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on Regulation |
| By: | Simshauser, P. |
| Abstract: | The creation of Australia’s National Electricity Market and the associated structural reforms triggered the separation of transmission from generation during the 1990s. The economic framework which governs electricity networks is largely based on the British model and Littlechild’s (1983) RPI-X incentive regulation. This framework was designed to correct over-capacity, a characteristic of the pre-reform era. The NEM experienced one episode of network over-investment (viz. 2007-2015) but there is no evidence of regulatory failure per se. Investment mistakes in retrospect were driven by policy error and forecast error – noting this period was preceded by very strong growth in electricity demand, and then coincided with the Global Financial Crisis (2007-2009) and Australia’s rapid uptake of rooftop solar PV – the effects of which were virtually unforecastable, ex ante. From 2015, the regulatory framework proved effective in correcting the 2007-2015 cycle with electricity networks now considered the more stable part of the energy supply chain. However, while NEM regulation has been effective in dealing with episodes of overcapacity, as to whether the rigid and highly prescriptive Rules are capable of dealing with the accelerating task of decarbonisation is an open question. NEM State Governments are legislating outside the Rules to meet their own policy objectives and timeframes. |
| Keywords: | Microeconomic reform, electricity transmission, network regulation |
| JEL: | D52 D53 G12 L94 Q40 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2340&r=reg |
| By: | Severin Borenstein |
| Abstract: | Since the 1970s, high volumetric (per kilowatt-hour) electricity prices have been justified in many policy discussions as encouraging more efficient use of electricity and placing more of the cost burden on those who are less prudent in their use. The argument has been used in support of increasing-block electricity pricing, under which the price per kilowatt-hour rises as a household consumes more electricity per month. More recently, in California, opponents of a proposal to lower volumetric prices and replace the revenue through fixed monthly charges have suggested that the change would just benefit “energy hogs”. In this paper, I first investigate characteristics of households who are high electricity consumers and ask how effectively such pricing targets profligate residential electricity consumption. I then look more broadly at the energy usage individuals are responsible for in the economy, how other energy usage is priced, and the role that residential electricity use plays in the overall picture. Finally, I connect the discussion of profligate direct and indirect energy consumption with the negative externalities produced, which are typically the justification for such penalty pricing. |
| JEL: | Q41 Q48 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32023&r=reg |
| By: | Newbery, D. |
| Abstract: | Liberalized electricity markets require unbundling transmission from generation. For least system cost, generation needs to locate to minimize generation and transmission investment and operation cost. Britain offers a good example of the challenges of and responses to setting transmission access fees to guide the location of massive renewables entry, very differently located to old fossil plants for which the grid was designed. Over-rewarding renewables pre-2014 worked strongly against these location signals, amplifying congestion. Proposals to coordinate transmission and generation off-shore show considerable benefits but coordination needs to be extended on-shore. Partial Locational Marginal Pricing (LMP in the realtime market might deliver less than full LMP but at much lower cost. Modest changes to transmission and auctioned renewables contracts could deliver quick coordination benefits independent of LMP. |
| Keywords: | transmission fees, regulation, off-shore wind, LMP |
| JEL: | D02 D44 H54 L51 L94 Q42 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2335&r=reg |
| By: | Pollitt, M G. |
| Abstract: | This paper examines the 2021-2023 energy crisis in Europe exacerbated by the energy consequences of the full-scale Russia – Ukraine war which began in February 2022. We show that this is an historically unprecedented price shock to both gas and electricity prices. We then draw on lessons from UK energy policy in World War Two to inform European energy policy during this crisis. In light of this, we examine actual policy responses by the European Union (EU). The EU has responsibility for the European single market in electricity and gas (which also formally includes Norway and effectively includes the UK) and has attempted to co-ordinate EU-27 responses to the crisis. We highlight four good and three bad policy responses observed across Europe. We conclude with longer-run lessons for energy and climate policy arising from this gas and electricity price shock. |
| Keywords: | energy crisis, single market in energy, wartime |
| JEL: | L94 L95 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2350&r=reg |
| By: | Chaves, J. P.; Cossent, R.; Gómez San Román, T.; Linares, P.; Rivier, M. |
| Abstract: | The current European energy crisis, caused to a large extent by the unlawful invasion of Ukraine by Russia, has renewed calls for a deep reform of the European electricity market. In this paper, we look at the alternatives proposed for the reform of the European electricity market, analysing their advantages and disadvantages, and we put forward a specific proposal for the reform. We focus mostly on measures directed at the wholesale generation market, although we also propose some changes that we believe will also be needed at the retail level. Emergency measures to tackle the current energy crisis, which are not necessarily consistent with the long-term reform and should definitely not determine the long-term design of the European electricity market, are very briefly assessed in an annex, including their compatibility with this long-term reform. |
| Keywords: | Electricity market, energy transition, renewables |
| JEL: | Q41 L51 L94 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2325&r=reg |
| By: | Lilienkamp, Arne (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Namockel, Nils (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)) |
| Abstract: | Adopting electric vehicles (EVs) and implementing variable electricity tariffs increase peak demand and the risk of congestion in distribution grids. To avert critical grid situations and sidestep expensive grid expansions, Distribution System Operators (DSOs) must have intervention rights, allowing them to curtail charging processes. Various curtailment strategies are possible, varying in spatio-temporal differentiation and possible discrimination. However, evaluating different strategies is complex due to the interplay of economic factors, technical requirements, and regulatory constraints - a complexity not fully addressed in the current literature. Our study introduces a sophisticated model to optimize electric vehicle charging strategies to address this gap. This model considers different tariff schemes (Fixed, Time-of-Use, and Real-Time) and incorporates DSO interventions (basic, variable, and smart) within its optimization framework. Based on the model, we analyze the flexibility demand and total electricity costs from the users’ perspective. Applying our model to a synthetic distribution grid, we find that flexible tariffs offer consumers only marginal economic benefits and increase the risk of grid congestion due to herding behavior. All curtailment strategies effectively alleviate congestion, with variable curtailment featuring spatio-temporal differentiation, approaching optimality regarding flexibility demand. Notably, applying curtailment from the users’ perspective does not lower cost savings significantly. |
| Keywords: | Distribution Grid; Electric Vehicles; Smart Charging; Flexibility |
| JEL: | C61 D47 Q41 Q48 |
| Date: | 2024–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:ris:ewikln:2024_001&r=reg |
| By: | Chyong, C. K.; Reiner, D. M.; Ly, R.; Fajardy, M. |
| Abstract: | We build a unit-commitment optimisation model of a flexible combined-cycle gas turbine (CCGT) with solvent-based post-combustion carbon capture and storage (CCS). We derive the economic benefits of CCS with solvent storage for a 20-year investment (2030-2050) based on the expected long-term increase in carbon prices and the volatility of electricity prices. Drawing on National Grid’s Future Energy Scenarios for the UK, our model shows that the CCGT-CCS plant profit is, on average, higher with solvent storage because of intertemporal arbitrage opportunities created by having this storage solution available. We find that the economic value of this intertemporal flexibility increases with greater electricity price volatility. Under high price volatility, the total return on investment (ROI) could reach 81- 246%. In relative terms, this is much higher than the total ROI of the CCGT-CCS plant itself (7-64%). While there is an economic case for investing in flexible CCS with solvent storage, there are wider system benefits too. A flexible solvent storage solution should be seen in the context of the overall system ‘flexibility’ requirements of a low-carbon power system. On a cost basis, solvent storage represents just a fraction of the capital costs of more “mainstream†energy storage technologies, such as lithium-ion batteries or hydro pumped storage, while CCGT-CCS offers firm power. Overall, while seen as a rather technical solution, if abated fossil fuel generation is to be part of a future low-carbon power system having this flexibility adds economic benefits not just to operators but also improves overall system security and complements high shares of variable renewables on the grid. |
| Keywords: | Combined-cycle gas turbines, Carbon capture and storage, unit-commitment models, optimisation, flexible carbon capture, solvent storage |
| JEL: | C61 Q47 Q48 Q52 Q55 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2336&r=reg |
| By: | Juan S. Mora-Sanguinetti (Banque de France - Eurosystème and Banco de España - Eurosistema); Andrés Atienza-Maeso (Universidad Carlos III and Banco de España - Eurosistema) |
| Abstract: | The achievement of an environmentally sustainable growth model, the development of renewable energies or the adoption of energy efficiency measures are nowadays fundamental issues in economic analysis and are a substantial part of the public debate. However, while there may be an increased social awareness of these issues, a different question is at what pace these social concerns have been translated into regulation, fostering or hindering the development of new markets or “green” technologies. This paper proposes a rigorous empirical study identifying and quantifying, through text analysis, all regulations related to four different subject blocks associated with “green growth” (renewable energies, sustainable transportation, pollution and energy efficiency), issued by Spanish national or regional governments over the period 2000-2022. This research thus constructs a database in panel data format. Among other results, we identify 3, 482 regulations related to renewable energies, 783 regulations dealing with sustainable transportation, 108 on pollution management and 5, 116 related to the measurement (and management) of energy efficiency. The results show that regulation is diverse by subject matter, reflects significant regional diversity and has increased over time, especially in more recent years, after a certain standstill during the Great Recession. This database could help develop future research projects on the impacts of “green” regulation on certain economic or institutional variables (such as “green” innovation or environmental conflict). The paper concludes with a comparison of renewable energy regulation in France and Spain, also based on text analysis. Spain shows a higher and more disaggregated volume of regulation. |
| Keywords: | energy efficiency, renewable energies, sustainable transport, pollution, regulation, regulatory complexity, text mining |
| JEL: | K32 Q5 O13 O44 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2336&r=reg |
| By: | Toba, N.; Jamasb, T.; Maurer, L.; Sen, A. |
| Abstract: | Auctions are an increasingly popular means of competitively promoting and procuring renewable energy to meet energy, social, and climate change objectives. To succeed, the technology designs need to accommodate technological progress, declining costs, and increasing Environmental, Social and Governance (ESG) demand. This analysis examines international experiences with large-scale solar photovoltaic (PV) and battery energy storage systems (BESS) auctions, which may be useful for East and Southeast Asia. It revisits auctions' theoretical and conceptual frameworks while concentrating on the ESG aspect from the perspective of such key stakeholders as investors, government, bidders, and communities, regarding efficient allocations of risks, costs, and benefits. It then relates this framework to real-world practices and international evidence on solar PV with and without BESS. The analysis shows that integrating ESG in auction designs and business models is possible and can benefit business and sustainable development. This analysis’ focus on the ESG and solar PV plus BESS in auctions contribute are nearly non-existent in the existing academic literature according to the review by del Río and Kiefer (2023). |
| Keywords: | Renewable energy, solar power, battery storage, auction design |
| JEL: | D0 D4 D8 L0 L1 L9 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2344&r=reg |
| By: | Covatariu, A.; Duma, D.; Giulietti, M.; Pollitt M. |
| Abstract: | There is growing consensus that the role of the distribution system operator (DSO) is changing given the implications of net zero. The transition process requires additional roles for the DSO in facilitating the new technologies and business models that will contribute to decarbonization. Discussions on the active DSO abound yet a working definition is still missing. This paper aims to propose such a definition and a workable methodology for measuring the extent to which a DSO is active. The methodology will be applied to electricity and gas DSOs in the UK and the challenges will be presented and analyzed. |
| Keywords: | distribution system operator, distributed energy resources, decarbonisation |
| JEL: | L94 L95 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2348&r=reg |
| By: | Gabriel Felbermayr (WIFO); Klaus Friesenbichler; Markus Gerschberger; Peter Klimek; Birgit Meyer (Austrian Institute of Economic Research) |
| Abstract: | The EU Directive on Corporate Sustainable Due Diligence has sparked fierce debate about the regulations of supply chains. The Directive's objectives are aligned with European values. Assuming that enforcements of social and environmental rules are absent in certain third countries, it privatises compliance costs in complex supply networks. This paper suggests options to make the Directive more effective and efficient. It should exclude countries with a sufficient regulatory system and focus not on the entire network but on supplier-buyer relationships only. Public agencies should set harmonised regulatory standards, interpret the regulations and organise a private certification scheme in which liabilities are assumed by certification companies. The proposed system resembles the market for financial auditors. |
| Keywords: | EU, Supply Chain, Due Dilligence, Regulation, Firm, International Trade |
| Date: | 2024–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2024:i:669&r=reg |
| By: | Kaufmann, Marc; Andre, Peter; Kîoszegi, Botond |
| Abstract: | Many consumers care about climate change and other externalities associated with their purchases. We analyze the behavior and market effects of such "socially responsible consumers" in three parts. First, we develop a flexible theoretical framework to study competitive equilibria with rational consequentialist consumers. In violation of price taking, equilibrium feedback nontrivially dampens a consumer's mitigation efforts, undermining responsible behavior. This leads to a new type of market failure, where even consumers who fully "internalize the externality" overconsume externality-generating goods. At the same time, socially responsible consumers change the relative effectiveness of taxes, caps, and other policies in lowering the externality. Second, since consumer beliefs about and preferences over dampening play a crucial role in our framework, we investigate them empirically via a tailored survey. Consistent with our model, consumers are predominantly consequentialist, and on average believe in dampening. Inconsistent with our model, however, many consumers fail to anticipate dampening. Third, therefore, we analyze how such "naive" consumers modify our theoretical conclusions. Naive consumers behave more responsibly than rational consumers in a single-good economy, but may behave less responsibly in a multi-good economy with cross-market spillovers. A mix of naive and rational consumers may yield the worst outcomes. |
| Keywords: | socially responsible consumers, social preferences, climate change, externalities, competitive equilibrium, regulation, taxes, caps |
| JEL: | D01 D11 D50 D62 D64 D91 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:280964&r=reg |
| By: | Razzak, Weshah |
| Abstract: | We use aggregated macroeconomic data for 43 countries to test the microeconomic condition for Perfect Competition, whereby the price level is equal to the marginal cost in the long run. We postulate two forms of Perfect Competition in the macro data: a weaker-form and a stronger-form. The former exists if the price level and the marginal cost share a common long-run trend; i.e., cointegrated. The latter exists if the market price and the marginal cost are equal in the long run. |
| Keywords: | Perfect Competition, price level, marginal cost, time series, cointgration, nonparametric |
| JEL: | C12 C13 C22 D01 D41 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119605&r=reg |
| By: | Ximeng Fang (University of Oxford); Lorenz Goette (University of Bonn); Bettina Rockenbach (University of Cologne); Matthias Sutter (Max Planck Institute for Research on Collective Goods, University of Cologne, University of Innsbruck); Verena Tiefenbeck (Friedrich-Alexander Universität Nürnberg-Erlangen, ETH Zurich); Samuel Schoeb (University of Bamberg); Thorsten Staake (University of Bamberg, ETH Zurich) |
| Abstract: | Behavioral policy often aims at influencing behavior by mitigating biases due to, e.g., imperfect information or inattention. We study how this is affected by the simultaneous presence of multiple biases arising from different sources, through a field experiment on resource conservation in an energyand water-intensive everyday activity (showering). One intervention, shower energy reports, primarily targeted knowledge about environmental impacts; another intervention, real-time feedback, primarily targeted salience of resource use. We find a striking complementarity. While only the latter induced significant conservation effects when implemented in isolation, each intervention became more effective when implemented jointly. This is consistent with predictions from a theoretical framework that highlights the importance of targeting all relevant sources of bias to achieve behavioral change. |
| Keywords: | behavioral public policy, pro-environmental behavior, limited attention, information provision, real-time feedback, policy interactions |
| JEL: | D83 D90 Q41 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2023_13&r=reg |
| By: | Gohdes, N.Nicholas; Simshauser, P.; Wilson, C. |
| Abstract: | Energy markets were designed to maximise productive, allocative and dynamic efficiency. Although renewables have become the dominant investment in deregulated energy markets, decarbonisation may not proceed at a pace consistent with the aspirations of policymakers. This has led governments in a number of jurisdictions to prime markets through ‘Contracts for- Differences’ (CfDs) or Power Purchase Agreements (PPAs), thus bringing forward investment and decarbonisation efforts. The war in Ukraine and its adverse impact on energy prices only emphasises a sense of urgency on an energy security dimension. Variable Renewable Energy (VRE) projects in Australia are typically underpinned by run-of-plant PPAs, but an emerging trend has been rising number of semi-merchant projects whereby some level of spot market exposure is retained. In this article, we examine how and why the semi-merchant investment model has arisen along with the minimum contracted coverage for a bankable project financing. Results reveal for investors with a target of 60-65% debt within the capital structure, a revenue mix comprising 73-78% PPA coverage and 22-27% merchant plant exposure is viable and a tractable project financing. For policymakers seeking to elicit 5000 MW of VRE plant capacity, the auction need only offer ~3800MW of CfD’s capacity, which has the benefit of reducing taxpayer exposures (cf. on-market transactions). |
| Keywords: | PPAs, Renewable Energy, Counterparty Credit, Project Finance, Cost of Capital |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2334&r=reg |
| By: | Iselin, Michael; Johnson, Bret; Ott, Jacob; Raleigh, Jacob |
| Abstract: | This study examines whether retail ownership of a firm is associated with the likelihood that the firm is subject to monitoring and enforcement by the two largest divisions of the SEC. Monitoring is a form of ex ante or preventative regulatory oversight, while enforcement is a form of ex post or punitive oversight. We find a negative association between retail ownership and SEC monitoring. In contrast, we find a positive association between retail ownership and SEC enforcement. These results suggest that the SEC is less likely to monitor firms with high retail ownership, potentially leaving current retail investors more vulnerable to unresolved financial reporting issues. Additionally, the SEC is more likely to issue enforcement actions against firms with high retail ownership, imposing costs on current retail investors when the firm is accused of egregious cases of perceived financial misreporting. |
| Keywords: | retail ownership; SEC enforcement; SEC monitoring |
| JEL: | M41 G18 |
| Date: | 2022–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:117743&r=reg |
| By: | Braun, Menessa Ricarda; Tenbrock, Sebastian; Wernick, Christian; Knips, Julian |
| Abstract: | Im Rahmen des Forschungsprogramms hat das WIK im Sommer 2023 eine groß angelegte Online-Befragung unter den in Deutschland im FTTB/H-Ausbau engagierten Akteuren durchgeführt. Der Teilnehmerkreis spiegelt den Markt in seiner Vielfalt und Heterogenität wider. Das Segment der Stadtwerke ist in der Befragung am stärksten vertreten. Auch die eher größeren Marktteilnehmer sind in Relation zur Zahl der Anbieter im Markt proportional sehr gut repräsentiert. In Summe decken die teilnehmenden Unternehmen einen relevanten Teil des deutschen FTTB/H-Marktes ab. Eine Gemeinsamkeit der Unternehmen, die sich an der Befragung beteiligt haben, besteht darin, dass gemessen an ihren Umsätzen die Mehrzahl in sehr großem Maße in den FTTB/H-Ausbau in Deutschland investiert. In vielen Fällen übersteigen die getätigten Investitionen die jährlich generierten Umsätze um ein Vielfaches. Mit Blick auf die Ausbau- und Technologiestrategie lassen sich die Teilnehmer insbesondere in zwei konträre Gruppen unterteilen: Die eine Gruppe baut ausschließlich in zukunftssicherer und technologieneutraler PtP-Bauweise aus. Die zweite Gruppe setzt auf die kostengünstigere PtMP-Bauweise in Verbindung mit der Nutzung von GPONTechnologie. In Anbetracht von Äußerungen aus dem Markt überrascht, dass die Zahl der Teilnehmer, die nur die PtP-Bauweise nutzen, etwas höher ist als die der Unternehmen, die ausschließlich in PtMP ausbauen. Positiv hervorzuheben ist, dass die Mehrzahl der Teilnehmer dort, wo es möglich ist, grundsätzlich FTTH ausbaut und ein relevanter Anteil auch bei Einfamilienhäusern die Glasfaser grundsätzlich bis in alle Gebäude verlegt. Mit Blick auf das Retail-Geschäft zeigt sich, dass viele Teilnehmer auch für FTTB/H Produkte mit Bandbreiten von weniger als 100 Mbit/s im Download weiterhin als relevant erachten. Auch für die kommenden drei Jahre wird keine disruptive Entwicklung bei der Nachfrage nach sehr hohen Bandbreiten erwartet. Das Wholesale-Geschäft ist weiterhin wenig entwickelt. Nur rund die Hälfte der Unternehmen, die an der Umfrage teilgenommen haben, gewährt interessierten Dritten einen Vorleistungszugang. Von denjenigen, die Vorleistungsprodukte anbieten, hat fast die Hälfte keinen oder lediglich einen Vorleistungskunden. |
| Abstract: | As part of the research programme, WIK conducted a large-scale online survey in summer 2023 among the players involved in FTTB/H expansion in Germany. The group of participants reflects the diversity and heterogeneity of the market. The municipal utilities segment is the most strongly represented in the survey. The larger market participants are also very well covered in relation to the number of providers in the market. Overall, the participating companies represent a relevant part of the German FTTB/H market. One thing that the companies that took part in the survey have in common is that the majority of them are investing heavily in FTTB/H expansion in Germany, measured in terms of their turnover. In many cases, the investments made exceed the annual turnover generated by several times. With regard to the expansion and technology strategy, the participants can be divided into two contrasting groups in particular: One group is expanding exclusively using futureproof and technology-neutral PtP construction methods. The second group favours the more cost-effective PtMP construction method in conjunction with the use of GPON technology. In view of the comments from the market, it is surprising that the number of participants who rely only on PtP topologies is slightly higher than the number of companies that only use PtMP. It is positive to note that the majority of participants are expanding FTTH wherever possible and a relevant proportion are also laying fibre optic cables to all buildings in singlefamily homes. With regard to the retail business, many participants still consider products with download bandwidths of less than 100 Mbit/s to be relevant. No disruptive development in the demand for very high bandwidths is expected in the next three years either. The wholesale business remains underdeveloped. Only around half of the companies that took part in the survey grant interested third parties wholesale access. Of those that offer wholesale products, almost half have no or only one wholesale customer. |
| Keywords: | Glasfaserkommunikation, Telekommunikationsnetz, Netzinfrastruktur, Markt, Unternehmen, Deutschland |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wikdps:280948&r=reg |