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on Energy Economics |
| By: | Paul Twomey; Karsten Neuhoff |
| Abstract: | It is difficult to elminated all market power in electricity markets and it is therefore frequently suggested that some market power should be tolerated: extra revenues contribute to fixed cost recovery, facilitate investment and increase security of supply. This suggestion implicitly assumes all generation technologies benefit equally from market power. We assess a mixture of conventional and intermittent generation, eg coal plants and wind power. If all output is sold in the spot market, then intermittent generation benefits less from market power than conventional generation. Forward contracts or option contracts reduce the level of market power but bias against intermittent generators persists. |
| Keywords: | market power, technology choice, electricity markets, intermittent output, forward and option contracting |
| JEL: | D42 D43 L12 L13 Q42 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0532&r=ene |
| By: | Tooraj Jamasb; Michael Pollitt |
| Abstract: | Electricity reform has coincided with a significant decline in energy R&D activities. Technical progress is crucial for tackling many energy and environmental issues as well as for long-term efficiency improvement. This paper reviews the industrial organisation literature on innovation to explore the causes of this decline, and shows that it was predicted by the pre-reform literature. More recent evidence endorses this conclusion. At the same time, R&D productivity and innovative output appear to have improved in both electric utilities and equipment suppliers, in line with general improvements in the operating efficiency of the sector. Despite this, a lasting decline in basic R&D and innovation input into basic research may negatively affect development of radical technological innovation in the long run. There is a need for reorientation of energy technology policies and spending toward more basic research, engaging more firms in R&D, encouraging collaborative research, and exploring public private partnerships. |
| Keywords: | innovation, R&D expenditure, electricity reform, regulation, ownership |
| JEL: | L94 O38 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0533&r=ene |
| By: | Christian Growitsch; Tooraj Jamasb; Michael Pollitt |
| Abstract: | Quality of service is of major economic significance in natural monopoly infrastructure industries but is generally not reflected in efficiency analysis. In this paper we present an efficiency analysis of electricity distribution networks using a sample of about 500 electricity distribution utilities from seven European countries. We apply the stochastic frontier analysis (SFA) method on multi-output translog input distance function models to estimate cost and scale efficiency with and without incorporating quality of service. We show that introducing the quality dimension into the analysis affects estimated efficiency significantly. In contrast to previous research, smaller utilities seem to indicate lower technical efficiency when incorporating quality. We also show that incorporating quality of service does not alter scale economy measures. Quality of service should be an integrated part of efficiency analysis and incentive regulation regimes, as well as in the economic review of market concentration in regulated natural monopolies. |
| Keywords: | efficiency, quality of service, scale economies, input distance function, stochastic frontier analysis. |
| JEL: | L15 L51 L94 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0538&r=ene |
| By: | Gert Brunekreeft; David Newbery |
| Abstract: | Merchant electricity transmission investment is a practically relevant example of an unregulated investment with monopoly properties. However, while leaving the investment decision to the market, the regulator may decide to prohibit capacity withholding with a must-offer provision. This paper examines the welfare effects of a must-offer provision prior to the capacity choice, given three reasons for capacity withholding: uncertainty, demand growth and pre-emptive investment. A must-offer provision will decrease welfare in the first two cases, and can enhance welfare only in the last case. In the presence of importer market power, a regulatory test might be needed. |
| Keywords: | investment, must-offer, capacity withholding, regulation, electricity |
| JEL: | L51 L94 L4 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0534&r=ene |
| By: | Lacir J. Soares (Department of Electrical Engineering); Marcelo Cunha Medeiros (Department of Economics PUC-Rio) |
| Abstract: | The goal of this paper is to develop a forecasting model of the hourly electricity load demand in the area covered by an utility company located in the southeast of Brazil. A di®erent model is constructed for each hour of day, thus there are 24 di®erent models. Each model is based on a decomposition of the daily series of each hour in two components. The ¯rst component is purely deterministic and is related to trends, seasonality, and special days e®ect. The second one is stochastic and follows a linear autoregressive model. The multi-step forecasting performance of the proposed methodology is compared with a benchmark model and the results indicate that our proposal is a useful tool for electricity load forecasting. |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:495&r=ene |
| By: | Eduardo Saavedra (ILADES-Georgetown University, Universidad Alberto Hurtado) |
| Abstract: | Este trabajo este trabajo discute la evolución de ciertos indicadores representativos del desempeño de cada una de los servicios básicos en Chile utilizando los elementos previamente descritos. Se concluye que el desempeño de estas industrias en los últimos 15 años ha generado mayor bienestar para la sociedad que de haberse mantenido la tendencia regulatoria mostrada durante el régimen militar. No obstante esa conclusión, este trabajo argumenta que existe espacio para realizar una serie de políticas modernizadoras a la actual institucionalidad reguladora de servicios básicos, entregándose algunas directrices que propicias para generar una discusión en este tenor. |
| Keywords: | Sector Eléctrico, Telecomunicaciones, Sanitarias, Regulación, Modernización |
| JEL: | K23 L51 L97 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:ila:ilades:inv167&r=ene |
| By: | Alejandro Balbas; Anna Downarowicz; Javier Gil-Bazo |
| Abstract: | Oil-linked derivatives are becoming very important in Modern Investment Theory. Accordingly, the analysis of Pricing Techniques and Portfolio Choice Problems involving these securities is a major topic for both managers and researchers. We focus on both the No-Arbitrage Approach and Stochastic Discount Factor (SDF) based methods in order to study oil-linked derivatives available at The New York Mercantile Exchange, Inc, one of the world's largest markets in energy and precious metals. First, we generalize some theoretical properties of the SDF in order to capture the effects induced by the bid-ask spread when analyzing dominated/efficient portfolios. Secondly, we apply our findings and empirically analyze the existence of dominated assets and portfolios in the oil derivatives market. Our results reveal the systematic presence of dominated prices, which should be taken into account by traders when composing their portfolios. Additionally, the test yields pricing and portfolio choice methods as well as new strategies that may allow brokers to outperform their service for their clients. It is worth to point out that the conclusions of the test have two important characteristics: On the one hand, they are very precise since we draw on perfectly synchronized bid/ask prices, as provided by Reuters. On the other hand, they are robust in the sense that they do not depend on any assumption about the underlying asset price dynamics. Finally, despite the empirical test focuses on oil derivatives, the methodology is general enough to apply to a broad range of markets. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wbrepe:wb055013&r=ene |
| By: | Peter Cramton (Economics Department, University of Maryland) |
| Abstract: | I study the design of oil rights auctions. A good auction design promotes both an efficient assignment of rights and competitive revenues for the seller. The structure of bidder preferences and the degree of competition are key factors in determining the best design. With weak competition and additive values, a simultaneous first-price sealed-bid auction may suffice. With more complex value structures, a dynamic auction with package bids, such as the clock-proxy auction, likely is needed to promote the efficiency and revenue objectives. Bidding on production shares, rather than bonuses, typically increases government take by reducing oil company risk. |
| Keywords: | Auctions, Oil Auctions, Market Design, Clock Auctions |
| JEL: | D44 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:pcc:pccumd:06oil&r=ene |
| By: | Ye Feng; Don Fullerton; Li Gan |
| Abstract: | Mobile sources contribute large percentages of each pollutant, but technology is not yet available to measure and tax emissions from each vehicle. We build a behavioral model of household choices about vehicles and miles traveled. The ideal-but-unavailable emissions tax would encourage drivers to abate emissions through many behaviors, some of which involve market transactions that can be observed for feasible market incentives (such as a gas tax, subsidy to new cars, or tax by vehicle type). Our model can calculate behavioral effects of each such price and thus calculate car choices, miles, and emissions. A nested logit structure is used to model discrete choices among different vehicle bundles. We also consider continuous choices of miles driven and the age of each vehicle. We propose a consistent estimation method for both discrete and continuous demands in one step, to capture the interactive effects of simultaneous decisions. Results are compared with those of the traditional sequential estimation procedure. |
| JEL: | D12 H23 Q58 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11553&r=ene |
| By: | Gavin C. Reid; Torcail M. Stewart |
| Abstract: | This paper looks at oil Independents, and potential disabilities on organizational performance which may arise when internationalization is contemplated. The evidence used is field work based, and uses sub-samples of British and North American oil Independents. It is argued, on the basis of grounded evidence, from field work interviews, that companies which do not internationalize, may be constrained by resource weaknesses, rather than by satisfactory strength within domestic territories alone. These weaknesses may rise from an unwillingness to confront the ambiguity of rules, regulations and mores of non-Western countries. Personal attitudes, beliefs, political affiliations, spheres of influence, and so on, may be more important to success in non-Western territories, than more familiar notions of business strategy and organizational competence. This is because, in the ‘non-ideal’ functioning of the non-Western context, decisions are relationship based, rather than based on formal modes of selection. It is shown how Independents have an advantage over Majors in decision-making speed, the authority to commit, the seniority of personnel and the establishment of relationships. This translates into relative success in applying for licenses in non-Western countries. Because of such capabilities, the Independents are more able to target non-traditional, under-explored overseas areas. Indeed, they display an active willingness to engage with countries in which they will encounter relatively high political and/or security risks (e.g. as rated by the IMF Political Stability index). |
| Keywords: | independent oil companies; petroleum industry; negotiation; non-traditional contracting; political risk |
| JEL: | D8 L1 L7 L71 M21 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:san:crieff:0507&r=ene |
| By: | Karsten Neuhoff; Christian von Hirschhausen |
| Abstract: | This paper analyses the economics of long-term gas contracts under changing institutional conditions, mainly gas sector liberalisation. The paper is motivated by the increasingly tense debate in continental Europe, UK and the US on the security of long-term gas supply. We discuss the main issues regarding long-term contracts, i.e. the changing role of the flexibility clause, the effect of abandoning the destination clause, and the strategic behaviour of producers between long-term sales and spot-sales. The literature suggests consumers and producers benefit from risk hedging through long-term contracts. Furthermore long-term contracts may reduce exercise of market power. This was argued to benefit consumers at the ‘expense’ of producers’ profits. Our analysis shows if the long-run demand elasticity is significantly lower than the short-run elasticity, both strategic producers and consumers benefit from lower prices and larger market volume. Some policy implications of the findings are also discussed. |
| Keywords: | contracts, gas, market power, demand elasticity, liberalisation, Europe |
| JEL: | L22 D L95 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0539&r=ene |
| By: | Neil J. Buckley, R. Andrew Muller, and Stuart Mestelman |
| Abstract: | Two approaches to emissions trading are cap-and-trade, in which an aggregate cap on emissions is distributed in the form of allowance permits, and baseline-and-credit, in which firms earn emission reduction credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. As a progressive step towards testing the full long-run model, this paper reports on a laboratory experiment designed to test the prediction under fixed emission rates and variable output capacity. A computerized environment has been created in which sub jects representing firms choose output capacities under fixed emission technology and participate in markets for emission rights and for output. Demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. Our evidence supports the theoretical prediction that aggregate output and emissions are inefficiently high under a baseline-and-credit trading plan compared to a corresponding cap-and-trade plan. |
| JEL: | C24 D21 O17 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2005-03&r=ene |
| By: | Neil J. Buckley, R. Andrew Muller, and Stuart Mestelman |
| Abstract: | Two approaches to emissions trading are cap-and-trade, in which an aggregate cap on emissions is distributed in the form of allowance permits, and baseline-and-credit, in which firms earn emission reduction credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. This paper reports on a laboratory experiment designed to test the prediction in a laboratory environ- ment in which sub jects representing firms choose emission technologies and output capacities. A computerized environment has been created in which sub jects participate in markets for emission rights and for output. Demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. Our evidence supports the theoretical prediction that aggregate output and emissions are in- efficiently high under a baseline-and-credit trading plan compared to a corresponding cap-and-trade plan. |
| JEL: | C92 L50 Q58 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2005-04&r=ene |
| By: | Alison Stegman |
| Abstract: | Convergence in cross country per capita carbon emission rates is an important concept the climate change debate. This paper provides an empirical analysis of emissions per capita convergence. This analysis is crucial to the assessment of projection models that generate convergence in emission per capita rates and to the assessment of policy proposals that advocate imposing convergence in emissions per capita. The main conclusions in this paper are based on a details examination of the intra-distributional dynamics of cross country emissions per capita over time. Stochastic kernel estimation of these dynamics suggests that the cross country distribution of emissions per capita is characterised by persistence. There is little evidence that emission per capita rates across countries are converging in an absolute sense. Projection models that generate convergence in emissions per capita are therefore inconsistent with empirical behaviour. Policies that impose convergence in emissions per capita are likely to generate large re-distributional impacts. |
| JEL: | C10 C14 Q54 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-08&r=ene |
| By: | Warwick J. McKibbin; Alison Stegman |
| Abstract: | The notion of "convergence" of economic variables across countries is a useful concept and in the case of income per capita, a well studied area. If there is empirical evidence of convergence of some economic variables across countries, then our ability to prdict the future (or at least difference between countries in the future) is enhanced. It is common in long run projections of climate change to base these projections on some notion of full or partial convergence whether in incomes per capita, teachnologies, energy intensities, emissions intensities of energy or per capita carbon emissions. But what is the empirical basis of these assumptions? This paper explores the historical experience of a range of variables related to climate change projections with the goal of examining if there is any evidence historically of convergence. The focus of the paper is on per capita carbon emissions from fossil fuel use because this is the basis of many projections as well as a variety of policy proposals. We also present evidence on GDP per capita, energy intensity of output and the emissions intensity o energy supply. We find strong evidence that the wide variety of assumptions about "convergence" commonly used in emissions projections are not based on empirically observed phenomena. |
| JEL: | C50 C68 F01 F43 Q54 Q56 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-10&r=ene |