counterparts. In this paper, we demonstrate the variations in prices paid by inactive consumers for electricity in different parts of Britain over the last 45 years. The regions identified as the cheapest and most expensive vary noticeably over the period, while the magnitude of the regional differences are, if anything, lower since the introduction of competition than they were before privatisation. We explore the characteristics of consumers who stated that they had never switched supplier, and who were therefore subject to these regional price differences, using unique data from a consumer survey in 2011. Responses to the question ‘have you ever switched supplier’ identified several characteristics of inactive consumers which were consistent with the findings of previous studies: not being retired, having lower electricity expenditure, not having a gas supply and using certain payment methods are associated with a consumer reporting never having switched. However applying a consistency test (namely observing whether consumers reported being with their region’s incumbent supplier) highlighted a number of issues with relying solely on survey data to identify long-term inactivity.
    Date: 2018–10–01
  8. By: Tangerås, Thomas (Research Institute of Industrial Economics (IFN))
    Abstract: In a ’smart’ electricity distribution network, flexible distribution resources (FDRs) can be coordinated to improve efficiency. But coordination enables whoever controls such resources to exercise market power. The paper establishes the following efficiency rankings of market structures: Aggregators competing for FDRs are more efficient than a distribution system operator (DSO) controlling resources, which is more efficient than no FDR market. A no- market solution is more efficient than an FDR market featuring either (i) both DSO and aggregators; or (ii) a monopoly aggregator also supplying generation to the real-time market. The paper also characterizes a regulation that implements the efficient outcome.
    Keywords: Aggregator; Distribution system operator; Market power; Real-time market; Regulation; Smart grid
    JEL: H41 L12 L51 L94
    Date: 2020–08–20
  9. By: Raul Bajo Buenestado (University of Navarra)
    Abstract: A number of countries in Sub-Saharan Africa have recently deployed billions of dollars to improve their electricity infrastructure. However, aggregate data shows that the relative number of households with an electricity connection at home has barely increased. In this paper we study the role of blackouts to partially explain why there have been relatively few additional households with electricity access despite the increase in electrification expenditure. Using geo-localized survey data from Kenya, we find that households that live in neighborhoods in which power outages are relatively more frequent are (at least) about 6%-9% less likely to have electricity at home. We also find that households that have electricity access but which experience frequent power outages are also less likely to purchase electrical appliances.
    Keywords: Energy poverty, Electricity access, Electrification rates, Sub-Saharan Africa
    JEL: L94 O13 Q41 Q48
    Date: 2020–04–24
  10. By: Tensay Meles; L. (Lisa B.) Ryan; Joe Wheatley
    Abstract: The COVID-19 crisis comes at a complex moment for European climate policy as it pivots from a 40% 2030 emissions reduction target to a European Green Deal that is in better alignment with long-term Paris Agreement goals. Here, the implications of the dramatic fall in economic output associated with the crisis are examined using a representative range of growth scenarios. With lower economic activity resulting from the COVID-19 crisis, existing policy measures could achieve the 40% target sooner than 2030. However, we find that even in the most severe economic scenario examined, this falls well short of the 50-55% emissions reduction target under the Green Deal. Maintaining the existing 40% target in 2030 with reduced policy measures on the other hand would move European climate policy away from the required path. This analysis indicates the feasibility of increased climate ambition in the wake of the pandemic and supports the Green Deal 50-55% targets in 2030.
    Keywords: Climate change policy; Greenhouse gas emissions; Economic recovery; COVID-19 economic effects; Energy demand
    JEL: Q5 Q54 Q58 E6 Q43
    Date: 2020–05
  11. By: Li,Shanjun; Zhu,Xianglei; Ma,Yiding; Zhang,Fan; Zhou,Hui
    Abstract: To promote the development and diffusion of electric vehicles, central and local governments in many countries have adopted various incentive programs. This study examines the policy and market drivers behind the rapid development of the electric vehicle market in China, by far the largest one in the world. The analysis is based on the most comprehensive data on electric vehicle sales, local and central government incentive programs, and charging stations in 150 cities from 2015 to 2018. The study addresses the potential endogeneity of key variables, such as local policies and charging infrastructure, using the border regression design and instrumental variable method. The analysis shows that central and local subsidies accounted for over half of the electric vehicles sold during the data period. Investment in charging infrastructure is much more cost-effective than consumer purchase subsidies. In addition, the policy that merely provided electric vehicles a distinctively license plate was strikingly effective. These findings demonstrate the varying efficacy across policy instruments and highlight the critical role of government in promoting fuel-saving technologies.
    Keywords: Energy and Environment,Energy Demand,Energy and Mining,Multi Modal Transport,Ports&Waterways,Energy Policies&Economics,Transport Services
    Date: 2020–08–13
  12. By: ITO Koichiro; ZHANG Shuang
    Abstract: Inefficient energy pricing hinders economic development in many countries. We examine long-run effects of a recent heating reform in China that replaced a commonly-used fixed-payment system with individually-metered pricing. Using staggered policy rollouts and administrative data on household-level daily heating consumption, we find that the reform induced long-run reductions in heating usage and generated substantial welfare gains. Consumers gradually learned how to conserve heating effectively, making short-run evaluations underestimate the policy impacts. Our results suggest that energy price reform is an effective way to improve allocative efficiency and air quality in developing countries, where unmetered-inefficient pricing is still ubiquitous.
    Date: 2020–06
  13. By: Yoshida, Jun; Kono, Tatsuhito
    Abstract: This paper optimizes fuel tax, car ownership tax, highway tolls, and peak-time area pricing in Beijing with explicit consideration of marginal costs of public funds arising from these taxes and pricing. We establish two scenarios: scenario 1 optimizes the two taxes, tolls, and area pricing simultaneously; scenario 2 optimizes the two taxes and tolls without area pricing. Using Beijing’s parameters obtained from previous studies, our calculation results show that 1) the optimal area pricing is 50 CNY/entry; 2) Scenario 1 reduces the number of cars in peak time by more than 50%, but scenario 2 reduces it by 10%; 3) regardless of area pricing, fuel tax should be higher and car ownership tax lower. We do some sensitivity analyses to demonstrate the possible ranges of the tax and pricing instruments.
    Keywords: Optimal taxation, Marginal cost of public funds, Externality, Area pricing
    JEL: H2 R4
    Date: 2020–07–07
  14. By: Fabian Stöckl; Alexander Zerrahn
    Abstract: We fit CES and VES production functions to data from a numerical bottom-up optimization model of electricity supply with clean and dirty inputs. This approach allows for studying high shares of clean energy not observable today and for isolating mechanisms that impact the elasticity of substitution between clean and dirty energy. Central results show that (i) dirty inputs are not essential for production. As long as some energy storage is available, the elasticity of substitution between clean and dirty inputs is above unity; (ii) no single clean technology is indispensable, but a balanced mix facilitates substitution; (iii) substitution is harder for higher shares of clean energy. Finally, we demonstrate how changing availability of generation and storage technologies can be implemented in macroeconomic models.
    Keywords: Elasticity of substitution, clean and dirty energy, electricity production, decarbonization, green growth
    JEL: O44 Q42 Q43 Q55
    Date: 2020
  15. By: Chyong, C K.; Li, C.; Reiner, D.; Roques, F.
    Abstract: We develop a new framework that can be used to analyse interactions between solar and wind generation using a Mean-Variance Portfolio Theory (MPT) framework. We use this framework to understand the role of electricity transmission integrating a high share of Variable Renewable Energy (VRE) and investigate the optimal generation mix consisting of wind and solar for Australia’s National Electricity Market (NEM). For the same level of risk, we find that the average capacity factor of VRE could be 7% higher if transmission constraints are alleviated. Our results show that in order to minimise the risks of a VREdominated generation portfolio, transmission capacity and efficient access will become very important – at a high level of VRE penetration in NEM, a marginal increase in transmission capacity reduces system risks associated with wind and solar uncertainties by ca. 0.25 p.p. Lack of transmission capacity therefore implies potentially greater risks to VRE generators and hence higher energy costs at high levels of VRE penetration. Using our proposed approach (residual demand minimisation), which accounts for the dynamics of electricity generation associated with wind and solar as well as with demand, we find investment in solar generation is rewarded more than when using an output maximisation approach that ignores patterns of demand. For example, on average, solar share reaches 15.4% under the residual demand minimisation approach versus 12.5% under output maximisation approach. Investment in solar is also sensitive to the way we formulate our risk objective, being less favourable if we consider only peak hours than if we consider all hours. Further, our results suggest that wind generation and transmission capacity expansion are complements NEMwide while solar generation and wind generation are complements within the same region.
    Keywords: electricity planning, transmission capacity, geographic and technological diversification, mean-variance portfolio theory (MPT)
    JEL: Q48 L98 G11 Q42 C60
    Date: 2020–08–10
  16. By: David Deller (Centre for Competition Policy, University of East Anglia); Catherine Waddams Price (Centre for Competition Policy and Norwich Business School, University of East Anglia)
    Abstract: The retail energy market in the UK is highly politicised and since the turn of the millennium successive governments have pursued significant policies designed to ease the affordability of energy for certain groups. One of these policies, namely Winter Fuel Payments, represent both a significant increase in resources targeted at affordability support and a shift in emphasis from those on low incomes towards the elderly. This paper tracks the proportion of household expenditure devoted to energy between 1992 and 2014, implementing a major new correction to energy expenditure for households with prepayment meters, who tend to be low income households. First, the time series is used to argue that the political salience of distributional concerns in the retail energy market should not come as a surprise. Second, we find that while households with a head aged over 80 have elevated energy expenditure shares (similar to households at the bottom of the income distribution), pensioners aged 65-70 have energy expenditure shares comparable to households at the middle of the income distribution. Third, mapping major policy developments against the time series shows the most generous and ambitious affordability support schemes were introduced when energy was nearing its most affordable over a 35-year period, suggesting political considerations influenced both the recipients of support and the timing of interventions.
    Date: 2018–09–01

This nep-reg issue is ©2020 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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