L1D47 (1.4) |
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L1T26 (35%): electricity (4%), renewable_energy (2%) L1T63 (8%): cost (18%), costs (14%) L1T107 (6%): market (32%) L1T106 (4%): optimal (9%), auction (6%) |
title | abstract |
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ENVIRONMENTAL POLICIES - MARKET RESPONSES AND INCENTIVES (1993) 🗎🗎 | Environmental degradation cannot be cured by relying solely on the public sector debating and introducing policies and control. To prompt the market to develop the technology for reducing emission, there has to be a more tangible evidence of an economic gain and a much higher return than currently prevails. For new investment, there is a tendency within industry to favour 'revenue generation' projects against those for 'cost reduction' by requiring shorter gestation and payback periods for the latter, even though the former is the dual of the latter. Thus, energy efficiency projects tend to receive low priorities by industry by requiring much higher return and faster payback periods for them - sometimes as low as three months. It is possible that a supply shock may need to occur to induce the market to invest and develop the required technology in order to redress some of the current environmental imbalance. |
Impacts of new environmental standards on mining industry: The case of Peru (1996) 🗎🗎 | This study offers a simple methodology to analyze the impacts of proposed environmental standards on the mining industry and applies it to Peruvian data. The impacts are estimated with two alternative approaches, the discounted cash flow (DCF) and option pricing (OPM) methods, and their results are compared. The findings show that the new standards would cause large reductions in the values of mines under consideration. Environmental expenditures which are prescribed by the two standards are examined in the context of optimal timing of investment (A. Dixit, Investment and Hysteresis, Journal of Economics Perspective, Vol. 6 no. 1, 1992, pp. 107-132); the sensitivity of option values with respect to the duration of postponement period are calculated. The results indicate that even though allowing for a postponement option keeps the mines open, it does not lead the mines to actually undertake the necessary investments without any subsidies. Finally, the effectiveness of two alternative subsidy schemes are analyzed; it is found that conditional (state-specific) subsidies are not as effective as unconditional subsidies. |
Emergence of financial markets for electricity: a European perspective (2001) 🗎🗎 | Deregulation directed at European energy markets is proceeding, although the speed often may seem slow. Real changes are coming in the development of physical and especially financial markets for electricity. Electricity deregulation started in individual countries, notably the United Kingdom and Norway, and the Norwegian effort spread to the rest of the Nordic region before the Union's 1996 Electricity Directive started to have a real impact. Electricity deregulation is a complicated process, involving breaking up of generation monopolies, unbundling of generation and transmission, consumer choice of suppliers through local distributors, and eventually perhaps the establishment of a power pool, where physical as well as financial contracts are traded. The deregulation process now has gone far enough to reap some experiences. The original UK deregulation model, which focused mainly on breaking up the generation monopoly, proved somewhat inefficient because it didn't offer real consumer choices and opened for inefficient gaming strategies among producers. This experience has pushed the United Kingdom in the direction of the Nordic model. Norwegian deregulation is peculiar in the sense that new entry to generation is highly restricted. On the other hand, Norway - now with the entire Nordic region - has developed a quite advanced and quite well-functioning electricity trading pool, with widespread financial trading and good liquidity. Part of the success of the Nordic model comes having a high-quality spot price which can be used as a benchmark for the pricing of financial contracts. Another possible source of success is the high proportion of hydropower, for which production volumes can be adjusted quickly and outages and price spikes thus avoided. The Swiss experience further underscores the importance of a spot-price benchmark, because the extensive Swiss physical trade has allowed a growing volume of contract trade even in the absence of deregulation. From these experiences we propose four factors we believe to be instrumental in creating healthy financial power markets. The choice of pool model, including spot, adjustment and forward markets, will make or break liquidity. A price index is essential for ensuring transparency. Standardized, simple derivative contracts make trading easier and more attractive. Finally, the underlying physical system is important: a hydro-based system is easy to adjust, while a thermal system will have problems with security of supply. Although the process is slow, deregulation is likely to change the European electricity market in profound ways. We see the effects mostly as beneficial. Deregulation will improve efficiency in generation, will improve transparency for better consumer choices, and allow the emergence of efficient financial trade in electricity. If deregulation is all that's done, the environmental effects may be adverse because lower prices encourage greater consumption and hence emissions. Coupled with a sensible environmental policy, we believe deregulated markets can minimize the costs of environmental protection. (C) 2000 Elsevier Science Ltd. All rights reserved. |
The method for settling telecommunications payments between operators in different countries is the reciprocal accounting rate system. This is a discriminatory system, because different operators pay different prices to access the same national network and these price differences are not related to different costs of providing the service. Reforms of the accounting rate system are currently under discussion in international organizations. In this paper we study the effects of the existing regime and of the main alternative proposal, the international traffic terminating fee, on the retail price of international telephone calls. Our main result is that the current regime of reciprocal accounting rates may determine lower prices than the proposed alternative system. | |
The cost of phasing out nuclear power: a quantitative assessment of alternative scenarios for Germany (2002) 🗎🗎 | This paper addresses the question of how alternative phase-out regulations for nuclear power in Germany affect both the magnitude of total economic costs and their distribution across competing companies. We find that alternative regulations leading to the same phase-out date exhibit large differences in total costs, which are mainly associated with the respective differences in permissible cumulative nuclear power production. We show that the distribution of phase-out costs across companies changes considerably for the various regulation schemes, revealing an important equity dimension of phase-out policies. (C) 2002 Elsevier Science B.V. All rights reserved. |
The implications of the Kyoto project mechanisms for the deployment of renewable electricity in Europe (2005) 🗎🗎 | EU energy/environmental policy has at least two major and interrelated goals: to increase the percentage of electricity from renewable energy sources (RES-E) and to control the emission of GHG cost efficiently. These two goals could be in conflict. This paper explores one aspect of this conflicting relationship, namely the effect that the use of the Kyoto Protocol project mechanisms (CDM/JI project) may have on the deployment of RES-E within EU borders. The main conclusion is that, under certain assumptions (i.e., no mandatory EU RES-E quota), CDM/JI projects might reduce the incentive to deploy RES-E within EU borders because they would allow European power companies to comply with GHG targets in a cheaper way than if they reduced emissions by investing in renewable electricity in Europe. This is problematic, since many benefits from renewable electricity are local and these would be gone. This situation would be different if a mandatory RES-E quota (combined with an EU-wide TGC scheme) was implemented. In this case, the RES-E target would be fulfilled and CDM/JI projects would only affect RES-E deployment exceeding the target. (c) 2004 Elsevier Ltd. All rights reserved. |
Japan's electricity industry is now in the process of regulatory reform. This industry consists of three sectors: generation, transmission, and distribution. The reform phases out the entry barrier in the first sector, while keeping the latter two as they were with a rate-of-return (ROR) regulation. To simulate this regulatory reform, we employ a computable general equilibrium model, which distinguishes these three sectors and is equipped with the ROR regulation and substitution among various energy sources. Our numerical simulations show a potential for significant welfare improvements and substitution among energy inputs even if the reform scope is limited. (c) 2004 Elsevier B.V. All rights reserved. | |
Social choice, uncertainty about external costs and trade-off between intergenerational environmental impacts: The emblematic case of gas-based energy supply decentralization (2006) 🗎🗎 | The performance of the small natural gas-fired power technologies has improved remarkably over the last decade. This has aroused the interest of operators, regulators and legislators in natural gas-fired distributed generation (gas-fired DG), namely, the integrated or stand-alone use of small, modular gas-fired power generation close to the point of consumption as an alternative to large power generation and electricity transport over long distances. Gas-fired DG can provide an important benefit from the environmental point of view. Customer proximity, in fact, greatly increases the potential for combined heat and power generation, involving energy saving and reduced greenhouse gas (GHG) emissions. Unfortunately this kind of decentralized supply also determines higher non-GHG emissions (mainly NOx, compared to the best available central power technology) which occur in urban areas (high populated) instead of extra-urban areas (where large power plants are generally located). It is therefore difficult to make a reliable evaluation of gas-fired DG environmental benefits without comparing centralized and decentralized models in terms of external costs, that is without an analysis which allows us to compare the extent of global and local-regional impacts in terms of monetary damage. If, on the one hand, this underlines the (potential) importance of the methods adopted to assess the economic value of environmental externalities (even for policy decisions that are binary, i.e. the choice between different energy technologies), on the other, it raises the crucial question of the uncertainty about the economic estimates. This article aims at demonstrating that the uncertainty about external costs, even if large, does not undermine the possibility of verifying whether gas-fired DG is preferable (or not) to centralized supply. The paper compares centralized and decentralized models in terms of the external environmental costs which are calculated by using the results of the available studies in this field (in particular the results of the dissemination process of the so-called ExternE project, one of the most recent and accurate methodologies, and the results of a meta-analysis, with regard to the marginal cost of GHG emissions). The uncertainty about external costs is substantial but not so large that it is not possible to say anything about the environmental raking of alternative technology solutions involving trade-off between the impacts of different pollutants (or between different kinds of impacts). The literature on external costs provides several studies accounting for a large part of uncertainty by means of appropriate statistical and sensitive analysis. By using and elaborating these results, the analysis described in this paper seems to support the conclusion that centralized supply, and especially the completely electric solution (based on the reversible electric heat pump), is still preferable to natural gas-fired CHP distributed generation. This is not a definitive conclusion but, we hope, a useful (scientific based) contribution for policy decisions under the state of the art. In fact, this result has an interesting policy implication. It suggests unless questioning the current enthusiasm on natural gas-fired CHP distributed generation deployment (e.g. the European Commission is indeed advocating DG as a contribution to GHG emission reduction) and helps us to reflect upon gas-fired DG supporting environmental policies which focus on the reduction of GHG emissions and totally disregard the possible trade-off between the impacts of global and local-regional pollutants. Unless one denies the rationality attributed to making tradeoffs, on the basis of ethical limits of economic valuations. Even in this case, however, cost-benefit analysis seems to be legitimate and a necessary step of the public discourse. We think that the results of this paper are emblematic, from this point of view. (c) 2005 Elsevier B.V. All fights reserved. |
The impact of carbon capture and storage on overall mitigation policy (2007) 🗎🗎 | Policy makers, as well as many economists, recognize geological carbon capture and storage (CCS) as an option for avoiding costly emission reductions. While an extreme perspective is to envision CCS as a magic bullet to solve the issue of climate change, a more balanced economics perspective would situate this approach within a portfolio of mitigation actions. CCS can be implemented with two purposes: it can act as a substitute for other technological efforts to reach a given environmental target and it offers the potential for additional emission reductions to reach a 'safer' climate target. In order to balance these two possible ways of utilizing CCS and to assess their respective effects on early policy strategies, we have undertaken a twofold numerical experiment. First, a cost-efficiency analysis was undertaken, where the sole effect of CCS was substitution for other efforts. This was followed by a cost-benefit analysis where both purposes had to be balanced. We find that future availability of CCS is less of a reason to relax near-term abatement efforts than what could be inferred from previous analyses. Moreover, the cost-benefit analysis indicates that environmental targets should be more ambitious when CCS is included in the picture. |
We consider some unintended effects of a "technology treaty" to increase the (stochastic) possibility of developing an energy alternative to fossil fuels which, when available, makes fossil fuels redundant. One implication of such a treaty is to increase the incentives for fossil-fuels producers to extract fossil fuels existing in given quantity more rapidly, under competition when the equilibrium price path for fossil fuels follows Hotelling's rule. When the treaty may result in the new technology being immediately available, the expected resource extraction path is accelerated for an initial period, in simulations for 510 years, despite fossil fuels being phased out when the new technology appears. When there is a minimum (10-year) lag from treaty signing to technology implementation, expected extraction is speeded up for a longer period, 12-15 years. We discuss the implications of such treaties for global carbon emissions which are not necessarily positive. | |
CO2, GDP and RET: An aggregate economic equilibrium analysis for Turkey (2008) 🗎🗎 | There is a worldwide interest in renewable electricity technologies (RETs) due to growing concerns about global warming and climate change. As an EU candidate country whose energy demand increases exponentially, Turkey inevitably shares this common interest on RET. This study, using an aggregate economic equilibrium model, explores the economic costs of different policy measures to mitigate CO2 emissions in Turkey. The model combines energy demands, capital requirements and labor inputs at a constant elasticity of substitution under an economy-wide nested production function. Growing energy demand, triggered by economic growth, is met by increased supply and initiates new capacity additions. Investment into RET is encouraged via the incorporation of (a) endogenous technological learning through which the RET cost declines as a function of cumulative capacity, and (b) a willingness to pay (WTP) function which imposes the WTP of consumers as a lower bound on RET installation. The WTP equation is obtained as a function of consumer income categories, based on data gathered from a pilot survey in which the contingent valuation methodology was employed. The impacts of various emission reduction scenarios on GDP growth and RET diffusion are explored. As expected, RET penetration is accelerated under faster technological learning and higher WTP conditions. It is found that stabilizing CO2 emissions to year 2005 levels causes economic losses amounting to 17% and 23% of GDP in the years 2020 and 2030, respectively. (C) 2008 Elsevier Ltd. All rights reserved. |
Environmental and technology policies for climate mitigation (2008) 🗎🗎 | We assess different policies for reducing carbon dioxide emissions and promoting innovation and diffusion of renewable energy. We evaluate the relative performance of policies according to incentives provided for emissions reduction, efficiency, and other outcomes. We also assess how the nature of technological progress through learning and research and development (R&D), and the degree of knowledge spillovers, affects the desirability of different policies. Due to knowledge spillovers, optimal policy involves a portfolio of different instruments targeted at emissions, learning, and R&D. Although the relative cost of individual policies in achieving reductions depends on parameter values and the emissions target, in a numerical application to the U.S. electricity sector, the ranking is roughly as follows: (1) emissions price, (2) emissions performance standard, (3) fossil power tax, (4) renewables share requirement, (5) renewables subsidy, and (6) R&D subsidy. Nonetheless, an optimal portfolio of policies achieves emissions reductions at a significantly lower cost than any single policy. (C) 2007 Elsevier Inc. All rights reserved. |
More competition: Threat or chance for financing renewable electricity? (2008) 🗎🗎 | The paper examines how increased competition in electricity markets may reshape the future electricity generation portfolio and its potential impact on the renewable energy (RE) within the energy mix. The present analysis, which is based on modelling investor behaviour with a time horizon up to 2030, considers the economic aspects and conditions for this development with a particular focus on the photovoltaics. These aspects include pure financial/investment factors, such as the expected returns in the sector, subsidisation of certain RE resources and other policies focusing on the energy sector (liberalisation, environmental policies and security of supply considerations). The results suggest that policies aiming at the expansion of renewable energy technologies and strengthening the competition in the electricity markets have mutually reinforcing effects. More competition can reduce the financial burden of the existing renewable support schemes and consequently help to achieve the already established RE targets. (c) 2007 Elsevier Ltd. All rights reserved. |
Analyzing the Relative Strength of Policy Instruments to Stimulate Renewable Energy Markets: A Comparative State Analysis (2009) 🗎🗎 | In the face of the climate change threat and rising oil prices, some states, such as Oregon, New York and California, have adopted stronger renewable energy instruments than others. This paper analyzes the variation in instrument strength across states using the Tobit method of analysis. Three instruments are analyzed here: tax incentives, renewable portfolio standards and public benefit charges. Three models of policy adoption are estimated: needs/responsiveness, interest group and innovation-and-diffusion model. The paper finds that electric utilities oppose strong measures to stimulate renewable energy. Variables such as state wealth, electric restructuring programs and opinion liberalism also explain instrument strength. |
A model of technological breakthrough in the renewable energy sector (2009) 🗎🗎 | Models with induced technological change in the energy sector often predict a gradual expansion of renewable energies, and a substantial share of fossil fuels remaining in the energy mix through the end of our century. However, there are historical examples where new products or technologies expanded rapidly and achieved a high output in a relatively short period of time. This paper explores the possibility of a 'technological breakthrough' in the renewable energy sector. using a partial equilibrium model of energy generation with endogenous R&D. Our results indicate, that due to increasing returns-to-scale, a multiplicity of equilibria can arise. In the model, two stable states can coexist, one characterized by a lower and one by higher supply of renewable energy. The transition from the low-output to the high-output equilibrium is characterized by a discontinuous rise in R&D activity and capacity investments in the renewable energy sector. The transition can be triggered by a rise in world energy demand, by a drop in the supply of fossil fuels, or by policy intervention. Under market conditions, the transition occurs later than in the social optimum. Hence, we identify a market failure related to path-dependence and technological lock-in, that can justify a strong policy intervention initially. Paradoxically, well-intended energy-saving policies can actually lead to higher emissions, as they reduce the incentives to invest in renewable energies by having a cushioning effect on the energy price. Hence, these policies should be supplemented by other instruments that restore the incentives to invest in renewable energies. Finally, we discuss the influence of monopoly power in the market for innovations. We show that market power can alleviate the problem of technological lock-in, but creates a new market failure that reduces static efficiency. (C) 2009 Elsevier B.V. All rights reserved. |
Policy changes and the dynamics of capacity expansion in the Swiss electricity market (2009) 🗎🗎 | Capacity of supply is a crucial matter in electricity markets as it directly influences reliability of supply, price volatility and blackout risk. In this paper, we analyse the dynamics of capacity expansion in the Swiss electricity market and the impact of different policies such as nuclear phaseout and management of electricity exchanges - imports and exports - policies. This article develops the conceptualization model presented in [Ochoa, P., 2007b. Policy changes in the Swiss electricity market: a system dynamics analysis of likely market responses. Socio-Economic Planning Sciences 41 (4):336-349.]. We build a system dynamics model based on the dynamics of capacity expansion explained in the latter paper and present and analyse different scenarios. We conclude that international electricity exchanges are important for the Swiss market as they help to lower costs and to increase the income of the utility companies; however, we illustrate the need for explicit policies for managing imports and exports electricity to avoid import dependence from neighbouring countries. (c) 2009 Elsevier Ltd. All rights reserved. |
Demand Subsidies Versus R&D: Comparing the Uncertain Impacts of Policy on a Pre-commercial Low-carbon Energy Technology (2009) 🗎🗎 | We combine an expert elicitation and a bottom-up manufacturing cost model to compare the effects of R&D and demand subsidies. We model their effects on the future costs of a low-carbon energy technology that is not currently commercially available, purely organic photovoltaics (PV). We find that: (1) successful R&D enables PV to achieve a cost target of 4c/kWh, (2) the cost of PV does not reach the target when only subsidies, and not R&D, are implemented, and (3) production-related effects on technological advance-learning-by-doing and economies of scale-are not as critical to the long-term potential for cost reduction in organic PV than is the investment in and success of R&D. These results are insensitive to two levels of policy intensity, the level of a carbon price, the availability of storage technology, and uncertainty in the main parameters used in the model. However, a case can still be made for subsidies: comparisons of stochastic dominance show that subsidies provide a hedge against failure in the R&D program. |
Impacts of integration of production of black and green energy (2010) 🗎🗎 | As the mandate for minimum renewable sources renders Tradable Green Certificates (TGCs) an essential input for power generation, it may induce mergers between power companies of conventional and renewable sources. Such mergers enable the integrated firms to extend market power from the TGC market to the physical energy market. We find that the price of TGCs is indeed higher in the integrated market than the disintegrated market, indicating the presence of market power leveraging. However, despite higher TGC price, the total supply of electricity is greater under integration than disintegration, reflecting efficiency gains from vertical integration, which eliminates double marginalization. The thrust of this paper is that market changes induced by environmental policies will in turn affect environmental and economic regulations. For example. increased supply resulting from integration induced by the renewable source mandate may reduce the effectiveness of programs that promote energy saving behavior, but at the same time creates room for raising the minimum of renewable sources without unduly depressing production and consumption. (C) 2009 Elsevier B.V. All rights reserved. |
Renewable Energy Policies and Technological Innovation: Evidence Based on Patent Counts (2010) 🗎🗎 | This paper examines the effect of environmental policies on technological innovation in the specific case of renewable energy. The analysis is conducted using patent data on a panel of 25 countries over the period 1978-2003. We find that public policy plays a significant role in determining patent applications. Different types of policy instruments are effective for different renewable energy sources. Broad-based policies, such as tradable energy certificates, are more likely to induce innovation on technologies that are close to competitive with fossil fuels. More targeted subsidies, such as feed-in tariffs, are needed to induce innovation on more costly energy technologies, such as solar power. |
Managing a hydro-energy reservoir: A policy approach (2010) 🗎🗎 | Liberalisation and privatisation have increased the need to gain more understanding into the management of hydro storage (HS) plants. We analyse what types of reservoir management policies enable an owner or a public authority to achieve their respective objectives. By "policy" we understand simple, easily applicable decision rules, which enable a decision maker to decide when and how much to produce based on currently available information. We use a stylised deterministic simulation model of a hydro-power producer (HP) who behaves strategically. We study a non-liberalised market, where the authorities aim to minimise the total electricity cost for customers and a liberalised market where the HP attempts to maximise his contribution. This enables us to evaluate the impact of the liberalisation of HS production decisions on production volumes and electricity prices. We conclude that imposing rigid policies with the aim of limiting the potential for strategic behaviour can create incentives to produce only at very high prices throughout the year. This can lead to very high total costs, especially when the producer has most flexibility (large reservoirs combined with large turbine capacity). More surprisingly, we observe lower total production in a non-liberalised market. (C) 2010 Elsevier Ltd. All rights reserved. |
Getting ready for carbon capture and storage by issuing capture options (2010) 🗎🗎 | A capture option is an option contract where the option holder can exercise a contract to retrofit an existing fossil fuel plant to capture carbon dioxide (CO2) on or before a fixed date. We suggest that new thermal power plants, particularly those in developing countries, consider issuing capture options at the design stage, because the sellers the owners of newly built thermal power plants may then invest in making these plants CO2 capture ready (CCR) to optimise returns from selling capture options. In a detailed case study on a 600 MW ultrasupercritical pulverised coal-fired power unit a potential storage site in Guangdong, China, the value of a capture option and CCR investment is evaluated using the backward deduction option pricing method through a stochastic cash flow model with Monte-Carlo simulations. If the power plant is retrofittable without CCR investment, then for an 8% discount rate the value of a capture option is US $11 million before CCR investment. Investing US $3.8 million in CCR increases the value of the capture option by an estimated US $12 million. Perhaps more important from a policy point of view, CCR investment can reduce the odds of early closure by 20% and also increase the chance of retrofitting to capture by 43%. If the power plant is not retrofittable in the absence of CCR design modifications, CCR investment to avoid 'carbon lock-in' is not only important for climate policy but is also economic from an investment point of view. We also conduct sensitivity analyses on a range of key assumptions to test the robustness of the findings. |
How to proceed with competing alternative energy technologies: A real options analysis (2010) 🗎🗎 | Concerns about CO(2) emissions create incentives for the development and deployment of energy technologies that do not use fossil fuels. Indeed, such technologies would provide tangible benefits in terms of avoided fossil-fuel costs, which are likely to increase as restrictions on CO(2) emissions are imposed. However, a number of challenges need to be overcome prior to market deployment, and the commercialisation of alternative energy technologies may require a staged approach given price and technical risk. We analyse how a firm may proceed with staged commercialisation and deployment of competing alternative energy technologies. An unconventional new alternative technology is one possibility, where one could undertake cost-reducing production enhancement measures as an intermediate step prior to deployment. By contrast, the firm could choose to deploy a smaller-scale existing renewable energy technology, and, using the real options framework, we compare the two projects to provide managerial implications on how one might proceed. (C) 2009 Elsevier B.V. All rights reserved. |
Potential of building-scale alternative energy to alleviate risk from the future price of energy (2010) 🗎🗎 | The energy used for building operations, the associated greenhouse gas emissions, and the uncertainties in future price of natural gas and electricity can be a cause of concern for building owners and policy makers. In this work we explore the potential of building-scale alternative energy technologies to reduce demand and emissions while also shielding building owners from the risks associated with fluctuations in the price of natural gas and grid electricity. We analyze the monetary costs and benefits over the life cycle of five technologies (photovoltaic and wind electricity generation, solar air and water heating, and ground source heat pumps) over three audience or building types (homeowners, small businesses, large commercial and institutional entities). The analysis includes a Monte Carlo analysis to measure risk that can be compared to other investment opportunities. The results indicate that under government incentives and climate of Toronto, Canada, the returns are relatively high for small degrees of risks for a number of technologies. Ground source heat pumps prove to be exceptionally good investments in terms of their energy savings, emission, reductions, and economics, while the bigger buildings tend also to be better economic choices for the use of these technologies. (C) 2009 Elsevier Ltd. All rights reserved. |
The importance of marginal cost electricity pricing to the success of greenhouse gas reduction programs (2011) 🗎🗎 | The efficient reduction of GHG emissions requires appropriate retail pricing of off-peak electricity. However, off-peak electricity for residential consumers is priced at 331% above its marginal cost in the United States as a whole (June 2009). Even for the 1% of residences that are on some form of time-of-use (IOU) rate schedule, the off-peak rate is almost three times higher than the marginal cost. A barrier to marginal-cost based IOU rates is that less than 9% of U.S. households have the "smart" meters in place that can measure and record the time of consumption. Policies should be put in place to achieve full deployment. Another important barrier is consumer concern about IOU rate design. Two IOU rate designs (baseline and two-part tariff) are described that utilize marginal-cost based rates, ensure appropriate cost recovery, and minimize bill changes from current rate structures. A final barrier is to get residences on to these rates. Should a marginal-cost based IOU rate design remain an alternative for which residences could "opt-in," or become the default choice, or become mandatory? Time-invariant rates are a historical anachronism that subsidize very costly peak-period consumption and penalize off-peak usage to our environmental detriment. They should be phased out. (C) 2011 Elsevier Ltd. All rights reserved. |
Energy efficiency and renewables policies: Promoting efficiency or facilitating monopsony? (2011) 🗎🗎 | The cliche in the electricity sector, the "cheapest power plant is the one we don't build," neglects the benefits of the energy that plant would generate. That economy-wide perspective need not apply in considering benefits to only consumers if not building that plant was the exercise of monopsony power. A regulator maximizing consumer welfare may need to avoid rationing demand at monopsony prices. Subsidizing energy efficiency to reduce electricity demand at the margin can solve that problem, if energy efficiency and electricity use are substitutes. Renewable energy subsidies, percentage use standards, or feed in tariffs may also serve monopsony as well with sufficient inelasticity in fossil fuel electricity supply. We may not observe these effects if the regulator can set price as well as quantity, lacks buyer-side market power, or is legally precluded from denying generators a reasonable return on capital. Nevertheless, the possibility of monopsony remains significant in light of the debate as to whether antitrust enforcement should maximize consumer welfare or total welfare. (C) 2010 Elsevier Ltd. All rights reserved. |
The impact of price on residential demand for electricity and natural gas (2011) 🗎🗎 | Climate change will affect the demand of many resources that households consume, including electricity and natural gas. Although price is considered an effective tool for controlling demand for many resources that households consume, including electricity and natural gas, there is disagreement about the exact magnitude of the price elasticity. Part of the problem is that demand is confounded by block pricing and the interrelated consumption of electricity and natural gas, which prevent easy estimation of price impacts. Block pricing suggests that the purchaser controls the marginal price of a commodity by the quantity purchased, turning price into an endogenous variable. Interrelated consumption indicates that demand for one resource is affected by the price of another. These complications have made difficult the estimation of the price elasticity of demand for resources and consequently the household-level impact of climate change, which will affect resource supplies. This paper evaluates statistical tools for estimating the joint demand for natural gas and electricity when both resources face a block price setting and develops estimates of own and cross price elasticity. We use data from the Federal Residential Energy Consumption Survey, along with utility price data, to estimate the household demand for electricity and natural gas in California as separate commodities. We then use a joint estimation procedure to evaluate the household demand for natural gas and electricity. Finally, we evaluate the degree to which block pricing and interrelated demand affect the price elasticity of demand for the two resources. The paper ends by noting the continuing uncertainty surrounding the use of price to manage household demand for electricity and natural gas. |
An economic evaluation of the potential for distributed energy in Australia (2012) 🗎🗎 | We present here economic findings from a major study by Australia's Commonwealth Scientific and Industrial Research Organisation (CSIRO) on the value of distributed energy technologies (DE: collectively demand management, energy efficiency and distributed generation) for reducing greenhouse gas emissions from Australia's energy sector (CSIRO, 2009). The study covered potential economic, environmental, technical, social, policy and regulatory impacts that could result from their wide scale adoption. Partial Equilibrium modeling of the stationary energy and transport sectors found that Australia could achieve a present value welfare gain of around $130 billion when operating under a 450 ppm carbon reduction trajectory through to 2050. Modeling also suggests that reduced volatility in the spot market could decrease average prices by up to 12% in 2030 and 65% in 2050 by using local resources to better cater for an evolving supply-demand imbalance. Further modeling suggests that even a small amount of distributed generation located within a distribution network has the potential to significantly alter electricity prices by changing the merit order of dispatch in an electricity spot market. Changes to the dispatch relative to a base case can have both positive and negative effects on network losses. (C) 2012 Published by Elsevier Ltd. |
Renewable energy investment: Policy and market impacts (2012) 🗎🗎 | The liberalization of electricity markets in recent years has enhanced competition among power-generating firms facing uncertain decisions of competitors and thus uncertain prices. At the same time, promoting renewable energy has been a key ingredient in energy policy seeking to de-carbonize the energy mix. Public incentives for companies to invest in renewable technologies range from feed-in tariffs, to investment subsidies, tax credits, portfolio requirements and certificate systems. We use a real options model in discrete time with lumpy multiple investments to analyze the decisions of an electricity producer to invest into new power generating capacity, to select the type of technology and to optimize its operation under price uncertainty and with market effects. We account for both the specific characteristics of renewables and the market effects of investment decisions. The prices are determined endogenously by the supply of electricity in the market and by exogenous electricity price uncertainty. The framework is used to analyze energy policy, as well as the reaction of producers to uncertainty in the political and regulatory framework In this way, we are able to compare different policies to foster investment into renewables and analyze their impacts on the market. (C) 2012 Elsevier Ltd. All rights reserved. |
Modeling the rebound effect in two manufacturing industries (2012) 🗎🗎 | The rebound effect refers to the phenomenon that energy savings from improvements in energy efficiency are lower than expected due to unintended second-order effects. Grasping specific mechanisms related to the rebound effect requires a good understanding of interactions between heterogonous agents on multiple markets. Otherwise, policies aimed at reducing energy use may render counter-expected and unforeseen consequences. In this paper, we propose a formal model, where technological change results from interactions on two markets: between consumers and producers in the market for final goods, and heterogeneous power plants in the electricity market. The analysis provides insights to the role of technological change, supply-demand coevolution. and status-driven consumption in explaining the rebound effect. The model is employed to compare effectiveness of economic policies aimed at reducing carbon emissions associated with production of consumer goods, namely: a tax on electricity and 'nuclear obligations' to produce ten percent of electricity from nuclear energy. (C) 2012 Elsevier Inc. All rights reserved. |
Comparative economic analysis of supporting policies for residential solar PV in the United States: Solar Renewable Energy Credit (SREC) potential (2012) 🗎🗎 | Numerous studies and market reports suggest that the solar photovoltaic markets rely heavily, if not entirely, upon governmental support policies at present. Unlike in other countries where these policies are enacted at a national level, the 50 states in the US pursue different policies in an attempt to foster the growth of renewable energy, and specifically solar photovoltaics. This paper provides an economic and financial analysis of the US federal and state level policies in states with solar-targeted policies that have Solar Renewable Energy Credits (SREC) markets. After putting a value on SRECs, this study further compares solar carve-outs with other incentives including the federal tax credit, net metering, and state personal tax credits. Our findings show that SREC markets can certainly be strong, with New jersey, Delaware, and Massachusetts having the most potential. Despite their strong potential as effective renewable policies, the lack of a guaranteed minimum and the uncertainty attached are major drawbacks of SREC markets. However, the leveraging of this high value offers hope that the policies will indeed stimulate residential solar photovoltaic markets. (C) 2012 Elsevier Ltd. All rights reserved. |
The upside hedge value of California's global warming policy given uncertain future oil prices (2012) 🗎🗎 | The economic modeling that policymakers typically rely on-and all the economic modeling of AB 32 (California's Global Warming Solutions Act)-assumes smooth future price paths, ignoring the reality of significant price volatility of fuels derived from crude oil. To add some insight into the value of reduced exposure to gasoline and diesel price spikes as a result of climate policies like AB 32, we define the benefit of upside hedge value: the extra avoided expenditures on gasoline and diesel fuel that accrue when their prices spike. We develop two historically-grounded price spike scenarios: a moderate spike of 25% and a large spike of 50%. After accounting for short-term price elasticity of demand effects, we estimate the upside hedge value to be between $2.4 billion and $5.2 billion (all 2007 dollars) for the moderate and large hypothetical shock scenarios, respectively. (C) 2012 Elsevier Ltd. All rights reserved. |
Subsidies for renewable energies in the presence of learning effects and market power (2012) 🗎🗎 | We study the impact of learning by doing, learning spill-overs, and imperfect competition in a model with two types of electricity producers, an oligopolistic sector of polluting fossil-fuel utilities and a competitive fringe of non-polluting generators of electricity from renewable energy sources (RES-E). Furthermore we consider an upstream industry of RES-E equipment producers engaged in learning by doing. We show that a first-best policy requires two instruments, a tax in the fossil-fuel sector and an output subsidy for RES-E equipment producers. We then study second-best-optimal feed-in tariffs that are paid to the generators of RES-E. By means of simulations we calculate the welfare loss of a second-best-optimal feed-in-tariff policy and analyze how market structure impacts on second-best-optimal feed-in tariffs. (C) 2011 Elsevier B.V. All rights reserved. |
Feasibility of U.S. renewable portfolio standards under cost caps and case study for Illinois (2012) 🗎🗎 | Recently enacted state renewable portfolio standards (RPSs) collectively require that U.S. electricity generation by non-hydro renewables more than double by 2025. These goals are not certain to be met, however, because many RPSs apply cost caps that alter requirements if costs exceed targets. We analyze here the 2008 Illinois RPS, which is fairly typical, and find that at current electricity prices, complete implementation will require significant decreases in renewables costs even given the continuation of federal renewables subsidies. Full implementation is possible but not assured. The statutory design raises additional concerns about unintended potential consequences. The fact that windpower and solar carveouts fall under a single cost cap means that in failure mode, a less cost-effective technology can curtail deployment of a more cost-effective one. Adjacent-state provisions mean the bulk of the RPS can be met by existing wind facilities, and that new wind builds will likely occur in Iowa. The Illinois RPS, like that of many other states, appears to combine objectives inherently in conflict: preferences for local jobs, for specific technologies, for environmental benefits, and for low costs. Revisiting the legislation may be needed to make legislative success likely and to ensure that failure modes do not compromise goals. (C) 2012 Elsevier Ltd. All rights reserved. |
State-level renewable electricity policies and reductions in carbon emissions (2012) 🗎🗎 | A wide range of renewable electricity policies has been adopted at the state level in the United States, but to date there has been no large-scale, empirical assessment of the effect of these policies on carbon emissions. Such an assessment is important because scholars have pointed out that increases in renewable electricity will not necessarily lead to declines in carbon emissions. We examine the effects of a range of policies across 39 states. We find significant and robust decreases in carbon emissions associated with the introduction of public benefit funds, a form of "carbon tax" adopted by 19 states to date. Our aim in this paper is not to provide a final judgment on these policies, many of which may not have been in place long enough to show strong effects, but to shift the attention of the research community away from proximate measures such as increases in clean electricity generation and onto measurement of lower carbon emissions. (C) 2012 Elsevier Ltd. All rights reserved. |
Renewable energy investment and the clean development mechanism (2012) 🗎🗎 | This paper uses transaction and index data to empirically examine price formation in, and equilibrium characteristics of, the primary CDM market. Results point to the preemptive (and, possibly, speculative) behaviour among intermediaries (carbon firms), and inefficiencies in information transmission between secondary and primary markets. Since the primary carbon market is unstable and is prone to rational and irrational oscillations, the CDM, in its current form, is not a reliable policy tool for long-term renewable energy sector development plans, whenever fiscal regulatory instruments are available. (C) 2010 Elsevier Ltd. All rights reserved. |
Pricing principles and incentives for energy efficiency investments in multi-family rental housing: The case of Sweden (2012) 🗎🗎 | Improving the energy efficiency of the existing housing stock is a high priority in Sweden. The focus of this viewpoint is on how incentives for improving energy efficiency are affected by pricing principles in two specific areas: housing rents and district heating fees. Many countries have regulations that affect how housing rent is determined. It has been shown that cost-based rents reduce incentives for energy efficiency. The same may occur if rent is related to qualities of the apartment, if these qualities do not include the indoor climate. There have been concerns that district heating companies might respond to lower sales by increasing prices, thus reducing any incentive to reduce energy consumption. It is argued that this will not happen if fixed and variable fees correctly reflect the cost structure. Empirical studies show that it is common to have a variable fee that is higher than the marginal cost, partly because of monopoly elements in the market. This type of pricing will actually strengthen the incentives for energy efficiency investments compared to theoretically correct pricing principles. (C) 2012 Elsevier Ltd. All rights reserved. |
Comment on "Comparing the feed-in tariff incentives for renewable electricity in Ontario and Germany" by Mabee, Mannion, and Carpenter (2012) 🗎🗎 | In a recent article Mabee et al. [2012, Energy Policy 40(1), 480-489] describe the German legislation to promote renewable electricity generation (Erneuerbare-Energien-Gesetz). The erroneous assumption that an annual degression of feed-in tariffs for any given power generating facility are stipulated in the law leads to a wrong calculation of net present values of the revenue stream. Reduction of feed-in tariff rates only holds for new additions. There is however one exception in offshore wind energy where the operator can opt for a degression. The implications of the newly introduced option are discussed in this comment. (C) 2012 Elsevier Ltd. All rights reserved. |
The Value of Better Information on Technology R&D Programs in Response to Climate Change (2012) 🗎🗎 | Expert elicitations are a promising method for determining how R&D investments are likely to have an impact on technological advance in climate change energy technologies. But, expert elicitations are time consuming and resource intensive. Thus, we investigate the value of the information gained in expert elicitations. More specifically, given baseline elicitations from one study, we estimate the expected value of better information (EVBI) from revisiting and improving these assessments. We find that the EVBI is very large in comparison with the cost of performing expert elicitations. We also find that EVBI is higher on technologies with larger budgets and with net values that are not too high or too low. |
Assessment of Korean customers' willingness to pay with RPS (2012) 🗎🗎 | To increase the use of renewable energy, the Korean government will introduce the Renewable Portfolio Standard (RPS) in 2012. The RPS places responsibility for extra renewable energy costs on the consumers and allows price competition among different renewable sources. Accordingly, this study analyzes through the contingent valuation (CV) the willingness of Korean households to pay more for electricity generated by wind, photovoltaic (PV), and hydropower. Our empirical results show that, although the willingness to pay (or WTP) was highest for wind power and lowest for hydropower, the differences in WTP among the renewable sources were statistically insignificant. This suggests that Korean consumers prefer a renewable portfolio that minimizes power supply costs. The average VVTP for all three energy types was KRW 1562.7 (USD 1.350) per month per household, which was approximately 3.7% of the average monthly electricity bill in 2010. This amount represents only 58.2% of what the Korean government allocated in its budget to the new and renewable energy dissemination program in 2010. Thus, our results imply that the promotion of the new and renewable energy dissemination program may be difficult only with the WTP for electricity generated from renewable sources. Specifically, the mean WTP will not support the set-aside dissemination capacity for PV after 2014. (C) 2011 Elsevier Ltd. All rights reserved. |
The impact of regulation on pricing behavior in the Spanish electricity market (2002-2005) (2012) 🗎🗎 | In this paper we measure the impact of regulatory measures which affected the Spanish electricity wholesale market between 2002 and 2005. Our approach is based on the fact that regulation changes incentives for firms and therefore their market behavior. In the absence of any regulation, firms would choose profit-maximizing prices on their residual demands so that the observed gap between optimal and actual prices provides a measure of the effect of regulation. Our results indicate that regulation has decreased wholesale prices considerably, but became less effective at the end of the sample period which explains the regulatory regime change introduced in 2006. (C) 2012 Elsevier B.V. All rights reserved. |
The impact of ownership on price-setting in retail-energy markets-The German case (2012) 🗎🗎 | This paper analyzes whether public ownership has an impact on providers' price-setting. Under the assumption of more efficient energy provision which benefits customers a large number of former energy monopolists have been privatized in line with the liberalization of energy markets in Germany at the end of the 1990s. However, current re-municipalizations are justified by similar arguments in the public debate. Based on a dataset on the ownership structure of energy providers we find that public property or private property itself is not the decisive factor for lower retail and wholesale prices. Rather, a high ownership concentration leads to low prices, regardless of the type of owner. As public investors often seek total ownership of a provider, households, which are less willing to switch, benefit at least indirectly from public ownership. Tests for robustness of our results applying different owner and concentration measures confirm the results independently from the underlying estimation specification. (C) 2011 Elsevier Ltd. All rights reserved. |
Assessing the strength and effectiveness of renewable electricity feed-in tariffs in European Union countries (2013) 🗎🗎 | In the last two decades, feed-in tariffs (FIT) have emerged as one of the most popular policies for supporting renewable electricity (RES-E) generation. A few studies have assessed the effectiveness of RES-E policies, but most ignore policy design features and market characteristics (e.g. electricity price and production cost) that influence policy strength. We employ 1992-2008 panel data to conduct the first econometric analysis of the effectiveness of FIT policies in promoting solar photovoltaic (PV) and onshore wind power development in 26 European Union countries. We develop a new indicator for FIT strength that captures variability in tariff size, contract duration, digression rate, and electricity price and production cost to estimate the resulting return on investment. We regress this indicator on added RES-E capacity using a fixed effects specification and find that FIT policies have driven solar PV development in the EU. However, this effect is overstated without controlling for country characteristics and is concealed without accounting for policy design. We do not find robust evidence that FIT policies have driven wind power development. Overall, we show that the interaction of policy design, electricity price, and electricity production cost is a more important determinant of RES-E development than policy enactment alone. (C) 2012 Elsevier Ltd. All rights reserved. |
Policy options for reducing the costs of reaching the European renewables target (2013) 🗎🗎 | European governments have agreed to increase the share of renewable energy in final energy consumption to 20% by 2020. A crucial question for policy makers is how to mobilise the additional capital investments in RE and which consumer expenditures are involved. The article describes policy options for reducing renewable energy technology (RET) project costs as well as consumer costs, based on research conducted in de Jager et al., 2011 and Rathmann et al., 2011. The results show that risk-sensitive RET policies are crucial for attracting sufficient RET investments until 2020 and achieving the targets cost-effectively. They not only reduce the RET financing costs, but also the project development costs and market gap. There are also other options that can significantly reduce the RET support costs, i.e. the adjustment of support levels to generation costs, phasing out subsidies for conventional energies, and the cost-optimisation of the supported RET portfolio, either through increased cooperation between member states or through changes in the supported technology mix. Overall, further improvement and coordination of existing policy frameworks seems more promising than drastic system changes, as the latter would create additional uncertainties and potentially negative effects on RET growth and project costs. (C) 2013 Elsevier Ltd. All rights reserved. |
Designing standalone hybrid energy systems minimizing initial investment, life cycle cost and pollutant emission (2013) 🗎🗎 | HES (hybrid energy system)s are becoming energy systems of choice for standalone applications due to ever increasing fuel costs and global concern on GHG (Green House Gas) emissions. However, it is difficult to justify the higher ICC (Initial Capital Cost) of renewable energy components, especially for rural electrification projects in developing countries. This paper illustrates the modeling and simulation of HESs, and multi-objective optimization carried out in order to support decision-making in such instances. LEC (Levelized Energy Cost), ICC and GHG emission were taken as objective functions in the optimization and the sensitivity of market prices and power supply reliability was further evaluated. Results depict that Pareto front of LEC, ICC and GHG emission can be simplified as a combination of ICC -LEC and LEC-GHG emission Pareto fronts making the decision-making process simpler. Gradual integration of renewable energy sources in a number of design stages is proposed for instances where it is difficult to bear the higher ICC. Finally, importance of planning integration of renewable energy sources at early design stages of the project is highlighted in order to overcome the difficulties that need to be faced when coming up with the optimum design. Crown Copyright (C) 2013 Published by Elsevier Ltd. All rights reserved. |
The resource curse: Analysis of the applicability to the large-scale export of electricity from renewable resources (2013) 🗎🗎 | The "resource curse" has been analyzed extensively in the context of non-renewable resources such as oil and gas. More recently commentators have expressed concerns that also renewable electricity exports can have adverse economic impacts on exporting countries. My paper analyzes to what extent the resource curse applies in the case of large-scale renewable electricity exports. I develop a "comprehensive model" that integrates previous works and provides a consolidated view of how non-renewable resource abundance impacts economic growth. Deploying this model I analyze through case studies on Laos, Mongolia, and the MENA region to what extent exporters of renewable electricity run into the danger of the resource curse. I find that renewable electricity exports avoid some disadvantages of non-renewable resource exports including (i) shocks after resource depletion; (ii) macroeconomic fluctuations; and (iii) competition for a fixed amount of resources. Nevertheless, renewable electricity exports bear some of the same risks as conventional resource exports including (i) crowding-out of the manufacturing sector; (ii) incentives for corruption; and (iii) reduced government accountability. I conclude with recommendations for managing such risks. (C) 2013 Elsevier Ltd. All rights reserved. |
Distributional impacts of climate change mitigation in Indian electricity: The influence of governance (2013) 🗎🗎 | Studies that examine the distributional impacts of climate change mitigation policies often neglect the influence of institutions that implement these policies. This study examines the short-term consumption-side distributional impacts of expanding low-carbon electric supply in the state of Maharashtra, India with a focus on the influence of regulatory discretion in pricing. Households' welfare impacts from economy-wide electricity price shocks are simulated against a baseline that is calibrated to actual household economic and electricity service conditions, including actual electricity budgets, block tier prices and supply rationing. Industrial price impacts are propagated to households using a Leontief input output analysis. Regulatory pricing decisions are evaluated based on social welfare metrics for economic efficiency and income inequality. The analysis reveals new linkages between climate change mitigation, electricity policy and income distribution. Low-income households can be shielded from mitigation impacts without losses in aggregate welfare to the extent that regulators can recover mitigation costs through industrial price increases. Regulators' flexibility to distribute costs across households is constrained by industrial customers migration off the grid. Reduced supply interruptions to the rural poor from the resulting demand contraction are a potential co-benefit of mitigation. Distributional impacts, therefore, depend on other electricity policies that are driven by the political economy of the sector. (C) 2013 Elsevier Ltd. All rights reserved. |
The impact of state policy on deployment and cost of solar photovoltaic technology in the U.S.: A sector-specific empirical analysis (2013) 🗎🗎 | Using a panel database for 27 programs in 16 U.S. states over 1998-2009, we assess the impact of 12 state-level policies on the cost and deployment of solar photovoltaic (PV) technologies for two sectors defined by system sizes: residential (<10 kW) and commercial (10-100 kW). We first examine the impact of policies on the deployment of solar PV. We show that cash incentives increase the deployment of commercial systems. We also show that interconnection standards potentially promote the deployment of residential systems, whereas property tax incentives potentially foster the deployment of commercial systems. We next examine the impact of policies on the cost of solar PV, and show that the key policies have different effects on costs. The cost of residential systems declines faster if there are cash or property tax incentives in place, whereas the presence of interconnection standards potentially accelerates the decline in commercial system costs. Further, states with a renewable portfolio standard see residential system costs potentially declining slower than states without such a policy. As solar PV is at the brink of becoming cost competitive, our findings assist regulators in fine-tuning their set of support tools. (C) 2013 Elsevier Ltd. All rights reserved. |
An assessment of the Italian smart gas metering program (2013) 🗎🗎 | The introduction of smart metering is one of the core elements in recent European policies targeting environmental sustainability and competitiveness of energy markets. Following the roll-out of smart electricity meters, in 2008 the Italian regulator designed an ambitious deployment program also for smart gas meters, that was recently modified in both scope and timing. This paper assesses Italy's original and current deployment plans, with a specific focus on the results of its cost-benefit analysis. In light of the evidence derived from the literature, we observe that the case for the roll-out of smart gas meters in Italy was not supported by a strong emphasis on energy savings but rather focused on increasing efficiency of the Italian gas market; in this respect, we argue that options other than smart gas metering should also be considered. Moreover the Italian cost-benefit analysis, which mostly dealt with the potential cost savings for distributors and suppliers, led to ambiguous results in terms of net present values; thus, we believe that an updated assessment would be extremely useful. Finally, in terms of technological choices, our analysis positively evaluates the regulator's recent proposal to consider a dual-fuel solution for the mass market deployment. (C) 2013 Elsevier Ltd. All rights reserved. |
Analysis of renewable energy incentives in the Latin America and Caribbean region: The feed-in tariff case (2013) 🗎🗎 | Renewable energy is becoming a priority for Latin America and Caribbean (LAC) countries because of energy challenges such as demand growth, high dependence on imported fossil fuels, and climate change. As of 2010, 12 LAC countries have implemented formal targets for renewable energy deployment. Some of the LAC countries, namely Argentina, Dominican Republic, Ecuador, Honduras, and Nicaragua, are using feed-in tariffs (FITS) to promote renewables. FITs are long-term, guaranteed purchase agreements for green electricity at a price that can provide project developers a reasonable return on investment. FITs are increasingly popular because if designed well, they can mitigate investor risk in renewables. This article presents a low-risk FIT design and then uses this design to benchmark the existing LAC region FITs. (C) 2013 Elsevier Ltd. All rights reserved. |
The economics of CO2-EOR cluster developments in the UK Central North Sea (2013) 🗎🗎 | Studies to date have generally shown that individual CO2-EOR offshore projects are uneconomic except under questionable assumptions. The present study is based on an interconnected cluster of nine oilfields in the Central North Sea linked to an onshore CO2 collection hub by a set of existing and new pipelines. Monte Carlo simulation modelling was undertaken of the prospective returns to investments in CO2-EOR in the fields. Relatively high oil prices were employed for the study period (2020-2050) and two contrasting CO2 transfer price scenarios, the first being the Carbon Price Floor (CPF) introduced by the UK Government and the second being relatively low negotiated prices reflecting recent and prospective levels under the EU-ETS. At CPF prices the investment returns were all found to be negative, but at prices averaging 10 per tonne positive returns were generally achieved. The study emphasises the importance of CO2 prices and the taxation system in determining the viability of the investments. (C) 2013 Elsevier Ltd. All rights reserved. |
Analysis of the imbalance price scheme in the Spanish electricity market: A wind power test case (2013) 🗎🗎 | This work investigates the interaction between wind power and electricity markets. The paper is focused on balancing markets pricing policies. The proposal of a new imbalance price scheme is included and conveniently evaluated. This proposed scheme tries to minimise the use of ancillary services to compensate for deviations in searching for a more efficient market design. The effectiveness of imbalance prices as market signals is also examined, and policy recommendations regarding imbalance services are discussed. Two test cases are included that analyse the participation of a wind power producer in the Spanish electricity market using a stochastic optimisation strategy. For this purpose, the uncertainty of the variables is considered, i.e., wind power production and prediction, intraday and imbalance prices. Test cases were run with real data for 10 months, and realistic results are presented along with a hypothetical test case. The regulation of the imbalance prices may not be adequate for the Spanish electricity market because an error drop is not sufficiently encouraged. Therefore, we suggest the application of a new imbalance price scheme, which includes an additional constraint. The conclusions of this paper can be assumed to be general policy recommendations. (C) 2013 Elsevier Ltd. All rights reserved. |
Current UK Government support for nuclear power has in part been informed by cost estimates that suggest that electricity from new nuclear power stations will be competitive with alternative low carbon generation options. The evidence and analysis presented in this paper suggests that the capital cost estimates for nuclear power that are being used to inform these projections rely on costs escalating over the pre-construction and construction phase of the new build programme at a level significantly below those that have been experienced by past US and European programmes. This paper applies observed construction time and cost escalation rates to the published estimates of capital costs for new nuclear plant in the UK and calculates the potential impact on levelised cost per unit of electricity produced. The results suggest that levelised cost may turn out to be significantly higher than expected which in turn has important implications for policy, both in general terms of the potential costs to consumers and more specifically for negotiations around the level of policy support and contractual arrangements offered to individual projects through the proposed contract for difference strike price. (C) 2013 Elsevier Ltd. All rights reserved. | |
An analysis of Australia's large scale renewable energy target: Restoring market confidence (2013) 🗎🗎 | In 2001, Australia introduced legislation requiring investment in new renewable electricity generating capacity. The legislation was significantly expanded in 2009 to give effect to a 20% Renewable Energy Target (RET). Importantly, the policy was introduced with bipartisan support and is consistent with global policy trends. In this article, we examine the history of the policy and establish that the 'stop/start' nature of renewable policy development has resulted in investors withholding new capital until greater certainty is provided. We utilise the methodology from Simshauser and Nelson (2012) to examine whether capital market efficiency losses would occur under certain policy scenarios. The results show that electricity costs would increase by between $51 million and $119 million if the large-scale RET is abandoned even after accounting for avoided renewable costs. Our conclusions are clear: we find that policymakers should be guided by a high level public policy principle in relation to large-scale renewable energy policy: constant review is not reform. (C) 2013 Elsevier Ltd. All rights reserved. |
A regulatory adjustment process for the determination of the optimal percentage requirement in an electricity market with Tradable Green Certificates (2013) 🗎🗎 | A system of Tradable Green Certificates (TGCs) is a market-based subsidy scheme designed to promote electricity generation from renewable energy sources such as wind power. Under a TGC system, the principal policy instrument is the "percentage requirement," which stipulates the percentage of total electricity production ("green" plus "black") that must be obtained from renewable sources. In this paper, we propose a regulatory adjustment process that a regulator can employ to determine the socially optimal percentage requirement, explicitly accounting for environmental damages resulting from black electricity generation. (C) 2013 Elsevier Ltd. All rights reserved. |
Renewable energy and unemployment: A general equilibrium analysis (2013) 🗎🗎 | Using a three-sector general equilibrium model, the impact of renewable electricity support policies on the rate of equilibrium unemployment is analyzed. In a simple two-factor version of the model, the paper shows analytically that renewable electricity support policies lead to an increase in the rate of unemployment. A numerical analysis is conducted with an expanded three-factor model. In this version, most scenarios analyzed also lead to an increase in equilibrium unemployment. However, the paper identifies conditions in which renewable energy support policies can decrease the rate of equilibrium unemployment. In particular, when the elasticity of substitution between capital and labor is low, when capital is not mobile internationally, and when the labor intensity of renewable generation is high relative to conventional generation, renewable electricity support policies may reduce the rate of equilibrium unemployment. The model is parameterized to represent the US economy, such that the magnitudes of quantities can be observed. Although there is some variation in the results depending on parameters, the findings suggest in general that reducing electricity sector emissions by 10% through renewable electricity support policies is likely to increase the equilibrium unemployment rate by about 0.1-0.3 percentage points. (C) 2013 Elsevier B.V. All rights reserved. |
The need of subsidy for the implementation of photovoltaic solar energy as supporting of decentralized electrical power generation in Brazil (2013) 🗎🗎 | The growing demand for electrical power and the limited capital invested to provide this power is forcing countries like Brazil to search for new alternatives for electrical power generation. The purpose of this paper is to present a technical and economic study on a 15 kW solar plant installed in an isolated community, highlighting the importance of the need for financial subsidy from the government. It evaluates the importance of parameters such as the annual interest rate, specific investment, the marginal cost of expanding the electrical power supply and the government subsidy on amortization time of capital invested. (C) 2012 Elsevier Ltd. All rights reserved. |
A system dynamics approach for the photovoltaic energy market in Spain (2013) 🗎🗎 | The goal of this paper is to contribute to understanding the behaviour of the photovoltaic (PV) sector in Spain and its expectations under possible scenarios. Currently, PV solar energy is not a profitable sector by itself. Therefore, the Spanish government, like the governments of other countries, has stimulated investment with subsidies. The spectacular increase of PV facilities exceeded all forecasts and the government decided to curb the trend. The present hypothesis is that continuing with this support to PV energy, the technological advances and the economy generated from the production of panels would be able to make the sector profitable in the future without the necessity of subventions. Based on this hypothesis, a computer simulation model was built using the system dynamics methodology. To test its utility, the model was challenged to fit the historical data and to explore several futures over the next few years. The model allows an understanding of the sector's behaviour under the latest policies of the Spanish government, thus helping to design future public policies. The simulation results are different depending on the adopted policy and the scenario. Therefore, these factors will determine the success or failure of the investments in this type of energy. (C) 2013 Elsevier Ltd. All rights reserved. |
Modelling the price spread between EUA and CER carbon prices (2013) 🗎🗎 | This paper identifies factors impacting on the dynamics of the price spread between European Allowances (EUAs) and Certified Emission Reductions (CERs) by detecting changes in the structural relationship between them. While prior studies have assumed a fixed structural relationship, this paper analyses the dynamic evolution of the price spread by employing a time-varying parameter analysis using daily data from March 2008 to September 2011. The analysis reveals that a lack of competitive conditions in markets, access constraints on the use and the availability of CERs, regulatory changes regarding both EUAs and CERs, and uncertainty surrounding CERs can explain a significant portion of the price spread. (C) 2013 Elsevier Ltd. All rights reserved. |
Clean energy policies and green jobs: An evaluation of green jobs in U.S. metropolitan areas (2013) 🗎🗎 | State and local governments in the U.S. are actively promoting renewable energy and energy efficiency to seek economic development opportunities and create green jobs. This study evaluates the employment effects of state and local clean energy and climate policies in U.S. metropolitan areas (MSAs) in 2006. The regression analysis shows that both state and local clean energy policies have positive and statistically significant impacts on green jobs at the metropolitan level. The results from Two Stage Probit Least Squares (2SPLS) indicate that every additional state clean energy policy tool adopted is associated with 1% more green jobs in the MSA. On average, MSAs with ICLEI membership maintain 9.3% more green jobs than MSAs without ICLEI membership, Ceteris paribus. (C) 2013 Elsevier Ltd. All rights reserved. |
Do renewable electricity policies promote renewable electricity generation? Evidence from panel data (2013) 🗎🗎 | Using the Poisson pseudo-maximum likelihood estimation technique, this paper evaluates the effects of renewable electricity policies on renewable electricity generation using a large panel dataset that covers 122 countries over the period of 1980-2010. The results suggest that renewable electricity policies play a crucial role in promoting renewable electricity generation, but their effectiveness is subject to diminishing returns as the number of policies increases. There is also evidence that the effects of renewable electricity policies are more pronounced before 1996 as well as in developed and emerging market countries, and the negative policy interaction effect fades with the stage of economic development. Lastly, policy effectiveness varies by the type of renewable electricity policy and energy source. Only investment incentives and feed-in tariffs are found to be effective in promoting the development of all types of renewable energy sources for electricity considered in this paper. (C) 2013 Elsevier Ltd. All rights reserved. |
Real options approach to renewable energy investments in Mongolia (2013) 🗎🗎 | Developing nations are seeking alternative energy for electricity, and one attractive alternative is renewable energy. This research analyzes changing investment environment for renewable energy with real options approach, and explores its potential in developing economies through studying the case of Mongolia under coal price uncertainty. To evaluate comparative attractiveness of either continuing to use coal-based infrastructures or switching to renewable energy, we formulate social revenue functions for the two environments, assuming that renewable energy has lower external costs, and coal prices follow geometric Brownian motion (GBM) or geometric mean-reverting (GMR) processes. We find the optimal trigger coal prices for switching technologies with some scenarios in electricity price and externality; characterize when renewable energy investments become attractive. In contrast to conventional wisdom, we identify some situations where the value of having more decision opportunities does not exceed that of a now-or-never decision for switching technologies, and welfare losses are incurred. The optimal trigger prices are higher in GBM than in GMR, and our result raises the possible risks for waiting to switch energy. To avoid welfare losses in Mongolia, the government should increase electricity prices or switch to renewable energy earlier, especially when people pay more for the removal of externalities. (C) 2012 Elsevier Ltd. All rights reserved. |
A reexamination of renewable electricity policy in Sweden (2013) 🗎🗎 | Green certificates are the main instrument for promoting renewable electricity (RES-E) in Sweden. But certificates cover only a limited share of total RES-E production. Under partial coverage, crowding out may arise whereby costly new RES-E replaces inexpensive old RES-E. Granting certificates to all of RES-E production improves efficiency, but leaves windfall rent to otherwise profitable facilities. We also analyze transaction costs in the permit process for new RES-E in Sweden. Municipalities veto socially desirable projects because of asymmetrically distributed investment costs and benefits. We propose market-based permit fees rather than limited veto rights as a solution to this NIMBY problem. (C) 2013 Elsevier Ltd. All rights reserved. |
Short-term strategies for Dutch wind power producers to reduce imbalance costs (2013) 🗎🗎 | The paper assesses bidding strategies for a wind power producer in the Netherlands. To this end, a three-stage stochastic optimization framework is used, maximizing wind power producer's profit using the day-ahead and cross-border intraday market, taking into account available interconnection capacity. Results show that the wind power producer can increase its profits by trading on the intraday market and - under certain imbalance prices - by intentionally creating imbalances. It has been considered uncertainties about prices, power forecast and interconnection capacity at the day-ahead and intraday timeframes. (C) 2012 Elsevier Ltd. All rights reserved. |
Reviving manufacturing with a federal cogeneration policy (2013) 🗎🗎 | Improving the energy economics of manufacturing is essential to revitalizing the industrial base of advanced economies. This paper evaluates ex-ante a federal policy option aimed at promoting industrial cogeneration-the production of heat and electricity in a single energy-efficient process. Detailed analysis using the National Energy Modeling System (NEMS) and spreadsheet calculations suggest that industrial cogeneration could meet 18% of U.S. electricity requirements by 2035, compared with its current 8.9% market share. Substituting less efficient utility-scale power plants with cogeneration systems would produce numerous economic and environmental benefits, but would also create an assortment of losers and winners. Multiple perspectives to benefit/cost analysis are therefore valuable. Our results indicate that the federal cogeneration policy would be highly favorable to manufacturers and the public sector, cutting energy bills, generating billions of dollars in electricity sales, making producers more competitive, and reducing pollution. Most traditional utilities, on the other hand, would lose revenues unless their rate recovery procedures are adjusted to prevent the loss of profits due to customer owned generation and the erosion of utility sales. From a public policy perspective, deadweight losses would be introduced by market-distorting federal incentives (ranging annually from $30 to $150 million), but these losses are much smaller than the estimated net social benefits of the federal cogeneration policy. Published by Elsevier Ltd. |
Analyzing solar energy policies using a three-tier model: A case study of photovoltaics adoption in Arizona, United States (2013) 🗎🗎 | This study reveals the interrelationships among a variety of policies supporting solar energy adoption in the U.S. and then calculates the amount of financial subsidies required to support mandatory policies such as Renewable Portfolio Standard (RPS). To illuminate interrelationships among these policies, this study proposes three tiers of descriptive model: the top tier includes mandatory policies such as the Renewable Portfolio Standard (RPS); the middle tier is composed of financial support mechanisms, such as tax credit and rebates; and the bottom tier comprises policies that provide funding sources, such as Public Benefit funds. Based on our proposed model, this study further builds a model which calculates the amount of financial subsidies required to support RPS targets of distributed photovoltaics (PV) adoption. The model is applied to the case study of residential PV adoption in the state of Arizona by 2025. The financial requirements are calculated considering of the uncertainty of federal tax credits (extension or termination after 2016) and compared with planned funds that support PV adoption. This study points out that if states would pursue a sustainable PV adoption targets, they should make more efforts on financial support programs. (C) 2013 Elsevier Ltd. All rights reserved. |
The dangers of marginal cost based electricity pricing (2013) 🗎🗎 | Led by energy and environmental policies the EU power sector is undergoing vast changes to achieve a market driven and sustainable future. Market based price discovery and different renewable support schemes are seen as key solutions in achieving the desired future production mix. Most liquid power markets use marginal cost based price discovery where the price is set by marginal costs of the last producer needed to cover all load, usually a fossil fuel power plant. At the same time the majority of new investments are made with significant help from government support schemes in renewable production capacities, which have very low marginal costs. The increasing share of renewable production will thus impact price levels in day-ahead markets. This paper analyses the potential impact of more renewable electricity production on price discovery in the NordPool Spot market, which already has a high share of renewable electricity traded. Results show that ceteris paribus NordPool Spot is likely to have very high price volatility in the future and alternative revenue sources are required for new investments. |
MARKET INTEGRATION OF RENEWABLE ELECTRICITY GENERATION - THE GERMAN MARKET PREMIUM MODEL (2013) 🗎🗎 | Feed-in tariffs for renewable electricity have proven to be an effective and cost-efficient instrument because they provide long-term investment security; however, they do not incentivize grid and market integration. Feed-in premiums are a relatively novel instrument designed with the objective of keeping investment risks low while allowing for improved grid and market integration. This article analyses the German feed-in premium. The evaluation of the operation during the first year gives first indications that the market premium can contribute to the system and market integration of renewable energies, while still maintaining investment security. First impacts can be seen in the following fields: diversity of market actors, forecast accuracy, improved remote control and participation in the reserve markets. In general, it can be concluded that the German market premium has been able to trigger significant developments. However, additional assessments of the instrument are necessary in order to see whether the observed changes are sustainable and lead to the expected developments. |
Re-considering the economics of photovoltaic power (2013) 🗎🗎 | This paper briefly considers the recent dramatic reductions in the underlying costs and market prices of solar photovoltaic (PV) systems, and their implications for decision-makers. In many cases, current PV costs and the associated market and technological shifts witnessed in the industry have not been fully noted by decision-makers. The perception persists that PV is prohibitively expensive, and still has not reached 'competitiveness'. The authors find that the commonly used analytical comparators for PV vis a vis other power generation options may add further confusion. In order to help dispel existing misconceptions, some level of transparency is provided on the assumptions, inputs and parameters in calculations relating to the economics of PV. The paper is aimed at informing policy makers, utility decision-makers, investors and advisory services, in particular in high-growth developing countries, as they weigh the suite of power generation options available to them. (C) 2012 Elsevier Ltd. All rights reserved. |
How much room for a competitive electricity generation market in Portugal? (2013) 🗎🗎 | Although the Portuguese electricity market was fully liberalized in 2006 and Iberian Electricity Market operators were set up some years ago, almost all electricity generated in Portugal benefits from a State guaranteed price, independent of market behavior. This applies not only to producers using renewable energy sources and cogeneration under feed-in tariffs, but also to all conventional power plants that undersigned a Power Purchase Agreement in the 1990s. This paper assesses current and future amounts of electricity traded without State guaranteed price and identifies the main challenges facing the transition towards a competitive Portuguese electricity generation market in the next two decades. The electricity market of the future, freed from the present legacy generation contracts, will have to promote economic efficiency within a complex multi-variable climate/energy policy framework. (C) 2012 Elsevier Ltd. All rights reserved. |
Brazilian experience in electricity auctions: Comparing outcomes from new and old energy auctions as well as the application of the hybrid Anglo-Dutch design (2013) 🗎🗎 | Since 2004, the Government of Brazil (GoB) has acted as an intermediary between distribution and generator companies in the energy procurement sector. The GoB procures energy from generator companies through auctions of long-term energy contracts. After an auction, the winning generator companies sign contracts directly with distribution companies. In particular, the GoB runs two different auctions: one for energy from existing power plants (i.e., old energy) and another for energy from power plants that have not yet been built (i.e., new energy). This paper describes these auctions and compares the outcomes from the old and new energy auctions from 2004 to 2010 using final auction prices. The Brazilian case is particularly interesting, not only because energy is predominantly supplied by hydropower plants but also because new energy auctions reach prices below those for old energy. Therefore, it is likely that it is not necessary to run the two different energy auctions. As a secondary objective, this article analyze whether the Anglo-Dutch hybrid auction model is a better design for electricity procurement in Brazil. (C) 2012 Elsevier Ltd. All rights reserved. |
The future costs of nuclear power using multiple expert elicitations: effects of RD&D and elicitation design (2013) 🗎🗎 | Characterization of the anticipated performance of energy technologies to inform policy decisions increasingly relies on expert elicitation. Knowledge about how elicitation design factors impact the probabilistic estimates emerging from these studies is, however, scarce. We focus on nuclear power, a large-scale low-carbon power option, for which future cost estimates are important for the design of energy policies and climate change mitigation efforts. We use data from three elicitations in the USA and in Europe and assess the role of government research, development, and demonstration (RD&D) investments on expected nuclear costs in 2030. We show that controlling for expert, technology, and design characteristics increases experts' implied public RD&D elasticity of expected costs by 25%. Public sector and industry experts' cost expectations are 14% and 32% higher, respectively than academics. US experts are more optimistic than their EU counterparts, with median expected costs 22% lower. On average, a doubling of public RD&D is expected to result in an 8% cost reduction, but the uncertainty is large. The difference between the 90th and 10th percentile estimates is on average 58% of the experts' median estimates. Public RD&D investments do not affect uncertainty ranges, but US experts are less confident about costs than Europeans. |
Assessment of government support for the household adoption of micro-generation systems in Korea (2013) 🗎🗎 | This paper investigates how Korean government support affects household adoption of renewable energy-based micro-generation systems by analyzing household preferences in relation to the costs and benefits of system installation and different kinds of government support. The research adopts a discrete choice experiment approach and focuses on two micro-generation technologies: solar voltaic and solar thermal. Our empirical analysis revealed firstly that households prefer micro-generation systems that have low installation costs but high energy saving benefits and long warranty periods; and secondly that households prefer direct subsidies to low-interest loans. However, we also found that households are reluctant to install photovoltaic or solar thermal systems in reality because they see the cost of system installation as being higher than the benefits they would receive from such installation. In short, while existing government supports are somewhat effective in promoting household adoption of micro-generation systems, there also exists the obstacle that the majority of households are unwilling to install such systems despite government support. Thus several policy improvements, which focus on increasing the benefits and decreasing the installation costs of micro-generation systems, are suggested in this paper. (C) 2013 Elsevier Ltd. All rights reserved. |
The Forest Energy Chain in Tuscany: Economic Feasibility and Environmental Effects of Two Types of Biomass District Heating Plant (2014) 🗎🗎 | The purpose of this study was to examine two biomass district heating plants operating in Tuscany, with a specific focus on the ex-post evaluation of their economic and financial feasibility and of their environmental benefits. The former biomass district heating plant supplies only public users (Comunita Montana della Lunigiana, CML: administrative body that coordinates the municipalities located in mountain areas), the latter supplies both public and private users (Municipality of San Romano in Garfagnana). Ex-post investment analysis was performed to check both the consistency of results with the forecasts made in the stage of the project design and on the factors, which may have reduced or jeopardized the estimated economic performance of the investment (ex-ante assessment). The results of the study point out appreciable results only in the case of biomass district heating plants involving private users and fuelled by biomasses sourced from third parties. In this case, the factors that most influence ex-post results include the conditions of the woody biomass local market (market prices), the policies of energy selling prices to private users and the temporal dynamics of private users' connection. To ensure the consistency of ex-post economic outcome with the expected results it is thus important to: (i) have good knowledge of the woody local market; (ii) define energy selling prices that should be cheap for private users but consistent with energy production costs and (iii) constrain private users beforehand to prevent errors in the plant design and in the preliminary estimate of return on investment. Moreover, the results obtained during the monitoring activities could help in providing information on the effectiveness of the supporting measures adopted and also to orient future choices of policy makers and particularly designers, to identify the most efficient configuration of district heating organization for improving energy and environmental performances of communities, and to develop a chain model for the optimization of energy use in the municipality. |
Investigating the priority of market participants for low emission generation entry into the Australian grid (2014) 🗎🗎 | Environment friendly policies and emission pricing schemes necessitate the integration of more and more renewable power into electricity grids. However, generation entry and transmission network development in a deregulated market depends on the cost and benefit of a project, where the system/market operator eventually decides the feasibility of investment. In this process, the priorities of market participants are overlooked in some cases. This paper investigates the preferences of market participants in evaluating renewable generation entry to the Australian National Electricity Market (NEM). The priorities of market participants have been investigated through a Multi-Attribute Decision Making (MADM) approach. The TOPSIS (Technique for Order Performance by Similarity to Ideal Solution) algorithm is used to rank the preferences. Optimal Power Flow (OPF) and economic optimization of the Queensland network of the Australian NEM have been simulated in PSS/E and the MATLAB/MatPower software platform. Simulation studies confirm that in the current scenario, gas fired power plants near to the grid will lead in the generation portfolio due to their low lead time, lower investment and dispatchability. Remotely located wind and geothermal power would only be competitive with the existing LRET (Large scale Renewable Energy Target) payments along with very high carbon emission prices. (C) 2014 Elsevier Ltd. All rights reserved. |
A Quasi-Feed-In-Tariff policy formulation in micro-grids: A bi-level multi-period approach (2014) 🗎🗎 | A Quasi-Feed-In-Tariff (QFIT) policy formulation is presented for micro-grids that integrates renewable energy generation considering Policy Makers' and Generation Companies' (GENCOs) objectives assuming a bi-level multi-period formulation that integrates physical characteristics of the power-grid. The upper-level problem corresponds to the PM, whereas the lower-level decisions are made by GENCOs. We consider that some GENCOs are green energy producers, while others are black energy producers. Policy makers incentivize green energy producers to generate energy through the payment of optimal time-varying subsidy price. The policy maker's main objective is to maximize an overall social welfare that includes factors such as demand surplus, energy cost, renewable energy subsidy price, and environmental standards. The lower-level problem corresponding to the GENCOs is based on maximizing the players' profits. The proposed QFIT policy differs from the FIT policy in the sense that the subsidy price-based contracts offered to green energy producers dynamically change over time, depending on the physical properties of the grid, demand, and energy price fluctuations. The integrated problem solves for time-varying subsidy price and equilibrium energy quantities that optimize the system welfare under different grid and system conditions. (C) 2014 Elsevier Ltd. All rights reserved. |
The impact of regulation, privatization and competition on gas infrastructure investments (2014) 🗎🗎 | In recent years we have witnessed several reforms in network industries, as privatization, regulatory changes and opening to competition in certain segments of the value chain. In sectors such as electricity and gas, this opening to competition is possible only in certain activities (i.e. generation, storage of natural gas and supply), maintaining as a natural monopoly the activities of distribution and transmission, and therefore still subject to regulation. The performance of these regulated segments can have important effects on the operation of the competitive segments, because the regulated segments (i.e. the transmission and distribution networks) provide the infrastructure platform upon which the competitive activities rely. The motivation of this paper is to evaluate the effects of privatization, liberalization and regulation on investments, as components of the reform of the natural gas sector. An empirical analysis was carried out using a panel data of 11 European countries from 2001 to 2011, with the aim to better understand the determinants influencing investment, thus contributing to a better understanding of the dynamics of this sector and meet the investments needs established by energy policies. (C) 2014 Elsevier Ltd. All rights reserved. |
The effect of political cycles on power investment decisions: Expectations over the repeal and reinstatement of carbon policy mechanisms in Australia (2014) 🗎🗎 | Political uncertainty over global greenhouse gas (GHG) mitigation policy is likely to defer investment in cleaner technologies. It may also incentivise short-lived, high-cost interim investments while businesses wait for the uncertainty to subside. The range of possible policy responses to the issue has created uncertainty over the future of national mitigation pathways. Given that the electricity sector, globally, is a major emitter of GHGs, this represents a systematic risk to investment in electricity generation assets. This paper uses a real options analysis framework informed by a survey of experts conducted in Australia used as a proxy to model the degree of the uncertainty to investigate the optimal timing for investment in the conversion of a coal plant to a combined cycle gas turbine plant using the American-style option valuation method. The effect of market and political uncertainty is studied for the Clean Energy Act 2011 in Australia. Political uncertainty is addressed bi-modally in terms of: (1) uncertainty over the repeal of the carbon pricing policy, and (2) if it is repealed, uncertainty over the reinstatement of the policy, to represent the effect of electoral cycles and the possibility of more stringent future global mitigation efforts. Results of the analysis show that although political uncertainty with respect to GHG mitigation policy may delay investment in the conversion of the coal plant, expectations over the reinstatement of the carbon pricing reduces the amount of option premium to defer the conversion decision. (C) 2014 Elsevier Ltd. All rights reserved. |
Empirical analysis of the solar incentive policy for Tennessee solar value chain (2014) 🗎🗎 | The market for solar energy in the US has grown exponentially due to increased consumer demand resulting from price reduction via economies of scale, technological progress, and a variety of incentives from federal and state governments as well as utility companies. The installation of solar power in Tennessee has more than doubled each year from 2009 to 2011. In this paper, we focus on the behavior of the Tennessee Solar Value Chain (TNSVC) to study the factors that influence growth of solar industry in the state. The impact of existing incentives on the TNSVC is analyzed. The TNSVC is simulated based on inputs from on-site survey to estimate economic impact in terms of the number of jobs added and the tax revenue generated in the state. In addition, a sensitivity analysis for the impact on the TNSVC under different policies those may be adopted by the state of Tennessee in the future is conducted. This paper employs a holistic model which can predict PV installation demand, understand solar value chain capacity, and estimate the revenue generation. It should be noted that the method employed in this study is not unique to the solar energy industry in Tennessee. The data utilized in this study is a combination of public domain information and surveys of suppliers, manufacturers, distributors, and installers. This makes the model in this paper flexible enough to be applied to assess the solar value chain in other state or country. (C) 2014 Elsevier Ltd. All rights reserved. |
The relationship between European electricity markets and emission allowance futures prices in phase II of the EU (European Union) emission trading scheme (2014) 🗎🗎 | We investigate how electricity markets relate to emission allowance prices. We analyze the price determinants of the European Allowance Units' returns and account for exchange specific effects. We employ a Threshold GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model and, apart from the exchange specific analysis, introduce several energy specific variables in the analysis. As such we extend the work of other scholars. We find that natural gas, oil prices and the switching possibilities between gas and coal for electricity generation are significant drivers of the carbon futures price. This is because the price of electricity is partly determined by the cost of the fuel inputs, and these costs are affected by the CO2 allowance price. Furthermore, it appears that Nordpool and APX-UK spot prices have a profound impact on these prices. Therefore, another contribution is that we establish that local market specifics play a distinctive role in carbon price formation. (C) 2014 Elsevier Ltd. All rights reserved. |
The transaction costs-driving captive power generation: Evidence from India (2014) 🗎🗎 | The 2003 Indian Electricity Act incentivizes captive power production through open access in an attempt to harness all sources of generation. Yet, we observe that only some firms self-generate while others do not. In this paper we give a transaction cost explanation for such divergent behavior. Using a primary survey of 107 firms from India, we construct a distinct variable to measure the transaction-specificity of electricity use. The 'make or buy' decision is then econometrically tested using probit model. Results are highly responsive to transaction-specificity and the likelihood of captive power generation is positively related to it. At the industrial level, this explains why food and chemical firms are more likely to make their own electricity. Since the burden of poor grid supply is highest on smaller sized and high transaction-specific firms, the grid access policies need to account for firm-level characteristics if government wants to incentivize captive power generation. (C) 2014 Elsevier Ltd. All rights reserved. |
Investment timing under uncertain renewable energy policy: An empirical study of small hydropower projects (2014) 🗎🗎 | Policy uncertainty can be a powerful deterrent to immediate investments. Based on panel data of 214 licenses to construct small run-of-the-river hydropower plants, we examine whether the prospect of a common Swedish-Norwegian market for green certificates (i.e., a renewable portfolio standard scheme) affected the timing of investments. Our results show that traditional utilities and other professional investors in the energy market acted in accordance with a real options investment rule, and the prospect of possible future subsidies delayed their investment decision. On the other hand, our results do not show that farmers and other non-professional investors incorporated timing considerations in their investment decisions. Rather, our results indicate that these investors behaved as if their investment opportunity is now-or-never, investing if the project is profitable according to a net present value investment rule, ignoring the opportunity to create additional value by waiting. The observed difference in behavior between professional and non-professional investors is interesting given the distributed nature of many renewable energy technologies, and can help planners and policymakers better understand the forces shaping the future market for electricity. (C) 2014 Elsevier Ltd. All rights reserved. |
Labor demand effects of rising electricity prices: Evidence for Germany (2014) 🗎🗎 | Germany continues to play a pioneering role in replacing conventional power plants with renewable energy sources. While this might be beneficial with respect to environmental quality, it also implies increasing electricity prices. The extent to which this is associated with negative impacts on employment depends on the interrelationship between labor and electricity as input factors in the production process. In this paper, we estimate cross-price elasticities between electricity and heterogeneous labor for the German manufacturing sector. We use administrative linked employer-employee micro-data combined with information on sector-level electricity prices and usage over the period 2003-2007. We find positive, but small conditional cross-price elasticities of labor demand with respect to electricity prices, which means that electricity as an input factor can be replaced by labor to a limited extent when the production level is held constant. In the case of adjustable output, we find negative unconditional cross-price elasticities, implying that higher electricity prices lead to output reductions and to lower labor demand, with low- and high-skilled workers being affected more than medium-skilled. Resulting adverse distributional effects and potential overall job losses may pose challenges for policy-makers in securing public support for the German energy turnaround. (C) 2014 Elsevier Ltd. All rights reserved. |
On the limits to solar thermal power: A reply to Trainer (2014) 🗎🗎 | In a recent article, Trainer argues that electricity from concentrating solar power (CSP) in winter would be unreliable and prohibitively expensive, even if generated in premium desert sites. However, he does not carry out a detailed analysis of the reliability or the cost, but bases his conclusion on five arguments, each of which is either irrelevant or erroneous. In particular, his research question, concerning the cost of a CSP kilowatt-hour during winter is irrelevant, and the answer misleading, because the power station will deliver electricity in summer too. A more relevant and not misleading question would be about the performance - the yearly levelised costs of electricity and the reliability - of a CSP fleet. We argue based on a detailed analysis of the performance of CSP in four deserts worldwide, that a coordinated fleet of CSP stations can indeed provide fully dispatchable electricity, and in some cases even baseload, at low cost. (C) 2014 Elsevier Ltd. All rights reserved. |
Combinations of support instruments for renewable electricity in Europe: A review (2014) 🗎🗎 | The aim of this paper is to review the combinations of RES-E support instruments in the European Union (EU), using different sources of data. It is shown that combinations are indeed a widespread phenomenon in the EU Member States. Not much attention has been paid to the combinations of primary instruments with other secondary instruments for the same renewable energy technology. It is found that the most frequent mixes of instruments are between feed-in laws (feed-in tariffs, and increasingly feed-in premiums), on the one hand, and investment subsidies, soft loans and tax incentives on the other. In a broad sense, the policy mix between primary and secondary instruments has experienced some changes over the last decade, mostly related to changes in the primary instruments themselves. Exclusion (i.e., ineligibility to apply for an instrument when the RES-E generator is already being financially supported by another instrument) and explicit coordination of support under primary and secondary instruments do not seem to be common elements in these policy combinations. (C) 2014 Published by Elsevier Ltd. |
ARE GREEN JOBS REAL JOBS? THE CASE OF PHOTOVOLTAIC POWER IN ITALY (2014) 🗎🗎 | The European Union has made the promotion of renewable energies a key objective of its energy, environmental, and industrial policies. The underlying assumption is that several benefits may be delivered: preventing the perceived environmental externalities, insuring energy security through reduced import dependency of conventional energy sources, promoting innovation and creating new jobs. This paper addresses this latter issue. Unfortunately, a fair assessment of the net occupational impact of green subsidies is quite complex because, among other reasons, reliable data are lacking. We try to estimate whether subsidies to solar power in Italy actually created more jobs than they destroyed (or prevented the creation thereof) because of the negative macroeconomic effect of higher electricity prices. |
Few intermittent renewable power projects would have been deployed if specific policy instruments had not been implemented. Common policy instruments include the feed-in tariff, the feed-in premium and the quota system. Based on a numerical analysis, this paper shows that these specific policy instruments do not necessarily facilitate the deployment of valuable energy sources because they ignore the cost of intermittency. A valuable intermittent energy source is defined here as a source of energy which requires little financial support and which limits the need for capacity payments in order to ensure the security of supply. Based on insights from the numerical analysis, a new policy instrument is suggested: a multiplicative premium. This type of policy instrument would be a least cost approach to securing a certain quantity of intermittent generation. (C) 2014 Elsevier Ltd. All rights reserved. | |
The economic effect of electricity net-metering with solar PV: Consequences for network cost recovery, cross subsidies and policy objectives (2014) 🗎🗎 | Net-metering is commonly known as a practice by which owners of distributed generation (DG) units may offset their electricity consumption from the grid with local generation. The increasing number of prosumers (consumers that both produce and consume electricity) with solar photovoltaic (PV) generation combined with net-metering results in reduced incomes for many network utilities worldwide. Consequently, this pushes utilities to increase charges per kW h in order to recover costs. For nonPV owners, this could result into inequality issues due to the fact that also non-PV owners have to pay higher chargers for their electricity consumed to make up for netted costs of PV-owners. In order to provide insight in those inequality issues caused by net-metering, this study presents the effects on cross-subsidies, cost recovery and policy objectives evolving from different applied netmetering and tariff designs for a residential consumer. Eventually this paper provides recommendations regarding tariffs and metering that will result in more explicit incentives for PV, instead of the current implicit incentives which are present to PV owners due to net-metering. (C) 2014 Elsevier Ltd. All rights reserved. |
Incentives for Combined Heat and Power plants: How to increase societal benefits? (2014) 🗎🗎 | Investments in new combined heat-and-power (CHP) facilities have fallen short of harnessing what is believed to be CHP's full achievable economic potential and attenuate societal benefits of reducing emissions and increasing resiliency of the power system. Various reasons have been found to explain this "CHP gap," an example of the "energy-efficiency gap." This paper examines the effects of understated capital costs and low and volatile CHP capacity factors, which historically are demonstrated by a large number of existing US units, on the economics of CHP facilities and thereby provide a possible explanation for the CHP gap. Given the probability distribution of profitability for a CHP plant, an incentive structure that is modeled similar to insurance against risk of unfavorable outcomes, might compare favorably to the present one-time upfront capital incentive model for attracting new investments. We recommend further research on assurance-based incentives for CHP projects. (c) 2014 Elsevier Ltd. All rights reserved. |
A real option model for renewable energy policy evaluation with application to solar PV power generation in China (2014) 🗎🗎 | This study proposes a policy evaluation model from the perspective of government and investors. The proposed model, which integrates American option method and two-factor learning curve method, can be used to evaluate the unit decision value and save-path rate for renewable energy development and examine the existence of balance point of interest. Several uncertain factors including non-renewable energy cost, carbon price, renewable energy cost, and price subsidy are all considered in this model. The model has been applied to evaluate the solar photovoltaic (PV) power generation in China. Our empirical results show that real option analysis (ROA) is more effective than net present value analysis (NPV) when handling uncertainty. Under current level of subsidy, the government would suffer loss and the investors could benefit so that it is difficult to achieve the balance of interest during the planning period. With the reduction of subsidy rate, they can achieve the balance of interest. (C) 2014 Elsevier Ltd. All rights reserved. |
Combining tariffs, investment subsidies and soft loans in a renewable electricity deployment policy (2014) 🗎🗎 | Policy combinations and interactions have received a considerable attention in the climate and energy policy realm. However, virtually no attention has been paid to the analysis of the combination of different deployment instruments for the same renewable energy technology. This neglect is all the more striking given the existence in current policy practice of combinations of deployment instruments either across technologies or for the same technology, both in the EU and elsewhere. What renewable electricity support policies to use and, therefore, how to combine them in order to promote the deployment of renewable energy technologies cost-effectively is a main concern of governments. The aim of this paper is to provide insight on the cost-effectiveness of combinations of deployment instruments for the same technology. A financial model is developed for this purpose, whereby feed-in tariffs (FITs) are combined with investment subsidies and soft loans. The results show that the policy costs of combinations are the same as for the FITs-only option. Therefore, combining deployment instruments is not a cost-containment strategy. However, combinations may lead to different inter-temporal distributions of the same amount of policy costs and, thus, differently affect the social acceptability and political feasibility of renewable energy support. (C) 2014 Elsevier Ltd. All rights reserved. |
Hedging electricity price volatility using nuclear power (2014) 🗎🗎 | The analysis presented in this paper aims to put in some evidence the role of nuclear power as hedging asset against the volatility of electricity prices. The unpredictability of natural gas and coal market prices as well as the uncertainty in environmental policies may affect power generating costs, thus enhancing volatility in electricity market prices. The nuclear option, allowing to generate electricity without carbon emissions, offers the possibility to reduce the volatility of electricity prices through optimal diversification of power generating technologies. This paper provides a methodological scheme to plan well diversified "portfolios" of generating capacity that minimize the electricity price risk induced by random movements of fossil fuels market prices and by unpredictable fluctuations of carbon credits prices. The analysis is developed within a stochastic environment in which the dynamics of fuel prices as well as the dynamics of carbon credits prices is assumed to evolve in time according to well defined Brownian processes. Starting from market data and using Monte Carlo techniques to simulate generating cost values, the hedging argument is developed by selecting optimal portfolio of power generating technologies using a mean variance approach. (C) 2013 Elsevier Ltd. All rights reserved. |
Feed-in tariff for solar photovoltaic: The rise of Japan (2014) 🗎🗎 | Japan started implementing a national Feed-In Tariff (FiT) mechanism on the 1st July 2012, which included specific payment tariffs for solar photovoltaic (PV) installations. This marks a new era in the renewable energy landscape in Japan. This paper aims at analysing the solar PV prospect in Japan, particularly in both residential and non-residential sectors. The paper presents, first, an overview of energy trends in Japan prior to the Fukushima event. This is followed by a short review of solar PV progress in the country, highlighting the major policies and programmes that have been implemented as well as the installations that have been carried out over the past two decades. Next, the financial impact of the new FiT scheme on consumers is evaluated. The financial analysis investigates the total profit, the average annual return on investment and the payback period. For a comparison purposes, a similar financial analysis is also conducted with selected countries around the world namely Germany, Italy and the United Kingdom. The results from this analysis indicate that the new Japanese FiT rate generates a good profit, a moderate annual return on investment and an acceptable payback period, suggesting an increasing trend of solar PV uptake over the next years. (C) 2014 Elsevier Ltd. All rights reserved. |
Effectiveness and efficiency of support schemes for electricity from renewable energy sources (2014) 🗎🗎 | Avariety of support schemes for renewable energy sources in the electricity sector (RES-E) are currently being implemented in EU member states. The main tools used for this purpose are either price-based policy instruments such as feed-in tariffs or premiums, or quantity-based instruments such as quota systems using tradable green certificates. Much work has been devoted to the motivation for and evaluation of these instruments, mostly in the form of country/local case studies, model simulations, or econometric modeling. The main drivers behind these policies are addressing the externalities of the environmentally harmful emissions of electricity generation and stimulating technological innovation. Two frequently used evaluation criteria for support schemes and instruments are their effectiveness and economic efficiency. Wefind that those support schemes, which are most effective in stimulating the growth of RES-E generation, are typically economically efficient as well. Generally, it can be concluded that support schemes, which are technology specific, and those that avoid unnecessary risks in project revenues, are more effective and efficient than technology-neutral support schemes, or schemes with higher revenue risk. The most recent quantitative assessment shows that some convergence can now be observed between schemes applying price-and quantity-based instruments. With respect to policy effectiveness, quota schemes show improvements. Regarding efficiency, the situation is still very heterogeneous, and remuneration levels in many EU member states are still substantially higher than generation costs. (C) 2013 John Wiley & Sons, Ltd. |
Designing regulatory frameworks for merchant transmission investments by real options analysis (2014) 🗎🗎 | In deregulated electricity markets, the transmission network is a key infrastructure for enabling competition in the generation sector. A deficient expansion of the transmission grid prevents the realization of the benefits in terms of efficiency associated with market mechanisms. Consequently, it is essential to provide clear investment policies and economic signals to attract timely and efficient. transmission investments in order to develop the system at minimum cost meeting the requirements of generators and consumers, while keeping adequate levels of service quality and reliability. This paper proposes a modern tool of economic evaluation based on real options analysis that provides the regulator the ability to assess various incentives that would lead transmission investors to make efficient decisions in highly uncertain environments. Real options properly values partially irreversible investment decisions, such as to defer, modify or abandon an investment project in response to the arrival of new information or as uncertainties are resolved. Decisions are evaluated from the point of view of a transmission investor trying to maximize its own profits in the time period set to recover the capital invested. The results allow the study of the behavior of transmission investors regarding their decision making when they have the possibility to manage the option to defer, under different regulatory schemes that encourage the expansion of the transmission system. (C) 2013 Elsevier Ltd. All rights reserved. |
Evaluation of power investment decisions under uncertain carbon policy: A case study for converting coal fired steam turbine to combined cycle gas turbine plants in Australia (2014) 🗎🗎 | Greenhouse gas (GHG) intensive fuels are currently a major input into the Australian electricity sector. Accordingly, climate change mitigation policies represent a systematic risk to investment in electricity generation assets. Although the Australian government introduced carbon pricing in 2012 and announced a commitment to the continuation of the Kyoto protocol beyond 2012, the opposition at the time signalled that should they be provided the opportunity they would repeal these policies. This paper uses a real options analysis (ROA) framework to investigate the optimal timing of one potential business response to carbon pricing: investment in the conversion of coal plant to lower emission CCGT plant. An American-style option valuation method is used for this purpose. The viewpoint is from that of a private investor assessing three available options for an existing coal plant: (1) to invest in its conversion to CCGT; (2) to abandon it, or; (3) to take no immediate action. The method provides a decision criterion that informs the investor whether or not to delay the investment. The effect of market and political uncertainty is studied for both the Clean Energy Act 2011 (CEA) and high carbon price (HCP) policy scenarios. The results of the modelling suggest that political uncertainty after the implementation of carbon pricing impedes the decision to switch to cleaner technologies. However, this effect can be mitigated by implementing higher expected carbon prices. (C) 2014 Elsevier Ltd. All rights reserved. |
Financial analysis on the proposed renewable heat incentive for residential houses in the United Kingdom: A case study on the solar thermal system (2014) 🗎🗎 | This short communication paper focuses on the renewable heat incentive (RHI) scheme in the United Kingdom (UK); and in particular, on its implication on domestic installations of solar thermal systems (STSs). First, a short review on the STS in the UK is provided. Then, a detailed description of the RHI is discussed. A financial analysis is presented afterwards, analysing the impact of the RHI scheme on the applicants, in terms of the net present value and the internal rate of return. From the financial analysis it has been found that the RHI scheme for domestic installations is only attractive if a longer period of RHI payment, i.e. 17 years, or a higher RH! rate i.e. 0.32 pound per kW h is implemented. The current proposal from the UK government is not financially viable, and as a result, it may hinder the penetration of domestic solar thermal systems in the residential sector in the UK. (C) 2013 Elsevier Ltd. All rights reserved. |
Cooperation mechanisms to achieve EU renewable targets (2014) 🗎🗎 | There are considerable benefits from cooperating among member states on meeting the 2020 renewable energy sources (RES) targets. Today countries are supporting investments in renewable energy by many different types of support schemes and with different levels of support. The EU has opened for cooperation mechanisms such as joint support schemes for promoting renewable energy to meet the 2020 targets. The potential coordination benefits, with more efficient localisation and composition of renewable investment, can be achieved by creating new areas/sub-segments of renewable technologies where support costs are shared and credits are transferred between countries. Countries that are not coordinating support for renewable energy might induce inefficient investment in new capacity that would have been more beneficial elsewhere and still have provided the same contribution to meeting the 2020 RES targets. Furthermore, countries might find themselves competing for investment in a market with limited capital available. In both cases, the cost-efficiency of the renewable support policies is reduced compared to a coordinated solution. Barriers for joint support such as network regulation regarding connection of new capacity to the electricity grid and cost sharing rules for electricity transmission expansion are examined and examples given. The influence of additional renewable capacity on domestic/regional power market prices can be a barrier. The market will be influenced by for example an expansion of the wind capacity resulting in lower prices, which will affect existing conventional producers. This development will be opposed by conventional producers, whereas consumers will support such a strategy. A major barrier is the timing of RES targets and the uncertainty regarding future targets. We illustrate the importance of different assumptions on future targets and the implied value of RES credits. The effect on the credit price for 2020 is presented in an exemplary case study of 200 MW wind capacity. (C) 2013 Elsevier Ltd. All rights reserved. |
The costs of generating electricity and the competitiveness of nuclear power (2014) 🗎🗎 | This paper provides an analysis on the costs of generating electricity from nuclear and fossil sources (coal and natural gas) based on the most recent technical data available in literature. The aim is to discuss the competitiveness of nuclear power in a liberalized market context by considering the impact on the generating costs of the main factors affecting the viability of the nuclear option. Particular attention will be devoted to study the variability of the generating costs regarding the level of risk perceived by investors through a sensitivity analysis of the generating costs with respect to the cost of capital and the debt fraction of initial investment. The impact of environment policies is also considered by including a "tax" on carbon emissions. The analysis reveals that nuclear power could have ample potentiality also in a competitive market, particularly if the level of risk perceived by the investors keeps standing low. For low values of the cost of capital, nuclear power seems to be the most viable solution. Uncertainty about environmental policies and unpredictability of carbon emissions costs might offer further margins of competitiveness. (C) 2014 Elsevier Ltd. All rights reserved. |
Nonlinear integrated resource strategic planning model and case study in China's power sector planning (2014) 🗎🗎 | In this paper we expand the IRSP (integrated resource strategic planning) model by including the external cost of TPPs (traditional power plants) and popularization cost of EPPs (efficiency power plants) with nonlinear functions. Case studies for power planning in China during 2011-2021 are conducted to show the efficacy of the model. Scenarios are compiled to compare the pathways of power planning under different policies. Results show that: 1) wind power will become competitive with technical learning, but its installation is undesirable when the external cost of coal power is not internalized; 2) the existence of popularization cost will hinder EPPs' (efficiency power plants) deployment and pure market mechanism is not enough to deliver EPPs at socially desirable scale; 3) imposition of progressive emission tax on coal power at an average of 0.15-0.20 RMB/KWh can remedy the market distortion and promote the development of wind power by a significant margin; 4) nuclear power will grow stably when its external cost is set no more than 0.187 RMB per KWh, or 87% of its internal cost. The proposed model can serve as a useful tool for decision support in the process of power planning and policy formulation for national government. (C) 2013 Elsevier Ltd. All rights reserved. |
Economic, institutional and technological uncertainties of emissions trading-a system dynamics modeling approach (2014) 🗎🗎 | System dynamics models are employed for analyzing the impact of different uncertainties on carbon emission trading-both on national and business levels. Economic, institutional and technological uncertainties significantly influence any country's benefits from emission permit trading. If a country participates in trading on the international market then the possible price range becomes the source of additional uncertainty. In the case of business investment decisions for implementing resourceaEurosaving technology, our system dynamics model shows that the firstaEuromover investor will get significantly fewer advantages than his followers, which leads to delay in primary investment to the sector. |
Joint energy and reserve markets: Current implementations and modeling trends (2014) 🗎🗎 | The continuous penetration of intermittent technologies is gradually reinforcing the technical and economic importance of electricity ancillary services, which are responsible for guaranteeing the reliability and security of the power systems. Generation companies', regulating entities, system operators and other institutions (such as researchers on these fields) are more and more concerned on using market models to forecast most relevant outcomes for particular markets (such as energy and reserves cleared quantities and prices), under different simulation scenarios (such as costs or demand) and under different markets structures (such as more competitive or more oligopolistic). This paper reviews most energy and reserve markets implementations (mainly focusing on reserve types and dispatching methods), and discusses different approaches to model them. A theoretical equilibrium model for energy and reserve markets is also proposed. (C) 2013 Elsevier B.V. All rights reserved. |
Contracts for difference: risks faced by generators under the new renewables support scheme in the UK (2014) 🗎🗎 | The Energy Act 2013 received royal assent in December 2013. It implements the Feed-in-Tariff Contracts for Difference (the CfD) which is set to become the primary support scheme for low carbon generation in the UK by 2017. The CfD will be in the form of a long-term contract between a low carbon generator and a counterparty which is a state-owned limited liability company (the CfD Counterparty). It is intended to remove long-term price risk for low carbon generators which sell electricity into the market, thereby stabilizing their revenues and reducing the cost of financing their projects. This article comments on the uncertainties currently faced by generators (or developers) of existing (or planned) electricity generation plants in the UK brought on by the implementation of the CfD regime. |
Does Foreign Environmental Policy Influence Domestic Innovation? Evidence from the Wind Industry (2014) 🗎🗎 | This paper analyses the relative influence of domestic and foreign demand-pull policies in wind power across OECD countries on the rate of innovation in this technology. We use annual wind power generation to capture the stringency of the portfolio of demand-pull policies in place (e.g., guaranteed tariffs, investment and production tax credits), and patent data as an indicator of innovation activity. We find that wind technology improvements respond positively to policies both home and abroad, but the marginal effect of domestic policies is 12 times greater. The influence of foreign polices is reduced by barriers to technology diffusion, in particular lax intellectual property rights. Reducing such barriers therefore constitutes a powerful policy leverage for boosting environmental innovation globally. |
Risk management and the stated investment costs by independent power producers (2015) 🗎🗎 | Evidence presented in this article suggests that in less developed countries the independent power producers (IPPs) have an incentive to overstate the investment cost as an instrument to mitigate the country risk in greenfield electricity generation projects. This technique is an effective risk mitigation strategy under the conventional financing and contractual arrangements in such markets. It, however, promotes the use of less efficient power plants. The distortion in the choice of technology results in economic losses over the life of the plants. The findings of this research have important policy implications that can assist regulatory bodies, governments, and international financing agencies to adopt a more informed approach to the integration of private investment into the electricity generation capacity of developing countries. (C) 2015 Elsevier B.V. All rights reserved. |
Australian retail electricity prices: Can we avoid repeating the rising trend of the past? (2015) 🗎🗎 | After a stable or declining real trend that persisted for more than half a century, Australian retail electricity prices have experienced a substantial increase, in real terms, since 2007. This has mainly been driven by increases in the cost of electricity distribution and to a lesser degree in the cost of electricity generation. Reducing greenhouse gas emissions, which is a bipartisan political goal in Australia, will likely deliver further increases in generation costs due to the expected higher cost of low emission technology. Participating in global negotiations on emission reduction targets and designing efficient policy mechanisms have been a major focus of governments over the last several decades. In contrast, managing distribution system costs has received less attention. While there were a number of factors which drove historical increases in distribution costs, management of peak demand growth could help contain or reduce the extent to which consumers, particularly households, experience further increases in distribution costs. The paper demonstrates how different combinations of carbon price and peak demand scenarios could impact future residential and industrial retail electricity prices to 2050 and discusses some behavioural and technological solutions to manage peak demand and potential barriers to their deployment. Crown Copyright (c) 2015 Published by Elsevier Ltd. All rights reserved. |
Large scale scenario analysis of future low carbon energy options (2015) 🗎🗎 | In this study, we use a multi-model framework to examine a set of possible future energy scenarios resulting from R&D investments in Solar, Nuclear, Carbon Capture and Storage (CCS), Bio-fuels, Bio-electricity, and Batteries for Electric Transportation. Based on a global scenario analysis, we examine the impact on the economy of advancement in energy technologies, considering both individual technologies and the interactions between pairs of technologies, with a focus on the role of uncertainty. Nuclear and CCS have the most impact on abatement costs, with CCS mostly important at high levels of abatement. We show that CCS and Bio-electricity are complements, while most of the other energy technology pairs are substitutes. We also examine for stochastic dominance between R&D portfolios; given the uncertainty in R&D outcomes, we examine which portfolios would be preferred by all decision-makers, regardless of their attitude toward risk. We observe that portfolios with CCS tend to stochastically dominate those without CCS; and portfolios lacking CCS and Nuclear tend to be stochastically dominated by others. We find that the dominance of CCS becomes even stronger as uncertainty in climate damages increases. Finally, we show that there is significant value in carefully choosing a portfolio, as relatively small portfolios can dominate large portfolios. (c) 2015 Elsevier B.V. All rights reserved. |
Will domestic consumers take up the renewable heat incentive? An analysis of the barriers to heat pump adoption using agent-based modelling (2015) 🗎🗎 | The UK Government introduced the tariff-based domestic Renewable Heat Incentive (RHI) in April 2014 to encourage installation of renewable heat technologies as a key component of its carbon reduction policy. Of these, heat pumps are considered to be the most promising for widespread adoption and as such are the subject of this paper. Pilot studies prior to introduction of the policy identified non-financial barriers to uptake, such as the "hassle factor" involved, and initial figures indeed indicate that uptake is lower than expected. We analyse these non-financial barriers using an agent-based model and conclude that there is a tipping point beyond which adoption is likely to fall very sharply. We suggest that the RHI's complex and stringent compliance requirements for home inspections and heat emitter performance may well have driven adoption past this point and that further intervention may be required if the key aims of the RHI are to be achieved. (C) 2015 Elsevier Ltd. All rights reserved. |
Incentive mechanisms to promote energy efficiency programs in power distribution companies (2015) 🗎🗎 | Power distribution companies (DISCOs) play an important role in promoting energy efficiency (hereafter EE), mainly due to the fact that they have detailed information regarding their clients' consumption patterns. However, under the traditional regulatory framework, DISCOs have disincentives to promote EE, due to the fact that a reduction in sales also means a reduction in their revenues and profits. Most regulatory policies encouraging EE have some embedded payment schemes that allow financing EE programs. In this paper, we focus on these EE-programs' payment schemes that are embedded into the regulatory policies. Specifically, this paper studies two models of the Principal-Agent bi-level type in order to analyze the economic effects of implementing different payment schemes to foster EE in DISCOs. The main difference between each model is that uncertainty in energy savings is considered by the electricity regulatory institution in only one of the models. In terms of the results, it is observed that, in general terms, it is more convenient for the regulator to adopt a performance-based incentive mechanism than a payment scheme financing only the fixed costs of implementing EE programs. However, if the electricity regulatory institution seeks a higher level of minimum expected utility, it is optimal to adopt a mixed system of compensation, which takes into account the fixed cost compensation and performance-based incentive payments. (c) 2015 Elsevier B.V. All rights reserved. |
White certificates - Energy efficiency programs under private information of consumers (2015) 🗎🗎 | Energy efficiency is an objective of public interventions at least since the Public Utility Regulatory Policy Act of 1978 (PURPA). Recently, conservation has received considerable attention in the United States and in particular in the European Union but this time in order to mitigate global warming. Policy measures include regulations at the technical level and the introduction of white certificates in order to force utilities and firms to invest into conservation in a way similar to the already existing renewable energy quota. This paper derives the optimal mechanism if utilities must deal with white certificates facing consumers holding private information. The optimal mechanism has some theoretically interesting features like restricted participation and a discontinuity. (C) 2015 Elsevier B.V. All rights reserved. |
Integrating distributed generation: Regulation and trends in three leading countries (2015) 🗎🗎 | This paper explores the trends in the deployment and integration of distributed generation in Germany, Denmark and Sweden. The study concentrates on the regulation of renewable energy generation with a focus on grid access and connection mechanisms. The high rate of distributed generation penetration is mainly based on the early support that these countries gave to the expansion of renewable energy generation - mainly wind and solar - within their respective national policies. Germany and Denmark are the ones with the most sophisticated support schemes, which have shown a dynamic design over time. In terms of connections, Germany has the most favorable connection regime which provides not only priority connection but also priority grid access for generation units that produce electricity from renewable energy sources. Sweden guarantees equal treatment among different technologies (i.e. a non-discrimination principle). High connection costs have been observed specially in Germany and Denmark. The costs of network upgrades are usually socialised across demand customers. However, integration issues should be taken into consideration in order to avoid expansion of distributed generation in a way which unnecessarily raises total system costs, via high connection costs. (C) 2015 Elsevier Ltd. All rights reserved. |
Energy efficiency as a resource in state portfolio standards: Lessons for more expansive policies (2015) 🗎🗎 | In this paper, state electricity portfolio standards in the U.S. are analyzed to examine how energy efficiency is being created as a particular kind of resource through this type of climate change governance. Such policies can incentivize energy efficiency by requiring or encouraging electricity providers to meet a certain percentage of their demand through energy efficiency measures. North Carolina's portfolio standard is used as an in-depth case study to identify factors that are then compared across all 36 states that include energy efficiency as part of a portfolio requirement or goal. The main finding of this study is that state portfolio standards tend to emphasize demand-side energy efficiency, or energy efficiency on the customer's side of the electricity meter, and only rarely incentivize a full range of both demand-side and supply-side efficiency changes. As a result, the amount of energy efficiency and climate change mitigation benefits that are likely to result from this type of portfolio standard policy tool are limited. From this analysis, lessons are drawn out for crafting stronger portfolio standards that incentivize a wider range of efficiency changes across electricity networks. (C) 2015 Elsevier Ltd. All rights reserved. |
Using contingent behavior analysis to measure benefits from rural electrification in developing countries: an example from Rwanda (2015) 🗎🗎 | Hundreds of millions of people in Sub-Saharan Africa do not have access to electricity and will not receive it from national grids in the next few decades. Electricity makes up an important component of rural development and so increasing access can have positive socioeconomic benefits. In this study, we use contingent behavior analysis to quantify the potential benefits of electricity in rural Rwandan villages which currently do not have electricity. The proposed method allows for calculation of net benefits as well as electricity bills. We find that even relatively poor, isolated households would pay for electricity, though amounts vary across households and this affects the financial viability of electrification. Common uses for electricity include lighting, battery charging, and agricultural processing. Despite heterogeneity, opportunities exist to improve rural economic welfare through increased electricity access. (c) 2015 Published by Elsevier Ltd. |
Electricity market design for generator revenue sufficiency with increased variable generation (2015) 🗎🗎 | We present a computationally efficient mixed-integer program (MIP) that determines optimal generator expansion decisions, and hourly unit commitment and dispatch in a power system. The impact of increasing wind power capacity on the optimal generation mix and generator profitability is analyzed for a test case that approximates the electricity market in Texas (ERCOT). We analyze three market policies that may support resource adequacy: Operating Reserve Demand Curves (ORDC), Fixed Reserve Scarcity Prices (FRSP) and fixed capacity payments (CP). Optimal expansion plans are comparable between the ORDC and FRSP implementations, while capacity payments may result in additional new capacity. The FRSP policy leads to frequent reserves scarcity events and corresponding price spikes, while the ORDC implementation results in more continuous energy prices. Average energy prices decrease with increasing wind penetration under all policies, as do revenues for baseload and wind generators. Intermediate and peak load plants benefit from higher reserve prices and are less exposed to reduced energy prices. All else equal, an ORDC approach may be preferred to FRSP as it results in similar expansion and revenues with less extreme energy prices. A fixed CP leads to additional new flexible NGCT units, but lower profits for other technologies. (C) 2015 Elsevier Ltd. All rights reserved. |
The progressive inefficiency of replacing renewable obligation certificates with contracts-for-differences in the UK electricity market (2015) 🗎🗎 | This paper looks at the emerging risk/return profile for new renewable assets as a conventional wholesale electricity market progressively decarbonises. Using a detailed fundamental model of price formation risks, under increasing replacement of fossil fuel facilities with onshore and offshore wind, we show that the risk return profile becomes less attractive over time, and may therefore need sustained and possibly increasing policy support. Furthermore, we show that green certificate trading may become progressively more attractive as a supplementary support to wholesale prices, compared to fixed feed-in-tariffs. This is because the increasingly negative correlation between renewable output and wholesale prices reduces its revenue risk compared to fixed feed-in tariffs, if other factors remain constant, and thereby improves conventional financial performance risk metrics. In particular, this suggests that the recent energy policy change in Britain to move away from green certificates and into contracts-for-differences may have been ill-founded. (c) 2015 Elsevier Ltd. All rights reserved. |
Adoption of residential solar power under uncertainty: Implications for renewable energy incentives (2015) 🗎🗎 | Many incentives at the state and federal level exist for household adoption of renewable energy like solar photovoltaic (PV) panels. Despite generous financial incentives the adoption rate is low. We use the option value framework, which takes into account the benefit of delaying investment in response to uncertainty, to examine the decision by households to invest in solar PV. Using a simulation model, we determine optimal adoption times, critical values of discounted benefits, and adoption rates over time for solar PV investments using data from Massachusetts. We find that the option value multiplier is 1.6, which implies that the discounted value of benefits from solar PV needs to exceed installation cost by 60% for investment to occur. Without any policies, median adoption time is eight years longer under the option value decision rule compared to the net present value decision rule where households equate discounted benefits to installation cost. Rebates and other financial incentives decrease adoption time, but their effect is attenuated if households apply the option value decision rule to solar PV investments. Results suggest that policies that reduce the uncertainty in returns from solar PV investments would be most effective at incentivizing adoption. (C) 2015 Elsevier Ltd. All rights reserved. |
Is the renewable portfolio standard an effective energy policy?: Early evidence from South Korea (2015) 🗎🗎 | This study provides preliminary evaluation of South Korea's Renewable Energy Portfolio Standard (RPS) apropos capacity growth, technological innovation, cost impact, and market risk, compared to Feed-in Tariffs (FITs). Findings indicate that both effectively expand electricity generation from renewable energy sources (RES-Es). Early evidence suggests that the RPS appears to have further strengthened RES-Es' market growth, particularly biomass and solar PV. For most technologies, policy costs appear higher under the RPS than FITs, except for PV and fuel cells. Under the RPS, higher market risks are a major concern, particularly for smaller suppliers in the PV market, despite growing PV capacity. (C) 2015 Elsevier Ltd. All rights reserved. |
Modeling the diffusion of residential photovoltaic systems in Italy: An agent-based simulation (2015) 🗎🗎 | We propose an agent-based model to simulate how changes to the Italian support scheme will affect the diffusion of PV systems among single- or two-family homes. The adoption decision is assumed to be influenced by (1) the payback period of the investment, (2) its environmental benefit, (3) the household's income, and (4) communication with other agents. The estimation of the payback period considers investment costs, local irradiation levels, governmental support, earnings from using self-produced electricity vs. buying electricity from the grid, administrative fees, and maintenance costs. The environmental benefit is estimated by a proxy for the CO2 emissions saved. The household income accounts for the specific economic conditions across different regions and the agent's age group, level of education, and household type. Finally, the influence of communication is measured by the number of links with other households that have already adopted a PV system. In each simulation step, the program dynamically updates the social system and the communication network, while the PV system's investment costs are revised according to a one-factor experience curve. The model's structure is applied for a case study based on the evolution of residential PV systems in Italy over the 2012-2026 period. The model's initial state is calibrated on the basis of the actual diffusion of residential PV in Italy over the 2006-2011 period. Our results show that, following Italy's new feed-in tariff scheme, domestic PV installations are already beyond an initial stage of rapid growth and, though likely to spread further, they will do so at a significantly slower rate of diffusion. (C) 2015 Elsevier Inc. All rights reserved. |
De-risking concentrated solar power in emerging markets: The role of policies and international finance institutions (2015) 🗎🗎 | Concentrated solar power (CSP) is a promising technology for low-carbon energy systems, as combined with thermal storage it can store solar energy as heat, and deliver power more flexibly and when most needed by the grid. However, its high cost prevents its rapid deployment and affects its affordability in emerging economies. International financial institutions (IFIs) have emerged as key players to enable CSP in emerging economies, especially when cooperating with national policymakers. Through the analysis of two CSP plants in India and Morocco where IFIs provided the lion's share of finance, this paper aims to assess the effectiveness of their support and estimate the impact of IFIs financing on electricity production costs and mobilization of private investments. The two case studies show that public financial institutions can play a leading role in reducing the cost of CSP support on public budgets by providing concessional loans in countries where public and/or private finance would be too expensive, or extending maturities where commercial investors are present but poorly suited for project finance. Finally, we show that, combined with competitive tariff setting mechanism (tenders and auctions), public financial support can also be a cost-effective tool to engage private investors in CSP. (c) 2015 Elsevier Ltd. All rights reserved. |
The impact of intermittently renewable energy on Italian wholesale electricity prices: Additional benefits or additional costs? (2015) 🗎🗎 | Most studies of the literature find that the development of renewable energy sources determines a decrease in the wholesale prices. Some authors use this finding to state that the current subsidies for renewable technologies cannot be considered as excessive. By carrying out a hybrid analysis (both simulation and ex-post empirical analyses) of the case of photovoltaic energy in Italy, this article demonstrates that this result cannot be generalised. Under market power, an increase in PV production can provide benefits in terms of a wholesale price decrease only beyond a specific threshold and especially if combined with other effects. Otherwise, it is likely that PV development could imply an increase in prices. Therefore, on the one hand, caution is necessary when using the estimated change in wholesale prices to evaluate the net cost for consumers of the supporting policies for renewables: either the simulation-based models or the full empirical analyses may be misleading. On the other hand, if "decarbonisation" is the main objective, the energy policies should be designed in order to assure a deep and balanced penetration of the clean technologies, regardless of their estimated transitory impact on wholesale prices (and in the meantime reviewing the organisation of power markets). (C) 2015 Elsevier Ltd. All rights reserved. |
Supply-based dynamic Ramsey pricing: Avoiding water shortages (2015) 🗎🗎 | In many countries, current water-pricing policies are dictated by the sole objective of financial breaking even. This results in large withdrawals, which are not sustainable in the long run, hence not optimal. In this paper, we derive the optimal dynamic pricing policy, which targets efficient distribution while breaking even through a rebate scheme. Using data from Turkey, we estimate the demand for water by user groups. We carry out simulations to compare the effects of the current and optimal pricing policies on the frequency and severity of shortages. We find that, under the policy of break-even prices, the supplier runs into a shortage every 8 years. In contrast, if the prices were to set optimally, shortages would be practically nonexistent over the next century. |
What is the Cost of Negative Bidding by Wind? A Unit Commitment Analysis of Cost and Emissions (2015) 🗎🗎 | We use a unit commitment (UC) model to quantify the operational impacts of subsidizing wind generation when energy prices are negative. Such prices occur increasingly often in U.S. and European Union (EU) markets. Subsidies such as production tax credits, feed-in tariffs, and renewable energy credits motivate renewable generators to submit negative price offers; this lessened flexibility increases system operation and management costs and, in some cases, CO2 emissions when energy prices are negative. Our simulations of large negative bids can also be interpreted as representing EU policies of granting wind absolute dispatch priority. Applications to four hypothetical systems with high wind penetration and distinct generation mixes quantify the UC and dispatch effects of negative bids. Larger negative bids lead to less wind spillage (reducing the 2.8% average curtailment under $0 bids to 1.0%), more conventional plant startups, higher system costs, and, in many cases, higher total CO2 emissions (by up to 2%). In some systems, wind power's effective incremental emissions are as high as coal's. This impact depends strongly on generation mix, carbon price, and the size of the negative bids. In general, there can be significant economic and, often, environmental benefits to reforming renewable support policies to encourage flexibility in operations. |
Rent and rent-seeking in renewable energy support policies: Feed-in tariff vs. renewable portfolio standard (2015) 🗎🗎 | Two popular policies for fostering electricity from renewable energy sources (RES-E) are FIT (feed-in tariffs) and RPS (renewable portfolio standards). Although it is essential for the government to intervene in the renewable energy market for a positive externality of RES-E, poorly designed market regulations can lead to excess profits for the renewable energy sector, which in turn increases policy costs. In addition, those who benefit from such regulations may actively seek rents. This paper explores the rents or windfall profits generated through RPS and FIT and furthermore, investigates which is more substantial for the case of South Korea, which has had experience with FIT and RPS over the past 10 years. According to the results, rents generated from RPS were bigger than those from FIT, except for solar PV in South Korea. Moreover, this study also investigates the policy design elements that could curb these rents. (C) 2015 Elsevier Ltd. All rights reserved. |
A Bayesian stochastic frontier analysis of Chinese fossil-fuel electricity generation companies (2015) 🗎🗎 | This paper analyses the technical efficiency of Chinese fossil-fuel electricity generation companies from 1999 to 2011, using a Bayesian stochastic frontier model. The results reveal that efficiency varies among the fossil-fuel electricity generation companies that were analysed. We also focus on the factors of size, location, government ownership and mixed sources of electricity generation for the fossil-fuel electricity generation companies, and also examine their effects on the efficiency of these companies. Policy implications are derived. (C) 2015 Elsevier B.V. All rights reserved. |
Who should pay for renewable energy? Comparing the household impacts of different policy mechanisms in Ireland (2015) 🗎🗎 | Along with environmental impacts, renewable energy affects societal welfare through subsidy costs and electricity price changes. Identifying the distribution of both these impacts is of increasing importance as deployment grows. Subsidies are commonly financed by consumption-based Public Service Obligation (PSO) levies. We compare the distributional impact of different PSO levy structures using the example of a market with high and rising renewables penetration: Ireland. A flate-rate charge is more regressive than a unit-based charge. The regressive impacts of a fixed per-unit charge are greater for a subgroup of heavy electricity users, some with low incomes. Incremental Block Pricing (IBP) exaggerates these effects. A hybrid fixed/variable structure reduces regressivity for heavy users but lessens overall regressivity reduction. Redistributive mechanisms structured like Ireland's Household Benefits Package imperfectly target poorer households, with income and household size-based measures more effective. Including electricity price reductions due to renewables deployment, fixed per-unit charges have a neutral effect while flat charges redistribute some burden from rich to poor. IBP shifts cost to heavy electricity users, predominantly large households. IBP yields a negative net burden for most households across all income groups. These findings are generalised to inform equitable renewable energy subsidy mechanisms both in Ireland and elsewhere. (C) 2015 Elsevier Ltd. All rights reserved. |
Review of green electricity products in the United Kingdom, Germany and Finland (2015) 🗎🗎 | In liberalized electricity markets, environmental aspects are often used in marketing in addition to price competition and a wide variety of green electricity products marketed as environmentally friendly is available for customers. We study these green electricity markets in the UK, Germany and Finland and discuss possible problems between voluntary markets and renewable energy policies in particular. We find that products are claimed to support new renewable capacity building and to offer other environmental benefits through different kinds of mechanisms. Demand is relative high in Germany but has remained modest in the UK. In Finland, many passive private customers have automatically been sold green electricity products. Price premiums depend on several factors but typically they are in the range of 0-5%. The interface between voluntary markets and renewable energy policies can create problems; in the UK there are concerns that some suppliers double count renewable energy so that they assign the already required renewable energy to green tariff customers. We found that the share of imported hydropower is very large in green electricity products in Germany, which is why real additional benefits can be small. In Finland green electricity usually originates from hydro and wind power. As hydropower capacity is large in the Nordic countries, the additional impacts on new capacity can remain modest. For consumers, being a shareholder in companies devoted only to building new capacity, and products where price premiums are transparently directed to specific funds, carry the least risk of buying green products with false expectations. (C) 2014 Elsevier Ltd. All rights reserved. |
Economic feasibility of residential electricity storage systems in Ontario, Canada considering two policy scenarios (2015) 🗎🗎 | Excessive electricity consumption during peak demand periods has been shown to be expensive for utility companies and can affect the stability of the electricity grid. Shifting peak electricity consumption to off-peak periods has attracted the interest of governments, utility companies, equipment manufacturers and residents. Individual, hourly, household data from Ontario, Canada are used to explore the potential for households to install electricity storage systems by manipulating two financial policy triggers. Results show that households with higher daily and on-peak consumption realize net benefits at lower deviations from the current pricing regimes than do those with lower consumption. Benefits for households can be realized by manipulating either of the policy triggers considered, although the feasibility of these policy decisions is not explored. Repurposed Li-ion batteries require complete subsidy on re-purposing and installation of the system with a $29 kWh(capacity)-1 subsidy or a differential of 19.5 cent kWh(-1) between on- and off-peak commodity rates for 10% of households to achieve net benefits. Systems with new ZnMnO2 batteries require a $44 kWh(capacity)-1 subsidy in addition to a complete installation subsidy or a differential of 16.5 cent kWh(-1) between on- and off-peak commodity prices to achieve the same proportion of households with net benefits. (C) 2014 Elsevier B.V. All rights reserved. |
GenCo's optimal power portfolio selection under emission price risk (2015) 🗎🗎 | Carbon markets are a world-wide accepted market mechanism to promote emission reduction. Increasing stress on emission reduction from the power industry has led to a shift in the market mechanism, from free allocation to full auction. Consequent increase in volatility of emission market and its interdependency with electricity market is predominantly affecting the fossil-fuel generation companies (GenCos). For accurate realization of their optimal electricity trading portfolio selection, GenCos need to incorporate cost side uncertainties arising from fuel and emission market volatilities. This paper proposes a novel framework for electricity trading portfolio optimization of a GenCo, considering uncertainties of electricity, fuel and emission markets, to secure its future trading position. This optimization problem is modeled using mean variance portfolio theory, considering spot market, bilateral contracts as electricity trading options. Results show that considering correlation effects of electricity market with emission markets, the proposed framework is capable of improving profit risk trade-off for the portfolio. Positively correlated electricity, emission market prices lead to an increased trading in spot market. In such a situation, the model reflects that spot selling could offer higher risk protection vis-a-vis bilateral contracts, and can prominently help high emission GenCos to minimize their market risks. (C) 2014 Elsevier B.V. All rights reserved. |
The aim of this paper is to improve the application of the learning curve, a popular tool used for forecasting future costs of renewable technologies in integrated assessment models (IAMs). First, we formally discuss under what assumptions the traditional (OIS) estimates of the learning curve can deliver meaningful predictions in IAMs. We argue that the most problematic of them are the absence of any effect of technology cost on its demand (reverse causality) and the ability of IAMs to predict all determinants of cumulative capacity. Next, we show that these assumptions can be relaxed by modifying the traditional econometric method used to estimate the learning curve. The new estimation approach presented in this paper is robust to the two problems identified but preserves the reduced form character of the learning curve. Finally, we provide new estimates of learning curves for wind turbines and PV technologies which are tailored for use in IAMs. Our results suggest that the learning rate should be revised upward for solar PV. Our estimate of learning rate for wind technology is almost the same as the traditional OIS estimates. (c) 2015 Elsevier B.V. All rights reserved. | |
Quantifying the uncertainty of wave energy conversion device cost for policy appraisal: An Irish case study (2015) 🗎🗎 | Wave Energy Conversion (WEC) devices are at a pre-commercial stage of development with feasibility studies sensitive to uncertainties surrounding assumed input costs. This may affect decision making. This paper analyses the impact these uncertainties may have on investor, developer and policymaker decisions using an Irish case study. Calibrated to data present in the literature, a probabilistic methodology is shown to be an effective means to carry this out. Value at Risk (VaR) and Conditional Value at Risk (CVaR) metrics are used to quantify the certainty of achieving a given cost or return on investment. We analyse the certainty of financial return provided by the proposed Irish Feed-in Tariff (FiT) policy. The influence of cost reduction through bulk discount is also discussed, with cost reduction targets for developers identified. Uncertainty is found to have a greater impact on the profitability of smaller installations and those subject to lower rates of cost reduction. This paper emphasises that a premium is required to account for cost uncertainty when setting FiT rates. By quantifying uncertainty, a means to specify an efficient premium is presented. (C) 2014 Elsevier Ltd. All rights reserved. |
Consumer behavior in renewable electricity: Can branding in accordance with identity signaling increase demand for renewable electricity and strengthen supplier brands? (2015) 🗎🗎 | A higher percentage of energy from renewable resources is an important goal on many environmental policy agendas. Yet, the demand for renewable electricity in liberalized markets has developed much more slowly than the demand for other green products. To date, research has mainly examined the willingness to pay for renewable electricity, but limited research has been conducted on the motivations behind it. The concept of identity signaling has proven to play a significant role in consumer behavior for green products. However, (renewable) electricity in the Swedish residential market typically lacks two important drivers for identity signaling: visibility and product involvement. A consumer choice simulation among 434 Swedish households compared consumer choices for renewable electricity contracts. The results show a positive effect of identity signaling on the demand for renewable electricity and yield suggestions for increasing the share of renewable electricity without market distorting measures. This leads to implications for policymakers, electricity suppliers and researchers. (C) 2014 Elsevier Ltd. All rights reserved. |
The impact of coordination on wholesale market participation: The case of the US electricity industry (2015) 🗎🗎 | Coordination costs in a wholesale electricity market are a relevant public policy consideration. The mitigation of coordination costs, all else equal, should increase participation in the marketplace. Since Federal Energy Regulatory Commission (FERC) Order 888 was issued in 1996, the level of trading activity in bulk electricity markets has increased significantly. In 1999, FERC issued Order 2000 to advance the role of regional transmission organizations (RT05) in the restructured marketplace for wholesale electricity. RTOs have the potential to reduce the coordination costs, while also having the countervailing effect of causing market participants to incur compliance costs. This paper utilizes the diversity of the United States electricity market and a panel data set representing electric utilities for the period 1990-2009 to study the effects that RTOs have had on wholesale electricity exchange. The paper finds that the presence of a transparent wholesale marketplace for electricity has the effect of increasing participation, but this participation is uneven across types of electric utilities. Greater participation is seen for investor-owned and larger utilities. The results have important implications for policy aimed at wholesale markets and the transmission organizations, as the opportunities afforded by transparency may not be uniformly distributed across all market participants. (C) 2014 Elsevier Ltd. All rights reserved. |
Public policy influence on renewable energy investments-A panel data study across OECD countries (2015) 🗎🗎 | This paper examines the impact of public policy measures on renewable energy (RE) investments in electricity-generating capacity made by institutional investors. Using a novel combination of datasets and a longitudinal research design, we investigate the influence of different policy measures in a sample of OECD countries to suggest an effective policy mix which could tackle failures in the market for clean energy. The results call for technology-specific policies which take into account actual market conditions and technology maturity. To improve the conditions for institutional investments, advisable policy instruments include economic and fiscal incentives such as feed-in tariffs (FIT), especially for less mature technologies. Additionally, market-based instruments such as greenhouse gas (GHG) emission trading systems for mature technologies should be included. These policy measures directly impact the risk and return structure of RE projects. Supplementing these with regulatory measures such as codes and standards (e.g. RPS) and long-term strategic planning could further strengthen the context for RE investments. (C) 2015 Elsevier Ltd. All rights reserved. |
The peculiar economics of federal energy management (2016) 🗎🗎 | US federal agency energy managers face different constraints than do comparable private sector managers. They are faced with energy consumption goals mandated via legislation or directed via Presidential Executive Order that encourage if not compel them to invest more in energy efficiency or renewables than would be cost effective from a private sector perspective. To make such investments, they also are provided access to private capital that is additional to their agency budgets. The encouragement to invest beyond what is cost effective may be a source of waste in some instances, and the financing mechanisms appear more expensive than necessary. A rough estimate of the magnitude of the waste is offered, as well as a mechanism to reduce the costs of agency access to capital. (C) 2016 Elsevier Ltd. All rights reserved. |
Review of the security of supply in Turkish energy markets: Lessons from the winter shortages (2016) 🗎🗎 | Turkey has changed the essentials of its energy markets more than a decade ago. It was mainly a transition from a state-led model to a free-market one. Although some levels of progress is observable; security of supply, particularly in times of short term supply disruption had not been widely tested. Harsh winter conditions set a litmus test for Turkish energy markets. Basing on the this test, this paper provides an analysis of to what extent Turkey is open to the risks of energy supply security; and discusses possible measures to relieve future supply disruption risks. Energy policy-making should consider the fact that electricity and gas markets are highly intertwined in Turkey; and security of supply measures could have cross-market implications, paper concludes. (C) 2016 Elsevier Ltd. All rights reserved. |
Hedging the financial risk from water scarcity for Great Lakes shipping (2016) 🗎🗎 | Low water levels in the Great Lakes have recently had significant financial impacts on the region's commercial shipping, which transports hundreds of millions of dollars' worth of bulk goods each year. Cargo capacity is a function of a ship's draft, the distance between water level and the ship's bottom, and lower water levels force ships to reduce cargo loads to prevent running aground in shallow harbors and locks. Financial risk transfer instruments, such as index-based insurance contracts, may provide an adaptable method for managing these financial risks. In this work, a relationship between water levels and shipping revenues is developed and used in an actuarial analysis of the frequency and magnitude of revenue losses. This analysis is used to develop a standardized suite of binary financial contracts, which are indexed to water levels and priced according to predefined thresholds. These contracts are then combined to form hedging portfolios with different objectives for the shippers. Results suggest that binary contracts could substantially reduce the risk of financial losses during low lake level periods and at a relatively low cost of only one to three percent of total revenues, depending on coverage level. |
The transition between energy efficient and energy inefficient states in Cameroon (2016) 🗎🗎 | I use a two-state (energy efficient/inefficient) Markov-switching dynamic model to study energy efficiency in Cameroon in a novel manner, employing yearly data covering 1971 to 2012. I find that the duration of an energy inefficient state is about twice as long as an energy efficient state, mainly due to fuel subsidies, low income, high corruption, regulatory inefficiencies, poorly developed infrastructure and undeveloped markets. To escape from an energy inefficient state a broad policy overhaul is needed. Trade liberalization and related growth policies together with the removal of fuel subsidies are useful, but insufficient policy measures; the results suggest that they should be combined with structural policies, aiming at institutional structure and investment in infrastructure. (C) 2015 Elsevier B.V. All rights reserved. |
The effectiveness of a strategic reserve in the presence of a high portfolio share of renewable energy sources (2016) 🗎🗎 | To ensure sufficient investment in electricity generation capacity, mechanisms such as strategic reserves are being considered or already implemented. We analyze the effectiveness of a strategic reserve in the presence of a growing portfolio share of renewable energy sources (RES) with EMLab-Generation,an agent-based electricity market model. A strategic reserve can stabilize investment, but within limits. Uncertainty regarding future demand may cause the market to become instable, potentially leading to periods with very high electricity prices. In the presence of a large share of variable renewable energy sources, the reserve design should be adjusted or replaced by an alternative capacity mechanism. (c) 2016 Elsevier Ltd. All rights reserved. |
Cost-effective policies for reaching India's 2022 renewable targets (2016) 🗎🗎 | India has ambitious renewable energy targets by 2022:100 GW of solar and 60 GW of wind. Both of these technologies are perceived to be more costly than conventional, fossil-fuel, power; and, therefore, require policy support. Using representative, project-level cash flow models, we examine two related questions: First, what would be the cost of policy support under existing federal policies; and, second, what would be the most cost-effective federal policy? We answer these questions by first forecasting the unsubsidized levelized cost of electricity for wind, solar, and the marginal fossil fuel; and then examining the cost of support under existing as well as proposed debt-related policies. We find that wind energy is already competitive with the marginal fossil fuel and, therefore, does not require any policy support. We also find that solar energy will become competitive by 2019; and prior to that the most cost-effective federal policy is provision of reduced-cost long-term debt, which can significantly reduce (by more than 90%) the total cost of support compared to accelerated depreciation, the most cost-effective existing federal policy. (C) 2016 Elsevier Ltd. All rights reserved. |
The evaluation of renewable energy policies across EU countries and US states: An econometric approach (2016) 🗎🗎 | Renewable energy policies are implemented to promote the diffusion of renewable energy sources within the market. However, their effectiveness on renewable electricity capacity remains subject to uncertainty. This paper addresses what renewable policy instruments are effective ways to increase capacity of renewable energy sources. This study employs a 1990-2008 panel dataset to conduct an econometric analysis of policy instruments, namely, feed-in tariffs, quotas, tenders and tax incentives, in promoting renewable energy deployment in 27 EU countries and 50 US states. The results suggest that renewable energy policy instruments play a significant role in encouraging renewable energy sources, but their effectiveness differs by the type of renewable energy policy instruments. Findings reveal that feed-in tariffs, tenders and tax incentives are effective mechanisms for stimulating deployment capacity of renewable energy sources for electricity, while the other commonly used policy instrument - quota - is not. (C) 2015 International Energy Initiative. Published by Elsevier Inc. All rights reserved. |
Get rid of it: To what extent might improved reliability reduce self-generation in Nigeria? (2016) 🗎🗎 | Despite the global concerns surrounding the threats of climate change to both human health and sustainable environments, gasoline- or diesel-powered generators with non-negligible emissions have become a popular choice among Nigerian households due to the poor publicly provided electricity. This study examines the extent to which an improvement in publicly supplied electricity may reduce backup generation and, by implication, reduce emissions from Nigerian homes. The results from a random-effects probit analysis reveal that, although improved electricity service quality would significantly reduce self-generation, self-generation would continue in the country, especially among rich and educated households. The study concludes by highlighting the policy implications of the findings. (C) 2016 Elsevier Ltd. All rights reserved. |
From nuclear phase-out to renewable energies in the Swiss electricity market (2016) 🗎🗎 | Liberalisation and the ever larger share of variable renewable energies (VRES), e.g. photovoltaic (PV) and wind energy, affect security of supply (SoS). We develop a system dynamics model to analyse the impact of VRES on the investment decision process and to understand how SoS is affected. We focus on the Swiss electricity market, which is currently undergoing a liberalisation process, and simultaneously faces the encouragement of VRES and a nuclear phase out. Our results show that nuclear production is replaced mainly by PV and imports; the country becomes a net importer. This evolution points to a problem of capacity adequacy. The resulting price rise, together with the subsidies needed to support VRES, lead to a rise in tariffs. In the presence of a high share of hydro, the de-rated margin may give a misleading picture of the capacity adequacy. We thus propose a new metric, the annual energy margin, which considers the energy available from all sources, while acknowledging that hydro-storage can function as a battery. This measure shows a much less reassuring picture of the country's capacity adequacy. (C) 2016 Elsevier Ltd. All rights reserved. |
Assessing the system and investor value of utility-scale solar PV (2016) 🗎🗎 | With pressure to reduce greenhouse gas emissions from the energy and other sectors, policymakers are increasingly seeking to mobilise investment in renewable electricity with support mechanisms. The objective of this paper is to assess the value of utility-scale solar PV using a multidisciplinary approach. In many cases renewable energy strategies are developed by investors and policymakers on the basis of a relatively narrow analysis of costs. However, as policies should be designed to maximise societal welfare, a wider paradigm is needed in decision-making. This paper argues for an impact assessment of renewable electricity generation that integrates its value from investor, utility, policy maker and end-user perspectives. We propose a multidisciplinary approach to the assessment, combining engineering production cost estimation with financial and market analysis of utility-scale solar PV in Ireland. The results show that while from an investor's perspective solar PV generation is, and will likely remain so for the foreseeable future, relatively expensive in a country with low solar irradiation such as Ireland, there are benefits for the electricity system in terms of reduced wind curtailment and, to a lesser extent, CO2 emissions. This demonstrates why the wider costs and benefits of integrating a renewable electricity technology to the system need to be considered in assessment of renewable policy support mechanism. Policy makers can then seek to maximise the system benefits while minimising the cost of any policy supports. (C) 2016 Elsevier Ltd. All rights reserved. |
Pricing and capacity allocation in renewable energy (2016) 🗎🗎 | Power systems that plan to replace generation of energy from conventional sources to renewable sources need to increase flexibility. While most demand side management (DSM) models are limited to load shedding, as communications technology develops, using a DSM model that includes load shifting is becoming feasible. Our study focuses renewable energy management with a DSM model that contains two M/M/s queues: queue 1 for renewable and queue 2 for fossil-fired energy. As the queue length for renewable energy increases, new customers who had originally wanted renewable energy service may opt for fossil-fired energy service. Due to this behavior, having dependent M/M/s queues is more realistic than independent ones. The service provider can maximize profit by allocating server capacity and setting pricing for each kind of service. Besides, we propose a coordination policy: when there are m customers in the queue of renewable service and some fossil-fired energy servers are available, the service provider invite the first customer of the queue of the renewable energy service to be served in the fossil-fired energy server but the price charged to the customer will be the low price. Sharing resources between the two kinds of service can improve service system utilization, so as to benefit both the service provider and customers. (C) 2016 Elsevier Ltd. All rights reserved. |
Risks and cost of capital for onshore wind energy investments in EU countries (2016) 🗎🗎 | The national binding targets, set for renewable energy deployment at European Union (EU), call for extended clean energy investments. Renewable energy projects require high up-front expenditures including, in many cases, considerable financing costs. The main objective of this paper is to elaborate and apply a methodology that allows assessing the most important risk categories related to renewable energy investments. The cornerstone of this approach is the weighted average cost of capital, which has been extracted for new onshore wind projects in EU-28 member states based on diverse methods e.g. Capital Asset Pricing Model. Moreover, to validate the model results, a series of interviews with renewable energy project developers and financers across the EU has been conducted. The results show that, following the country risk, policy-related risks exert the highest impact on the cost of capital. Moreover, there are significant discrepancies between different geographical regions and market deployment levels. To support policy makers' decision on effective risk-reducing policy designs, the assessment could also be extended to other renewable energy technologies. |
Decarbonizing residential building energy: A cost-effective approach (2016) 🗎🗎 | Given the problem of climate change, the world economy must eventually switch to carbon neutral energy. In this study we present a cost-effectiveness approach: given a goal of decarbonization, the objective is to accomplish this at minimum cost. For residential building energy, we show that total cost is minimized by equating marginal cost of building energy conserved with marginal cost of obtaining carbon-free energy, where we express costs of both in dollars per kWh. We describe how the cost of solar photovoltaic energy provides an upper bound on the marginal cost of carbon-free energy and thus an upper bound on marginal cost of conserved energy-one should not necessarily spend more on energy conservation than the cost of photovoltaic energy (though there are several caveats). A case study from Vermont, USA illustrates these principles and implementation issues with marginal analysis of energy conservation. From a policy perspective, the principles presented suggest that either carbon taxes or carbon limits could be used to decarbonize building energy at minimum cost, but that approaches using renewable-energy subsidies or prescriptive building codes result in greater decarbonization costs to society. This suggests that new policy approaches be adopted. (C) 2016 Elsevier Ltd. All rights reserved. |
Heterogeneous policies, heterogeneous technologies: The case of renewable energy (2016) 🗎🗎 | This paper investigates empirically the effect of market regulation and renewable energy policies on innovation activity in different renewable energy technologies. For the EU countries and the years 1980 to 2007, we built a unique dataset containing information on patent production in eight different technologies, proxies of market regulation and technology-specific renewable energy policies. Our main finding is that, compared to privatisation and unbundling, reducing entry barriers is a more significant driver of renewable energy innovation, but that its effect varies across technologies and is stronger in technologies characterised by potential entry of small, independent power producers. In addition, the inducement effect of renewable energy policies is heterogeneous and more pronounced for wind, which is the only technology that is mature and has high technological potential. Finally, ratification of the Kyoto protocol, which determined a more stable and less uncertain policy framework, amplifies the inducement effect of both energy policy and market liberalisation. (C) 2016 Elsevier B.V. All rights reserved. |
The effect of economic growth, oil prices, and the benefits of reactor standardization: Duration of nuclear power plant construction revisited (2016) 🗎🗎 | The profitability of nuclear power plant investment is largely determined by the construction duration, which directly impacts discounted cash flows, debt and interest payments, as well as variable costs, such as labor. This paper analyzes the key drivers of construction duration using survival models. We focus especially on the strategic expectation formation of private and public utilities engaging in such highly risky megaprojects. Using a balanced dataset of explanatory variables and the IAEA/PRIS dataset of reactor construction starts between 1950 and 2013 we find that the expectation of rising oil prices and higher economic growth, along with the higher per capita GDP of a country tend to reduce the time needed to grid connection. We also identify the reactor models with the fastest construction duration. (C) 2015 Elsevier Ltd. All rights reserved. |
Modeling the effects of the new Russian capacity mechanism on renewable energy investments (2016) 🗎🗎 | Russian renewable energy policy, introduced in May 2013, is a capacity mechanism-based approach to support wind, solar, and small hydro power development in Russia. This paper explores the effect of the new mechanism on the profitability of new renewable energy investments with a numerical example. The sensitivity of project profitability to selected factors is studied and the results are compared ceteris paribus to results from a generic feed-in premium case. Furthermore, the paper gives a complete and detailed presentation of the capacity price calculation procedure tied to the support mechanism. The results show that the new Russian renewable energy capacity mechanism offers a significant risk reduction to the investor in the form of dampening the sensitivity to external market factors. At the same time it shields the energy market system from excessive burden of renewable energy support. Even if the complexity of the method is a clear drawback to the detailed understanding of how the mechanism works, the design of the incentive policy could be an appealing alternative also for other emerging economies. (C) 2016 Elsevier Ltd. All rights reserved. |
Evaluating investments in renewable energy under policy risks (2016) 🗎🗎 | The considerable amount of required infrastructure and renewable energy investments expected in the forthcoming years also implies an increasingly relevant contribution of private and institutional investors. In this context, especially regulatory and policy risks have been shown to play a major role for investors when evaluating investments in renewable energy and should thus also be taken into account in risk assessment and when deriving risk-return profiles. In this paper, we provide a stochastic model framework to quantify policy risks associated with renewable energy investments (e.g. a retrospective reduction of a feed-in tariff), thereby also taking into account energy price risk, resource risk, and inflation risk. The model is illustrated by means of simulations and scenario analyses, and it makes use of expert estimates and fuzzy set theory for quantifying policy risks. Our numerical results for a portfolio of onshore wind farms in Germany and France show that policy risk can strongly impact risk-return profiles, and that cross-country diversification effects can considerably decrease the overall risk for investors. (C) 2016 Elsevier Ltd. All rights reserved. |
What are retail investors' risk-return preferences towards renewable energy projects? A choice experiment in Germany (2016) 🗎🗎 | Citizens own nearly half the renewable energy generation capacity in Germany and have been important drivers of the country's energy transition. In contrast to citizens' important role in financing renewable energies, the energy policy and economics literature has traditionally focused on other investors, such as incumbent energy firms. To close this gap, this paper reports on a large-scale survey of 1,990 German retail investors. Conducting a choice experiment with the subset of 1,041 respondents who expressed an interest in investing in community renewable energy projects, we present a unique dataset allowing for new insights in risk-return expectations of retail investors. We find that apart from return on investment, respondents are particularly sensitive to the minimum holding period and the issuer of community renewable energy investment offerings. A minimum holding period of 10 years implies a risk premium of 2.76% points. A subsequent segmentation analysis shows that two groups of potential community renewable energy investors with different risk-return expectations can be identified: "local patriots" and "yield investors". In contrast to professional investors, a majority of retail investors use simple decision rules such as calculating payback time or relying on their gut feeling when making investments. (C) 2016 Elsevier Ltd. All rights reserved. |
Balancing solar PV deployment and RD&D: A comprehensive framework for managing innovation uncertainty in electricity technology investment planning (2016) 🗎🗎 | We present a new framework for studying the socially optimal level of generating capacity and public RD&D investments for the electric power sector under decision-dependent technical change uncertainty. We construct a bottom-up stochastic electricity generation capacity expansion model with uncertain endogenous RD&D-based technical change, focusing on solar PV RD&D investment planning for its current prominent role in sustainable energy and climate policy deliberations. We characterize the decision-dependent process of technical change uncertainty as unknown outcomes of RD&D investments that increase the likelihood of success with increasing amounts of RD&D, and calibrate to a novel expert elicitation dataset that accounts for this decision-dependence. The problem is framed as a multi-stage decision under uncertainty, where the decision maker learns and adapts to new information between decision periods. Specifically, our application considers four decision stages, with the decision-maker choosing investment levels for new capacity and solar PV RD&D, while learning about RD&D outcomes that can reduce solar PV costs between each stage. The problem is thus formulated to match the manner in which real-world decisions about RD&D investments in renewable energy are made, and avoids common assumptions of perfect foresight, or uncertainty but no learning, that are often used in practice. Numerical results show that when uncertainty and learning features are both included, the optimal solar PV RD&D investment strategy changes from solutions using other methods. Considering uncertainty and learning results in solar RD&D investment differences as high as 20 percent lower in the first-stage, and 300 percent higher in later stages. We also show that when uncertainty is considered without learning, the fraction of new solar PV capacity investments can be depressed. Overall, this paper shows that it is possible to unify several realistic features of the deployment and development problem for the electricity sector to meet sustainability goals into one framework. (C) 2016 Elsevier Ltd. All rights reserved. |
Assessment of RES technology market values and the merit-order effect - an econometric multi-country analysis (2016) 🗎🗎 | This study presents an assessment of both the merit-order effect and the market values of electricity generated from variable renewable energy sources, namely wind and solar photovoltaics. The historical price development in several European countries - that cover 73% of the renewable energy source share in Europe's regional electricity markets - has been taken into account. To gain insights into the impact of renewable electricity on prices, market values and the merit-order effect were calculated using a multivariate regression analysis and ex-post calculations. All the countries analyzed show a consistent, negative impact of renewable electricity on electricity spot market prices and a decreasing market value of renewable energy source, possibly attributable to increased shares. The coefficients are economically and statistically significant. This study provides insights into a large geographical spread of European electricity markets, enables a comparison between countries, and therefore has valuable implications for policy makers. |
Do Combined Heat and Power plants perform? Case study of publicly funded projects in New York (2016) 🗎🗎 | We investigate lower than expected capacity factors of Combined Heat and Power plants using a publicly available dataset of hourly performance for plants in the state of New York. Low utilization of a CHP indicates underperformance. We examine possible causes of this underperformance including economic arbitrage, poor maintenance and operational practices, oversizing of plants, and reliability and resiliency needs. Based on seasonal and weekday/weekend capacity factor averages, we find that there is not enough evidence to support the economic arbitrage cause. Out of 99 plants in the dataset, 64 plants have average capacity factor below 60%, indicating they are either oversized and/or poorly maintained. This suggests that the current practice of one-time fixed incentive ($/kW) favors investment in capacity with no incentive for utilization (unlike a production credit which incentivizes generation $/kW h). From a policy perspective, this paper recommends better pre-engineering assessment for correct sizing, as well as revision of incentives based on performance. Additional information should be collected so that a more accurate ongoing analysis of the societal benefits of CHP projects can be made. Lastly, the energy efficiency gap, may be smaller than is commonly assumed and other options should be explored to meet energy efficiency goals. (C) 2016 Elsevier Ltd. All rights reserved. |
Cost-effectiveness as energy policy mechanisms: The paradox of technology-neutral and technology-specific policies in the short and long term (2016) 🗎🗎 | Policymakers worldwide have used both technology-neutral and technology-specific policy mechanisms to promote renewable energy sources (RES-E), and there are several recent, successful examples of these policies. When choosing policy mechanisms to design and deploy energy policies, policymakers typically seek cost-effective ones, linking cost-effectiveness to the lowest cost of support for RES-E generation and/or consumer costs. The objectives of this paper are to analyze the cost-effectiveness of renewable portfolio standards (RPS), feed-in tariffs (FIT) and auctions in the short and long term, considering both technolbgy-neutral and technology-specific approaches. Results show that RPS and auctions are more cost-effective than feed-in tariffs (FIT) in the short term if cost-effectiveness is defined as minimizing consumer costs. Also, if one or more emerging technologies with higher levelized life cycle costs (LCC), low cumulative production and high experience elasticity are considered in the pool of RES-E policy design, a technology-neutral approach in the short-term could lock out these emerging technologies, avoiding a long term LCC reduction. In this case, a technology-specific policy used in the short-term would reflect lower total generation policy costs in the long term if compared with a technology-neutral policy in both short and long term. This paper calls this phenomenon the paradox of technology-neutral and technology-specific policies in the long term. Considering the results, this paper suggests a mix of technology-neutral and technology-specific policies using RPS or auction mechanisms to promote RES-E. (C) 2016 Elsevier Ltd. All rights reserved. |
Negative price spikes at power markets: the role of energy policy (2016) 🗎🗎 | In Germany, substantial drops in wholesale power prices have become a regular phenomenon. While such price drops have far-reaching implications for the functioning of the power market, their underlying determinants remain poorly understood. To fill this gap, we propose a Markov regime-switching model to investigate low-price events at the European Power Exchange. Our analysis focuses on the role of energy policies that promote renewable energies and have led to significant reductions of nuclear capacities after the Fukushima accident. We find that high electricity infeed from renewable sources increases negative price spike probabilities, while the decommissioning of nuclear plants under the Nuclear Moratorium had an opposing effect. Simulations of market outcomes under different energy policies indicate that reaching ambitious renewable energy targets increases the frequency of low-price events and compromises the financial viability of conventional generation units, while a nuclear phase-out or an increase in storage capacities mitigates these effects. |
A real options model for renewable energy investment with application to solar photovoltaic power generation in China (2016) 🗎🗎 | This paper proposes a real options model for evaluating renewable energy investment by considering uncertain factors such as CO2 price, non-renewable energy cost, investment cost and market price of electricity. A phase-out mechanism is built into the model to reflect the long-term changes of subsidy policy. We apply the proposed model to empirically evaluate the investment value and optimal timing for solar photovoltaic power generation in China. Our empirical results show that the current investment environment in China may not be able to attract immediate investment, while the development of carbon market helps advance the optimal investment time. A sensitivity analysis is conducted to investigate the dynamics of investment value and optimal timing under the changes of unit generating capacity, subsidy level, market price of electricity, CO2 price and investment cost. It is found that the high investment cost and the volatility of electricity and CO2 prices, are not conducive to attract immediate investment. Instead, increasing the level of subsidy, promoting technological progress and maintaining the stability of market are useful to stimulate investment. (C) 2016 Elsevier B.V. All rights reserved. |
Capitalisation of residential solar photovoltaic systems in Western Australia (2016) 🗎🗎 | Due to government financial incentives and falling prices of photovoltaic (PV) systems, solar power has become the fastest growing renewable energy source in Australia. As financial incentives are being reduced or phased out, there is a possibility that adoption of this technology will slow down, thus creating a need for improved policy instruments targeted at adoption of residential PV systems. One of the factors affecting adoption of solar technology in the residential sector is its capitalisation in property values. Yet, the awareness of the capitalisation of PV investments in the Australian property market is limited. Our data indicate that homeowners who anticipate selling their properties in the near future are reluctant to adopt PV systems. This paper presents the first empirical estimate of the property price premiums associated with residential solar PV systems in Australia using residential property sales data from the Perth metropolitan area of Western Australia. An estimated 2.3-3.2 per cent property price premium associated with the PV systems suggests that homeowners fully recover the costs of PV investments upon the sale of their properties. Effective government policy could use this information to encourage adoption of residential PV systems by homeowners. |
The study assesses the impact of Hawaii's solar PV tax credit policy in terms of the investment benefits accruing to households, the income distribution of these benefits, and the cost to taxpayers. Hawaii is an interesting case because of its generous tax credits and fast growing PV installations. We find that rising electricity rates and declining PV installation costs have driven PV deployment through an increasing internal rate of return on PV investment since 2009. The state tax credit favors high-income households who have higher tax liabilities and are more likely to break the largest barrier to market entry, home ownership. The internal rate of return for the typical Hawaii household is 25% and 16% with and without the state tax credit. We estimate that single-family homeowners in Hawaii may ultimately demand as much as 1100 MW of PV, which would play an important role in meeting Hawaii's clean energy goal of achieving 100% renewable sources for electricity by the year 2045. It would also cost the taxpayer $1.4 billion. Moreover, PV tax credits serve to redistribute wealth from taxpayers to upper income groups, many of whom already have ample incentive to install PV. (c) 2015 Elsevier Ltd. All rights reserved. | |
Role of policy in deployment of wind energy: evidence across states of India (2016) 🗎🗎 | This paper is an enquiry into the role of State policies in influencing wind installed capacity. The paper studies the impact of policies on deployment of wind potential across the States of India over two decades. Aggregate indices are computed for each of the seven wind resourceful States of India indicating attractiveness for installed capacity of wind energy. For computing the indices, four policies, Feed-in-Tariff, Renewable Purchase Obligation, Banking facility, and Wheeling charges are considered. Panel data techniques are then employed to investigate the impact of the policy differences on wind potential deployment over the 19 year period (1993-2012) after controlling for three State-specific factors. The controlling factors include per-capita income of the State, power deficit, and ratio of installed capacity of wind to geographic potential indicating unmet capacity. The results show that that policy index positively impacts wind deployment whether control variables are included or not. Moreover, the control factors like the per-capita income of the State and unmet capacity have positive influence over the investment in wind energy. (C) 2015 Elsevier Ltd. All rights reserved. |
Net metering and market feedback loops: Exploring the impact of retail rate design on distributed PV deployment (2016) 🗎🗎 | The substantial increase in deployment of customer-sited solar photovoltaics (PV) in the United States has been driven by a combination of steeply declining costs, financing innovations, and supportive policies. Among those supportive policies is net metering, which in most states effectively allows customers to receive compensation for distributed PV generation at the full retail electricity price. The current design of retail electricity rates and the presence of net metering have elicited concerns that the possible under-recovery of fixed utility costs from PV system owners may lead to a feedback loop of increasing retail prices that accelerate PV adoption and further rate increases. However, a separate and opposing feedback loop could offset this effect: increased PV deployment may lead to a shift in the timing of peak-period electricity prices that could reduce the bill savings received under net metering where time-varying retail electricity rates are used, thereby dampening further PV adoption. In this paper, we examine the impacts of these two competing feedback dynamics on U.S. distributed PV deployment through 2050 for both residential and commercial customers, across states. Our results indicate that, at the aggregate national level, the two feedback effects nearly offset one another and therefore produce a modest net effect, although their magnitude and direction vary by customer segment and by state. We also model aggregate PV deployment trends under various rate designs and net-metering rules, accounting for feedback dynamics. Our results demonstrate that future adoption of distributed PV is highly sensitive to retail rate structures. Whereas flat, time-invariant rates with net metering lead to higher aggregate national deployment levels than the current mix of rate structures (+5% in 2050), rate structures with higher monthly fixed customer charges or PV compensation at levels lower than the full retail rate can dramatically erode aggregate customer adoption of PV (from -14% to -61%, depending on the design). Moving towards time-varying rates, on the other hand, accelerates near- and medium-term deployment (through 2030) but slows adoption in the longer term (-22% in 2050). Published by Elsevier Ltd. |
Assessing the short-term revenue impacts of residential PV systems on electricity customers, retailers and network service providers (2016) 🗎🗎 | Falling costs and supportive government policies have seen remarkable growth in residential photovoltaic systems in jurisdictions around the world. While there have been detailed studies of the financial attractiveness of PV for home owners under different policy and retail market arrangements, there has been less consideration of the impacts of such systems on some other key industry participants. In this paper we undertake an investigation of the annual short-term revenue impacts of PV systems for those households installing them, for their electricity retailers and network service providers (NSPs), and for all electricity customers more in general, in the Australian State of NSW. We use actual half-hourly PV generation and electricity consumption for 80 households in Sydney to estimate the 'real world' impacts of a range of former, current and possible future PV policy and retail tariff arrangements including gross and net Feed-in-Tariffs (FiT). We found that the short-term revenue impacts differ significantly for different commercial arrangements and, are highly variable and largely driven by the PV performance and its match with household consumption patterns. Results highlight that current net metering policies in Australia with low net FiT rates may provide only moderate revenue incentives to households, yet quite adverse revenue impacts on NSPs and retailers depending on the level of PV export. While NSP short-term revenue losses will likely involve increasing electricity tariffs in the longer term, losses for retailers may add risks to the profitability of household customers with PV. The challenge for policy makers is to facilitate socially valuable PV deployment whilst appropriately managing the impacts on all key electricity industry stakeholders. (C) 2015 Elsevier Ltd. All rights reserved. |
Costs assessments of European environmental policies (2016) 🗎🗎 | The evolution of energy production in the European Union (EU) is going through a big change in recent years: the incidence of traditional fuels is diminishing gradually for increasing renewable energy sources (RES), due to international concerns over climate change and for energy security reasons. The aim of this paper is to construct a simulation model that identifies and estimates costs that may arise for a community of negotiating countries from opportunistic behavior of some country when defining environmental policies. In this paper, the model is applied specifically to the new 2030 Framework for Climate and Energy Policies (COM(2014) 0015) (EC, 2014 [11]) on the promotion of RES that commits EU governments to a common goal to increase the share of RES in final consumption to 27% by 2030. Costs faced by EU countries to achieve the RES target are different due to their endowment heterogeneity, the availability of RES, the diffusion process of cost improvements and the different instruments to support the development of the RES technologies. Given the still undefined participation agreement to reach the new overall RES target by 2030, we want to assess the potential cost penalty induced by free riding behavior. This could stem from some EU country, which avoids complying with the RES Directive. Our policy simulation exercise shows that costs increase more than proportionally with the non-participating country size, measured with GDP and CO2 emissions. Furthermore, we provide a model to analytically assess the likelihood each EU country may have to behave opportunistically within the negotiation process of the new proposal on EU RES targets (COM(2014) 0015). (c) 2015 Elsevier Ltd. All rights reserved. |
Energy and climate hand-in-hand: Financing RES-E support with carbon revenues (2016) 🗎🗎 | In Italy, the cost of support for renewable electricity (RES-E) is largely recovered through the "A3 surcharge", which weighs heavily on electricity bills. Using household survey data, we show the A3 surcharge is markedly regressive. Carbon taxation in the non-ETS sector is envisaged as a means to reduce CO2 emissions cost-effectively and generate revenue to lower the A3 surcharge. A non-ETS carbon tax would be less regressive than the A3 surcharge and its cost would be more evenly distributed across households. We calculate the revenue of a (sic)20/tCO(2) non-ETS carbon tax would have allowed a cut in the A3 surcharge of about 68% in 2011, and 39% in 2012. The impact of the carbon tax plus the reduced A3 surcharge would have been less regressive, but the cost higher for most households. The restrictions imposed in the simulations mean the results are only appropriate to render first-round effects of the reform. Policy relevance: In the vast majority of the EU Member States, the cost of RES-E support is largely paid by electricity consumers, most often through specific surcharges. Rising electricity prices are a common concern given the implications for competitiveness and equity. The Member States facing this issue could conveniently address it through environmental tax reforms consistent with the Climate and Energy Package. Replacing RES-E surcharges with carbon taxes in the non-ETS sector would permit cost-effective reduction of CO2 emissions while allocating the cost of RES-E support more equitably. The difference in regressivity would stem from the different consumption patterns of home fuels (including electricity) and motor fuels across income distribution. A cross-country comparison of energy household budget shares proves the structural nature of this difference between home fuels and motor fuels. Moreover, the notion that electricity consumers should pay for RES-E support is questioned on the grounds that electricity is a basic necessity good and RES-E support is a means of providing public goods, notably energy security and climate protection. (C) 2015 Elsevier Ltd. All rights reserved. |
An economic impact analysis of state solar incentives for improving financial performance of residential solar photovoltaic systems in the United States (2016) 🗎🗎 | Although the global new renewable energy (NRE) market has shown remarkable growth during the past decade, NRE policies and incentive schemes should continue to support NRE market and to achieve NRE targets from the long-term perspective. In particular, solar policies and incentive schemes still remain vital to the deployment of the residential solar photovoltaic (PV) system in the United States (U.S.) due to its high initial investment cost. The previous study conducted an economic and environmental assessment of the residential solar PV system considering state solar incentives in the U.S.; however, it did not suggest any improvement scenarios for state solar incentives. To solve this limitation, this study aimed to conduct an economic impact analysis of state solar incentives for improving financial performance of residential solar PV systems in the U.S. Towards this end, this study established 16 scenarios for improving state solar incentives and quantified cash incentive rates for each scenario which can satisfy the threshold performance levels in the U.S. As a result, this study could suggest more suitable tax incentives and cash incentive rates for achieving the economic feasibility of the residential solar PV system in each target city of the U.S. (C) 2016 Elsevier Ltd. All rights reserved. |
The wood pellet market in Austria: A structural market model analysis (2016) 🗎🗎 | EU bioenergy policies and oil price hikes have resulted in a significant increase of installed pellet boilers for residential heating. Hence, European demand for wood pellets has been growing faster and more steadily than supply leading to rising market prices in recent years. This article presents an econometric analysis of demand and supply of wood pellets in the residential heating sector in Austria, one of the most dynamic markets for residential pellets. Annual and monthly time series data between 2000 and 2014 are used in a two-stage least-squares (2SLS) regression to estimate supply and demand elasticities of wood pellets. In all model specifications, pellets demand is found to be inelastic (from -0.66 to -0.76) and pellets supply unit-elastic (from 1.03 to 1.18). Thus, consumers are highly exposed to price changes resulting from supply shocks. Policies which support investments in pellet boilers will shift the demand of wood pellets and likely leading to higher prices for consumers. (C) 2015 Elsevier Ltd. All rights reserved. |
Supporting the externality of intermittency in policies for renewable energy (2016) 🗎🗎 | We analyse the joint problem of supporting renewables and resource adequacy in a liberalised electricity market and present a detailed model-based comparison of two alternative policies. We undertake this in the context of the British market. We show how, ceteris paribus, the progressive replacement of coal with wind imposes extra costs of reserve and evaluate alternative way to meet this, whether through capacity payments funded by customers, or a reliability requirement on wind generators with capital cost or energy feed-in subsidies. We consider the reality of market concentration and the extent to which pragmatic regulation could allow prices to rise above marginal cost to reduce the extent of direct subsidies and complex market designs. We also evaluate the implied cost of carbon reduction in a progressive replacement of coal with wind, when the security is maintained by extra peaking gas. We find that support through capital allowances rather than the energy market is more efficient. (C) 2015 Elsevier Ltd. All rights reserved. |
The effect of regulatory governance on efficiency of thermal power generation in India: A stochastic frontier analysis (2016) 🗎🗎 | This paper investigates the impact of institutional quality - typified as regulatory governance - on the performance of thermal power plants in India. The Indian power sector was reformed in the early 1990s. However, reforms are effective only as much as the regulators are committed in ensuring that they are implemented. We hypothesize that higher the quality of regulation in a federal Indian state, higher is the efficiency of electric generation utilities. A translog stochastic frontier model is estimated using index of state-level independent regulation as one of the determinants of inefficiency. The dataset comprises a panel of 77 coal-based thermal power plants during the reform period covering over 70% of installed electricity generation capacity. The mean technical efficiency of 76.7% indicates there is wide scope for efficiency improvement in the sector. Results are robust to various model specifications and show that state-level regulators have positively impacted plant performance. Technical efficiency is sensitive to both unbundling of state utilities, and regulatory experience. The policy implication is that further reforms which empower independent regulators will have far reaching impacts on power sector performance. (C) 2015 Elsevier Ltd. All rights reserved. |
Business case uncertainty of power plants in future energy systems with wind power (2016) 🗎🗎 | The European power sector is transforming due to climate policies and an increased deployment of intermittent RES. The sector will require thermal power plants for the decades to come, but their business cases are (negatively) affected by this transformation. This study presents a novel tool to quantify the effect of policy, price and project-related uncertainties on power plant business cases. This tool can support policymakers in stimulating necessary investments in new thermal generation capacity. We find that these investments are currently unsound (power plants recoup on average -12% to 59% of their initial investment). Future climate policy, i.e. the CO2 price, has a very strong impact on business cases (affects the profitability by 5-40%-points). The impact of the deployment of wind power is average (2-8%-point difference between 10% and 21% wind penetration). Variations in annual wind power production barely affect the profitability (variation of +/- 1%-point). To stimulate new investments, policy makers should first decrease the uncertainty in business cases caused by policy. Durable climate policy is especially important. Also, policies to increase the profits of thermal power plants should be carefully considered and implemented. This combined approach will reduce the revenue gap that needs to be bridged by supportive policies. (C) 2015 Elsevier Ltd. All rights reserved. |
Politics vs markets: how German power prices hit the floor (2016) 🗎🗎 | This article aims to quantify the effects of energy policy on power prices. A fundamental model is used to replicate wholesale market prices and to analyse the impact of a change in single price drivers such as coal prices or subsidies for new renewables. It is shown that approximately 50 per cent of the wholesale power price decrease in Germany of the last few years is due to market effects such as the decrease of coal and gas prices as well as the decrease in electricity demand. Only approximately 30 per cent of the price decrease can be directly associated with the subsidies for new renewable energies such as wind and solar. The first part of this article reviews the three policy objectives which guide energy strategy in Europe. In the second part two theoretic models of energy policy governance, namely the direct and multiple steering approach are introduced. Moreover, the article quantifies the impacts of the policy instruments on wholesale power prices and challenges the current energy policies. The third part briefly discusses the effect of the energy policy impact of Fukushima, before the results of the fundamental model and the market effects are analysed in the fourth chapter. The last chapter quantifies all different drivers of power prices and concludes that market effects such as coal and gas prices are at least as important as all policy effects, such as subsidizing renewables or abandoning nuclear power, combined. |
Profitability in absence of subsidies: A techno-economic analysis of rooftop photovoltaic self-consumption in residential and commercial buildings (2016) 🗎🗎 | In the face of fading regulatory support for the deployment of photovoltaics (PV), self-consumption models for photovoltaics on buildings present an option to decouple economic performance from policy support such as feed-in tariffs. Through a techno-economic analysis we analyze the potential of PV self-consumption for four different building types (residential and commercial, each large and small) in Germany, Switzerland and Austria. We find that with self-consumption rooftop PV can be attractive for many buildings in central Europe already today, even in the absence of regulatory support. Main profitability drivers include electricity prices and the achievable self-consumption share of a building (driven, in turn, by the building-specific ratio of PV power production and electricity demand, and the timely overlap of production and the consumption curve). We complement our techno-economic analysis of rooftop PV with a discussion of diffusion barriers, i.e., mechanisms that hinder market adoption despite cost-effectiveness, such as split incentives and risk and uncertainty. We formulate recommendations for the deployment of rooftop PV for business and policy makers. (C) 2015 Elsevier Ltd. All rights reserved. |
Comparison of support policies for residential photovoltaic systems in the major EU markets through investment profitability (2016) 🗎🗎 | In this paper a comprehensive evaluation of the support policy for photovoltaic installations in the residential sector of the major European markets (Flanders (Belgium), Germany, Italy, Spain and France) is carried out. To this end, the economic viability of a household investment in a photovoltaic installation is studied, employing a model based on the discounted cash flows of the installation over its lifetime. The results indicate that Italy's support system has been the most profitable out of the countries studied since 2010. In general, under current support policies, residential installations are still profitable in most cases, despite decreasing support levels, except for Spain. Furthermore, the paper demonstrates that self-consumption can significantly increase profits, especially in Spain and Germany. However, Flanders' policy has no effect on levels of self-consumption. Finally, a comparison of past and present policies shows the varying levels of success countries have enjoyed in keeping the profitability of investments stable over the years, depending on the efficiency of their support policy. Germany's support system might be considered the most balanced one over the last five years. (C) 2015 Elsevier Ltd. All rights reserved. |
This paper develops an energy policy measure for renewable sources in Colombia, in particular wind generation. The proposal is done at the decentralized level, in isolated areas of the country, where electricity coverage is below 12% and wind speed is suitable for power generation. The goal of this policy is focused on increasing electricity coverage in those remote areas of the country that have high winds in order to develop clean generation investments that can represent a benefit for low-income users. Thus, a mechanism for financing these kinds of investments is proposed, involving the private sector and using the mechanism known as Public Private Partnerships - PPPs. PPPs are mechanisms used by the public sector to establish a contract with the private sector. The private sector provides capital and ability to develop projects, while the public sector holds the responsibility in service delivery. To model the relationship between public sector and private investors, a bilevel programming method for efficient resource allocation, combining an auction mechanism and moral hazard, is presented. A case study is shown in the Colombian context. (C) 2015 Elsevier Ltd. All rights reserved. | |
A study of existing solar power policy framework in India for viability of the solar projects perspective (2016) 🗎🗎 | A decade before conversion of solar energy into electricity was quite expensive compare with other renewable energy or conventional fossil fired generated power. For making solar energy as a main stream source of power generation Indian government has taken several initiatives in last 5-6 years. Presently, the deployment of the solar power project in India is governed by both central and state government under the various schemes. These schemes are mainly includes, Feed-in-Tariff (FiT), Renewable Purchase Obligation (RPO), long term Power Purchase Agreements (PPAs), Renewable Energy Certificates (REC), Accelerated Depreciation (AD) benefit and reverse bidding/auctions etc. As an effect of this competitive market environment, the tariff of solar power has come down from INR 17 or US $ 0.27(1) (year 2010) to less than INR 6 or US $ 0.092(2) (year 2015). This decremented solar tariff may achieve grid parity soon but also has raised the question of sustainability of the solar power project as well. Additionally, this multi policy environment of both central and state government has created lots of confusion among the solar power project developers to select scheme and make their investment viable as per other power generation business. This paper summarizes various schemes under the current policy framework in terms of viability of the solar power projects in India. It also includes issues related with the sustainability of the solar power project taken under the competitive bidding process with remarkable lowered tariff than benchmarked tariff (ceiling price)in India (i.e. INR 7 or US $ 0.107). This study will help project developers and other stakeholders to understand the issues related with viability of the project in current multi-policy environment for better planning before investing in the field of solar Power business. (C) 2015 Elsevier Ltd. All rights reserved. |
Evaluation of financial incentives for combined heat and power (CHP) systems in US regions (2016) 🗎🗎 | In recent years, combined heat and power (CHP) systems have gained more attention from the U.S. government. Both the federal government and the state government have proposed many incentive policies to promote CHP systems. This paper focuses on analyzing and evaluating the effectiveness of existing incentive policies for CHP systems in various U.S. states. In this paper, the existing incentive policies for CHP systems in different states are classified in four categories: capital cost rebate, tax credits, low tax loan, and utility credits. Four types of buildings including hospitals, large offices, large hotels, and primary schools, located in different U.S. regions, are selected and analyzed for the CHP incentives. Using the EnergyPlus simulation software, the energy consumption of each building is obtained. Then the simulation models of a CHP system are established for each building type. From the simulation results, the payback period of the CHP systems in different locations is calculated according to local incentive policies. This payback period is then compared with the one without regard for incentive policies. The results show that most of the incentive policies could obviously shorten the payback period in various U.S. regions, however some of them seem meaningless because some incentives were not effective enough to give a favorable payback period. This paper reveals that the type and level of incentives to promote CHP systems need to be carefully determined because the effectiveness and usefulness of incentive policies are highly dependent on the CHP performance due to the capacity of the power generation unit, the operational strategy of CHP system, the climate location, and the ratio of electricity cost to fuel cost. (C) 2016 Elsevier Ltd. All rights reserved. |
Renewable energy technology acceptance in Peninsular Malaysia (2016) 🗎🗎 | Despite various policies, renewable energy resources have not been developed in Malaysia. This study investigates the factors that influence renewable energy technology acceptance in Peninsular Malaysia and attempts to show the impact of cost and knowledge on the perceived ease of use and perceived usefulness of renewable energy technology. The results show that cost of renewable energy has an indirect effect on attitudes towards using renewable energy through the associated impact on the perceived ease of use and perceived usefulness. The results also indicate that public knowledge in Peninsular Malaysia does not affect perceived ease of use, although the positive impact of knowledge on perceived usefulness is supported. Furthermore, our results show that the current business environment in Peninsular Malaysia does not support the adoption of renewable energy technology, and thus, renewable energy technology is not commercially viable in Peninsular Malaysia. Additionally, the population of Peninsular Malaysia associates the use of renewable energy with a high level of effort and therefore has a negative attitude towards the use of renewable energy technology. There is, therefore, a definite need to pay more attention to the role of public perception and awareness in the successes and failures of renewable energy policy. (C) 2015 Elsevier Ltd. All rights reserved. |
The impact of subsidies on overcapacity: A comparison of wind and solar energy companies in China (2016) 🗎🗎 | Determining the level of subsidy is an important measure in addressing overcapacity in Chinese renewable energy enterprises. In this article, we employ a threshold regression model to analyze the impacts of government subsidies on the overcapacity of wind and solar energy companies. Our findings indicate the separate subsidy thresholds for solar and wind energy companies. The results reveal that even where the subsidy falls into a relatively effective interval, it will still intensify the risk of overcapacity in solar energy companies, but can help address overcapacity in the wind energy companies. The paper concludes that the level of subsidies should be unique for each industry, and suggests a prudent reform of the subsidy policy for the solar energy enterprises. (C) 2015 Elsevier Ltd. All rights reserved. |
The determinants of electricity theft: An empirical analysis of Indian states (2016) 🗎🗎 | More than 20% of the electricity generated in India is lost to rampant thefts. Drawing data from 28 states of India over a time span of five years (2005-2009), this paper examines the role played by socio-economic and governance factors in determining the extent of electricity thefts in Indian states. Results from the Feasible Generalised Least Squares (FGLS) model demonstrate that lesser corruption, higher state tax to GDP ratio, greater collection efficiency of electricity bills by state utilities, higher share of private installed capacity, lesser poverty, greater literacy and greater income are closely associated with lesser power thefts. A better understanding of the key determinants of thefts in electricity distribution is vital for policy makers for designing policies. (C) 2016 Elsevier Ltd. All rights reserved. |
Allocating the economic benefits of renewable energy between stakeholders on Small Island Developing States (SIDS): Arguments for a balanced approach (2016) 🗎🗎 | For many Small Island Developing States (SIDS) the cost of producing electricity from imported fossil fuels is so high and the cost of renewable energy technology has fallen so significantly that transitioning towards renewable energy is likely to produce cost savings. A recent workshop at NYU School of Law, which brought together SIDS utility representatives with a leading renewable energy developer and other stakeholders, provided strong support for this prediction. Utilities are likely to own the majority of renewable energy assets in SIDS and will therefore be the initial custodians of any cost savings renewable energy provides. This raises a key policy question: to what extent should SIDS utilities pass on these savings to consumers by lowering electricity rates? We analyze this overlooked element of energy policy and highlight undesirable consequences that complete disbursement of the savings to consumers could cause. (C) 2016 Elsevier Ltd. All rights reserved. |
Contribution of green labels in electricity retail markets to fostering renewable energy (2016) 🗎🗎 | In European countries, retailers are obliged to disclose the energy source and the related environmental impacts of their portfolio over the preceding year. The electricity supplied in the Dutch retail market is presented as renewable energy for 34%, but this relatively high share is for 69% based on certificates (Guarantees of Origin) which are imported from in particular Norway. The certificates are used to sell green electricity to consumers. The premium for green electricity which is actually paid by Dutch consumers is no more than a few percentages of the retail price. The low level of this premium is related to the abundant supply of certificates at low marginal costs from Norway. This also means that the premium for green electricity is too low to give an incentive for investments in new capacity. Hence, the current labelling system for renewable electricity is mainly valuable, besides being an instrument for tracking and tracing of renewable energy, as a marketing instrument for electricity retailers. The effectiveness of Guarantees of Origin as a policy instrument to foster renewable electricity sources is weak. This effectiveness can be raised by implementing restrictions on the international trade or the issuance of new certificates. (C) 2016 Elsevier Ltd. All rights reserved. |
Effective demand response for smart grids: Evidence from a real-world pilot (2016) 🗎🗎 | We show how an electricity customer decision support system (DSS) can be used to design effective demand response programs. Designing an effective demand response (DR) program requires a deep understanding of energy consumer behavior and a precise estimation of the expected outcome. Excessive demand shifting or a high price responsiveness might create new peaks,during low-demand periods. We combine insights from a real-world pilot with simulations and investigate how we can design effective DR schemes. We evaluate our pricing recommendations against existing economic approaches in the literature and show that targeted recommendations are more beneficial for customers and for the grid. Furthermore, we conduct robustness tests in which we apply our methods on two independent datasets and observe differences in peak demand and electricity cost reduction, dependent on individual characteristics. In addition, we examine the role of energy policy, as it varies across countries, and we find that the presence of competition in the electricity market creates lower prices and morecost savings for individuals. Finally, we measure the economic value of our DSS and show that our DSS can result in up to 38% savings on household electricity bills. Our results exhibit how the design of effective DR can be achieved and provide insights to energy policymakers with regard to understanding consumers' behavior and setting regulatory constraints. (C) 2016 Elsevier B.V. All rights reserved. |
Innovation subsidies versus consumer subsidies: A real options analysis of solar energy (2016) 🗎🗎 | Given the interest in the commercialization of affordable, clean energy technologies, we examine the prospects of solar photovoltaics (PV). We consider the question of how to transition to a meaningful percentage of solar energy in a sustainable manner and which policies are most effective in accelerating adoption. This paper develops a stochastic dynamic model of the adoption of solar PV in the residential and commercial sector under two sources of uncertainty - the price of electricity and cost of solar. The analytic results suggest that a high rate of innovation may delay adoption of a new technology if the consumer has rational price expectations. We simulate the model across alternative rates technological change, electricity prices, subsidies and carbon taxes. It is shown that there will be a displacement of incumbent technologies and a widespread shift towards solar PV in under 30 years - and that this can occur without consumer incentives and carbon pricing. We show that these policies have a modest impact in accelerating adoption, and that they may not be an effective part of climate policy. Instead, results demonstrate that further technological change is the crucial determinant and main driver of adoption. Further, results indicate that subsidies and taxes become increasingly ineffective with higher rates of technological change. (C) 2016 Published by Elsevier Ltd. |
Support schemes for renewable electricity in the European Union: Producer strategies and competition (2016) 🗎🗎 | Current discussion about how to reform European support schemes for renewable electricity neglects certain risks of market power in wholesale electricity markets. In a stylized Cournot model of interacting spot and forward electricity markets, I analyze how different price-based support schemes affect producer strategies and, ultimately, competition in the wholesale market. I compare the strategic behavior of renewable and conventional producers in terms of electricity production and forward market sales in the presence of two different price-based support schemes: feed-in tariffs and feed-in premiums. I show that the feed in premium, which is the European Commission's current scheme of choice, may enhance market power and favor conventional electricity production. it may also reduce the likelihood of achieving the political objective to increase production from renewable energy sources. (C) 2016 Elsevier B.V. All rights reserved. |
The influence of nonlinear pricing policy on residential electricity demand-A case study of Anhui residents (2016) 🗎🗎 | In this paper, we propose a power structure of economic models of price responsive loads, based on price elasticity of electricity demand, perceived price and customer benefit function. Taking Anhui province as an example, we estimate the influences of block pricing policy and TOU-block pricing policy (the combination of blocking pricing policy and time-of-use (TOU) pricing policy) on residential electricity demand and electricity expenses. We find that the present block pricing policy may help lower the residential electricity consumption at about 1.4%-3.0% per year, which indicates that the effect of energy conservation is not obvious; while the TOU-block pricing policy may help lower the yearly electricity consumption at less than 1%, which implies that, compared with block pricing, the TOU-block pricing policy plays a weaker role in reducing electricity consumption. Moreover, block pricing policy results in a yearly increase of 2.34%-4.28% power expenses on urban residents, while TOU-block pricing policy may lower the corresponding expense at 8.17%-14.30%, which shows that block pricing policy plays a limited role in increasing the electricity expense of urban residents. In addition, the TOU-block pricing policy may effectively alleviate the effect of block pricing on urban residents' electricity expense. Generally speaking, we see limited prospect in the goal attainment of the present TOU-block pricing policy. (C) 2016 Elsevier Ltd. All rights reserved. |
Funding renewable energy: An analysis of renewable portfolio standards (2017) 🗎🗎 | Thirty states have adopted renewable portfolio standards (RPSs) that set targets for renewable energy generation by mandating that electric power utilities obtain a minimum percentage of their power from renewable sources. Our synthetic control (SC) model finds that states with RPSs have experienced increases in electricity prices and decreases in electricity demand relative to non-RPS states with similar economic, political and renewable natural resource characteristics. While both RPS and non-RPS SCs experienced increases in renewable energy generation over the sample time period, we do not find evidence that RPS states have experienced increases in renewable energy generation relative to SCs and weak evidence of emissions reductions. (C) 2017 Elsevier B.V. All rights reserved. |
The efficacy of liberalization and privatization in introducing competition into European natural gas markets (2017) 🗎🗎 | This research examines the impact of EU liberalization policy tools on the rate of supplier switching in order to assess whether the objective of increased competition in the natural gas sector has been achieved. Three dynamic models are applied to a panel of 22 EU members between 1998 and 2013 to test the efficacy of eleven policy tools including privatization, in bringing competition to the market. Panel econometrics suggests that the liberalization tools implemented positively influence competition, although jointly rather than on a stand-alone basis. The implementation of pro-market regulations is associated with more competition in the sector. Among the various instruments, the virtual trading point, market-based balancing, market opening, and privatization have the greatest competition enhancing potential. (C) 2017 Elsevier Ltd. All rights reserved. |
Renewable energy policy design and framing influence public support in the United States (2017) 🗎🗎 | The United States has often led the world in supporting renewable energy technologies at both the state and federal level. However, since 2011 several states have weakened their renewable energy policies. Public opinion will probably be crucial for determining whether states expand or contract their renewable energy policies in the future. Here we show that a majority of the public in most states supports renewable portfolio standards, which require a portion of the electricity mix to come from renewables. However, policy design and framing can strongly influence public support. Using a survey experiment, we show that effects of renewable portfolio standards bills on residential electricity costs, jobs and pollution, as well as bipartisan elite support, are all important drivers of public support. In many states, these bills' design and framing can push public opinion above or below majority support. |
Characteristics of investors in onshore wind power in Sweden (2017) 🗎🗎 | In order to facilitate the transition to electricity industries with low CO2 emissions, it is important to understand which firms invest in renewable energy technologies. This study concentrates on the heterogeneous characteristics of investors in wind power that are embedded in the investors' dynamic capabilities. Data on 617 investors in the Swedish onshore wind industry are analyzed. Investors with higher investment and management experience and a mixed generation portfolio whose business is electricity production have more assets in wind. Investors' age in the wind industry has a negative relation with assets in wind, illustrating that latecomers are investing more. Individual incumbents of the electricity industry hold a relatively large amount of assets in the Swedish wind industry, but the group of incumbents as a whole possesses only 15 percent of wind assets. The results suggest that tailor-made policies could stimulate a greater variety of firms to invest in wind power. (C) 2016 Elsevier B.V. All rights reserved. |
On the influence of jurisdiction on the profitability of residential photovoltaic-storage systems: A multi-national case study (2017) 🗎🗎 | Policy makers in many jurisdictions have implemented incentive schemes such as `feed-in tariffs' (FIT) and upfront purchase subsidies to encourage consumers to self-generate parts of their power requirements by solar energy. We quantitatively study the impact of jurisdiction-specific solar radiation profile, the typical residential loads, the cost of system components, the price of grid electricity, and incentive programs on photovoltaic (PV) and storage system profitability in Germany, Ontario, and Austin, Texas. In each jurisdiction, for a range of PV and storage system sizes, we compute the optimal use of the system, and hence the best possible profitability of that system in that jurisdiction over a 20 year life span. This methodology allows us to quantitatively estimate the influence of a jurisdiction on the (best possible) profitability of PV-storage systems. We find that the choice of jurisdiction has significant impact on the profitability of PV-storage systems. We also find that policy makers can use the price of grid electricity as well as upfront subsidies to influence profitability, and therefore adoption. |
Auction Schemes, Bidding Strategies and the Cost-Optimal Level of Promoting Renewable Electricity in Germany (2017) 🗎🗎 | Germany is among the leading countries regarding the promotion of renewable energy towards a sustainable energy system transition. In this paper, we investigate the German pilot auction scheme for solar photovoltaics introduced in the Renewable Energies Act 2014 (EEG 2014) that serves as a pilot for the auction based promotion of the three major large-scale renewable electricity generation technologies (wind, solar, biomass) as of 2017. A strategic bidding model is used to determine the optimal bidding strategy and to determine the resulting project value. We consider pay-as-bid and uniform pricing and single and multiple bids. Moreover, we investigate the impact of investment cost uncertainty. In a sensitivity analysis we show how bid strategy adjustments affect the outcome. Specifically, higher uncertainty regarding the market clearing price increases the project value, as this additional uncertainty can be used to raise the probability of obtaining a higher level of remuneration by an adjusted auction strategy. The first price auction can generate additional profits by placing a second, higher bid with a low probability of success. Investment cost uncertainty can have either a positive or negative impact on the project value, depending on the auction parameter values chosen. |
Financial stability at risk due to investing rapidly in renewable energy (2017) 🗎🗎 | We present novel insights about effective energy policies using an agent-based model. The model describes relevant feedback mechanisms between technological evolution, the interbank market and the electricity sector. Analysis with it shows that energy policies affect interbank connectivity and hence the likelihood of cascades of bank failures. This effect has not been studied before in the literature. In particular, we find that investments in renewable energy reduce interbank connectivity, increasing the probability of bank failures, while raising taxes on energy has an opposite effect. Increasing the share of renewable energy in electricity production initially increases the price of electricity, and thus improves profits and the ability to re-pay debts of incumbent power plants. However, when the share of renewable energy increases too quickly, financial stability may be at stake as the burden of financing investments in renewable energy offsets the improved profitability of existing power stations. All in all, this study provides a unique and novel perspective on the relationship between renewable energy investments and financial stability. |
Identifying optimal clean-production pattern for energy systems under uncertainty through introducing carbon emission trading and green certificate schemes (2017) 🗎🗎 | In this study, a two-stage type-2 fuzzy stochastic programming (TTSP) method is developed for supporting clean production of energy systems with carbon and pollutant mitigation under uncertainty. TTSP can handle multiple uncertainties expressed as type-2 fuzzy sets, random variables and interval values; it can also provide an effective linkage between the pre-regulated energy and environmental policies as well as the associated economic implication. The TTSP method is then applied to planning energy system of Shanghai through introducing carbon emission trading (CET) and green certificate (GC) schemes. The solutions obtained can help generate energy-supply and electricity-generation schemes under different carbon trading ratios and various development plans of renewable energy. Results reveal that (i) the city's future energy structure would transit to the clean-production pattern on the basis of CET and GC policies; (ii) replacing fossil fuels with renewable energy sources (i.e. wind and photovoltaic power) can effectively facilitate reducing the emissions of pollutants (e.g., SO2, NOx and PM) and greenhouse gas (e.g., CO2). The results can help decision makers adjust energy and electricity supply, make appropriate mitigation plan, as well as gain insight into the relationship between mitigation schemes and optimal clean-production pattern. (C) 2017 Elsevier Ltd. All rights reserved. |
Market efficiency assessment under dual pricing rule for the Turkish wholesale electricity market (2017) 🗎🗎 | This study analyses the price dynamics of day-ahead and real-time electricity prices following the implementation of dual-pricing legislation in Turkey, to understand the legislation's impact on arbitrage opportunities and market efficiency. The convergence of prices between the day-ahead forward and the real-time markets analysed in order to determine whether persistent price differences between the two markets exist. Arbitrage opportunities exist if there is a persistent difference between prices in the day-ahead forward and real-time market. Markets are considered to be efficient if it is not possible for market participants to earn an excess profit through exploitation of price differences. Furthermore, we examined how the ex-post risk premium changes over time using rolling estimations and find that after the implementation of dual pricing, the risk premium increased significantly for day and peak hours where the demand is relatively higher compared to night hours. As market participants have more experience regarding the dynamics of the market, the difference between real-time and day-ahead forward prices converges to zero since the dual-pricing regime enforce market participants to forecast accurately by punishing the forecast error. |
Non-constant learning rates in retrospective experience curve analyses and their correlation to deployment programs (2017) 🗎🗎 | A key challenge for policy-makers is estimating future technology costs and the rate of cost reduction versus production volume. A related critical question is what role state and federal governments should have in advancing energy efficient and renewable energy technologies. We derive learning rates for six technologies (electronic ballasts, magnetic ballasts, compact fluorescent lighting, general service fluorescent lighting, stationary fuel cells, and the installed price of residential solar PV) and provide an overview and timeline of historical deployment programs, such as state and federal standards and incentive programs, for each technology. Piecewise linear regimes are observed in a range of technology experience curves, and deployment programs are found to be strongly correlated to an increase in learning rate across multiple technologies. A downward bend in the experience curve is found in 5 out of the 6 energy-related technologies presented here. In each of the five downward-bending experience curves, we believe that an increase in the learning rate can be linked to deployment programs to some degree. This work sheds light on the endogenous versus exogenous contributions to technological innovation and can inform future policy investment direction and can shed light on market transformation and technology learning behavior. |
When do households invest in solar photovoltaics? An application of prospect theory (2017) 🗎🗎 | While investments in renewable energy sources (RES) are incentivized around the world, the policy tools that do so are still poorly understood, leading to costly misadjustments in many cases. As a case study, the deployment dynamics of residential solar photovoltaics (PV) invoked by the German feed-in tariff legislation are investigated. Here we report a model showing that the question of when people invest in residential PV systems is found to be not only determined by profitability, but also by profitability's change compared to the status quo. This finding is interpreted in the light of loss aversion, a concept developed in Kahneman and Tversky's prospect theory. The model is able to reproduce most of the dynamics of the uptake with only a few financial and behavioral assumptions. |
Power it up: Strengthening the electricity sector to improve efficiency and support economic activity (2017) 🗎🗎 | Poor performance of the electricity sector remains a drag to economic efficiency and a bottleneck to economic activity in many low-income countries. This paper proposes a number of models that account for different equilibria (some better, some worse) of the electricity sector. They show how policy choices (affecting insolvency prospects or related to rules for electricity dispatching or tariff setting), stochastic generation costs, and initial conditions, affect investment in generation and electricity supply. They also show how credible (non-credible) promises of stronger enforcement to reduce theft result in larger (smaller) electricity supply, lower (higher) government subsidies, and lower (higher) tariffs and distribution losses, which in turn affect economic activity. To illustrate these findings, the paper reviews the experience of Haiti, a country stuck in a bad equilibrium of insufficient supply, high prices, and electricity theft; and that of Nicaragua, which is gradually transitioning to a better equilibrium. (C) 2017 Elsevier B.V. All rights reserved. |
Is the answer blowin' in the wind (auctions)? An assessment of the Italian support scheme (2017) 🗎🗎 | This article proposes a quantitative data-based assessment of the onshore wind auctions conducted in Italy from 2012 to 2016. Our objective is to provide new insights in the ongoing debate on policy measures to promote renewable energy sources. Italian wind auction design is examined by firstly investigating its overall outcomes in terms of cost efficiency and policy effectiveness. Determinants affecting awarded tariffs are then empirically analysed further to explore the role of project-related and firm-specific factors as well as different auction design elements. The extreme simplicity of the auction design undoubtedly has promoted competition, encouraging many project developers to bid and reducing support both in static and dynamic terms. Results provide evidence that localisation factors did not constitute a competitive constraint. From a policy perspective, the administratively setting of ceiling prices is a major issue when wind resources are widely available and auctioned capacity is not sufficiently high. While not limiting competition, the effects of pre-qualification criteria on the realisation rate deserve further analysis. However, doubts emerge on the policy effectiveness of the current support scheme which makes difficult to control the total amount of support provided thus likely causing stop and -go cycles of financing and potentially favouring distorted bidding behaviour. |
Early nuclear retirements in deregulated US markets: Causes, implications and policy options (2017) 🗎🗎 | Electricity prices have fallen significantly since 2008, putting commercial nuclear reactors in the United States under substantial financial pressure. In this market environment driven by persistently low natural gas prices and stagnant electricity demand, we estimate that about two thirds of the 102 GW nuclear capacity are uncompetitive over the next few years under the current trajectory. Among those, 18 GW are retiring or are merchant plants at high risk of retiring prematurely. The potential consequences of the hypothetical withdrawal of 20 GW of nuclear capacity include: 1) a similar to 3.2% increase in carbon emissions of the power sector if replaced by gas-fired units or 2) a significant increase in cost if replaced by renewables. Without a carbon price, out-of-the-market payments would be needed to effectively maintain merchant nuclear capacity. Filling the revenue gap would come at a fleet-average cost of $3.5-5.5/MWh for these plants, which is much lower than the cost of subsidizing wind power. The policy support could take the form of direct zero-emission credits, renewable portfolio standard expansion, or clean capacity market mechanisms. As a last resort, the exercise of a new mothballing status could prevent the irreversible retirement of nuclear power assets. |
Cost efficiency and electricity market structure: A case study of OECD countries (2017) 🗎🗎 | The OECD electricity sector has witnessed significant institutional restructuring over the past three decades. As a consequence, many power generation utilities now act as unregulated companies that technically compete to sell power on an open market. This paper analyses the performance in term of cost efficiency for electricity generation in OECD power sector while accounting for the impact of electricity market structures. We employ the short run cost function in which capital stock is treated as a quasi-fixed factor input. Empirical models are developed for the cost function as a translog form and analysed using panel data of 25 countries during the period 1980 to 2009. We show that it is necessary to model latent country-specific heterogeneity in addition to time varying inefficiency. The estimated economies of scale are adjusted to take account of the importance of the quasi-fixed capital input in determining cost behaviour, and long run constant returns to scale are verified for the OECD generation sector. The research findings suggest there is a significant impact of electricity market regulatory indicators on cost. In particular, public ownership and vertical integration are found to have significant and sizable increasing impacts on cost, thereby indicating policy lessons on the desirable ways to implement structural electricity generation reforms. (C) 2017 Elsevier B.V. All rights reserved. |
Liberalization of a retail electricity market: Consumer satisfaction and household switching behavior in Japan (2017) 🗎🗎 | Policy makers pursue open markets through deregulatory reform based on a belief that they increase economic efficiency and produce benefits for consumers mainly through price reductions. However, the superiority of competition over regulated monopolies is not established. In a liberalized market, consumers exercising their ability to choose a utility provider is a crucial way of shaping the outcomes of deregulatory reform. While achieving a high switching rate is not the ultimate goal of market reform, it is an important tool through which consumers gain from policy form. We use data from a Japanese household survey conducted before and after recent liberalization and find a positive impact of liberalization on consumer satisfaction by enabling consumers to choose an electricity provider. This result indicates that switching can be utility improving by increasing customer satisfaction and underlines the importance of switching behavior in effectively utilizing deregulatory reform. This study also examines a broad set of determinants of provider switching and discusses the policy implications of the empirical results. |
Empirically observed learning rates for concentrating solar power and their responses to regime change (2017) 🗎🗎 | Concentrating solar power (CSP) capacity has expanded slower than other renewable technologies and its costs are still high. Until now, there have been too few CSP projects to derive robust conclusions about its cost development. Here we present an empirical study of the cost development of all operating CSP stations and those under construction, examining the roles of capacity growth, industry continuity, and policy support design. We identify distinct CSP expansion phases, each characterized by different cost pressure in the policy regime and different industry continuity. In 2008-2011, with low cost pressure and following industry discontinuity, costs increased. In the current phase, with high cost pressure and continuous industry development, costs decreased rapidly, with learning rates exceeding 20%. Data for projects under construction suggest that this trend is continuing and accelerating. If support policies and industrial structure are sustained, we see no near-term factors that would hinder further cost decreases. |
On economic inefficiency of European Inter-TSO compensation mechanism (2017) 🗎🗎 | Economic inefficiency of European Inter-Transmission System Operator (ITC) mechanism is demonstrated by means of statistical analysis of a time series of natural quantities (production, consumption, and exchange of energy), as well as by devising a simple model that shows that the current system misallocates relevant costs between transmission system operators (TSOs) involved. Then, the reasons for this apparent inefficiency are discussed. It is concluded that under existing EU policy rules in electricity sector it is not possible to construct a compensation mechanism that would perform a correct reallocation of external costs incurred by energy transits among interconnected networks operated by different TSOs. Then, simple microeconomic models that exhibit a correct compensation of costs, with rules of the game set differently than by today's EU regulatory framework, are presented. |
Alternative policies for the liberalization of retail electricity markets in Chile (2017) 🗎🗎 | This article shows that the liberalization of the residential market for electricity in Chile may achieve important welfare gains. We built a model to assess two policy scenarios: partial and full liberalization. Simulations of the model provide equilibrium prices, the distribution toll, and welfare estimations on factual and counterfactual scenarios. Our policy recommendation is to partially liberalize the residential market for electricity. That is, to allow the entrance into this market but regulate both the incumbent's tariffs for residential customers and the distribution toll. Full liberalization, in which only the distribution toll is regulated, produces a lower increase in welfare. (C) 2017 Elsevier Ltd. All rights reserved. |
The missing link: The influence of instruments and design features on the interactions between climate and renewable electricity policies (2017) 🗎🗎 | Climate and energy targets and instruments coexist in many countries, leading to interactions. In particular, the combination of CO2 targets, the European Union (EU) emission trading scheme and promotion of electricity from renewable energy sources (RES-E) have raised significant concerns in the past, given the allegedly negative influence of RES-E support on CO2 prices. This (negative) interaction has been analysed with modeling techniques, but an assessment of the impact of specific instruments and design features on those interactions has so far been neglected. The aim of this paper is to provide an initial attempt to cover this gap. An analytical framework to discuss the impact of instruments and design features on the interactions is provided and the comparative impact of different instruments and design features on the interactions between RES-E support and CO2 mitigation instruments is evaluated. Our results show that, while negative interactions can be mitigated through coordination, adaptability depends on the choice of instruments and design features. The negative interactions are more likely under quantity-based than under price-based CO2 mitigation instruments. In contrast, they are more likely with price-based than with quantity-based RES-E support instruments. Notwithstanding, the choice of design features critically affects this result. |
Historic paths and future expectations: The macroeconomic impacts of the offshore wind technologies in the UK (2017) 🗎🗎 | Offshore wind power (OSW) plays a key role within the UK strategy for a transition towards a low-carbon economy, offering vast potential for establishing a high-tech manufacturing industry. Previous experiences in the onshore sector (OWP) suggest the UK might fail in fully capturing these macroeconomic benefits. In this work, we investigate the history of UK renewable policies, comparing its national strategy to those of other major OSW-export countries. Through the use of a numerical general equilibrium model, we quantify the macroeconomic impacts under three scenarios: a baseline, which relies on previous estimates and foresee limited local content; a 'contamination' scenario, where the UK content reaches the same levels of OWP; and a 'non-myopic' scenario, where investors expect governmental support to decrease or disappear, replicating a common path of past renewable policies. We identify the UK as a FDI-oriented country. Our results suggest that increasing the share of locally-sourced capital goods in OSP to OWP-level could generate larger income and employment effects in the UK economy. We find that under forward-looking investors the economic benefits are significantly lower than the case of myopic agents. Our results show an inherent conflict with stated purposes of UK policy for OSW. |
We argue that expectations about future energy use affect the transition from fossil to renewables because of an interaction between innovation and resource scarcity. This article presents a model of directed technical change to study this interaction. We find that fossil-saving technical change erodes the incentives to implement renewables. Conversely, the anticipation of a transition to renewables diminishes the incentives to invest in fossil technology. As a result, two equilibria may arise, one with a transition to renewables and with low fossil efficiency and one without renewables and with high fossil efficiency. Expectations determine which equilibrium arises. | |
Electricity prices, large-scale renewable integration, and policy implications (2017) 🗎🗎 | This paper investigates the effects of intermittent solar and wind power generation on electricity price formation in Germany. We use daily data from 2010 to 2015, a period with profound modifications in the German electricity market, the most notable being the rapid integration of photovoltaic and wind power sources, as well as the phasing out of nuclear energy. In the context of a GARCH-in-Mean model, we show that both solar and wind power Granger cause electricity prices, that solar power generation reduces the volatility of electricity prices by scaling down the use of peak-load power plants, and that wind power generation increases the volatility of electricity prices by challenging electricity market flexibility. |
An agent-based simulation of power generation company behavior in electricity markets under different market-clearing mechanisms (2017) 🗎🗎 | Deregulated electricity markets are expected to provide affordable electricity for consumers through promoting competition. Yet, the results do not always fulfill the expectations. The regulator's market-clearing mechanism is a strategic choice that may affect the level of competition in the market. We conceive of the market-clearing mechanism as composed of two components: pricing rules and rationing policies. We investigate the strategic behavior of power generation companies under different market-clearing mechanisms using an agent-based simulation model which integrates a game-theoretical understanding of the auction mechanism in the electricity market and generation companies' learning mechanism. Results of our simulation experiments are presented using various case studies representing different market settings. The market in simulations is observed to converge to a Nash equilibrium of the stage game or to a similar state under most parameter combinations. Compared to pay-as-bid pricing, bid prices are closer to marginal costs on average under uniform pricing while GenCos' total profit is also higher. The random rationing policy of the ISO turns out to be more successful in achieving lower bid prices and lower GenCo profits. In minimizing GenCos' total profit, a combination of pay-as-bid pricing rule and random rationing policy is observed to be the most promising. |
Optimal policy identification: Insights from the German electricity market (2017) 🗎🗎 | The diffusion of renewable electricity technologies is widely considered as crucial for establishing a sustainable energy system in the future. However, the required transition is unlikely to be achieved by market forces alone. For this reason, many countries implement various policy instruments to support this process, also by redistributing related costs among all electricity consumers. This paper presents a novel history-friendly agent based study aiming to explore the efficiency of different mixes of policy instruments by means of a Differential Evolution algorithm. Special emphasis of the model is devoted to the possibility of small scale renewable electricity generation, but also to the storage of this electricity using small scale facilities being actively developed over the last decade. Both combined pose an important instrument for electricity consumers to achieve partial or full autarky from the electricity grid, particularly after accounting for decreasing costs and increasing efficiency of both due to continuous innovation. Among other things, we find that the historical policy mix of Germany introduced too strong and inflexible demand-side instruments (like feed-in tariff) too early, thereby creating strong path-dependency for future policy makers and reducing their ability to react to technological but also economic shocks without further increases of the budget. |
The impact of the German feed-in tariff scheme on innovation: Evidence based on patent filings in renewable energy technologies (2017) 🗎🗎 | Over the last two decades, feed-in tariffs have pushed the massive expansion of electricity from renewable energy sources in Germany. Between 1991 and 1999, feed-in tariffs were prescribed through the Electricity Feed-in Law - the so-called Stromeinspeisungsgesetz (SEG) - at relatively moderate rates. From 2000 onwards, the SEG was replaced by the Renewable Energy Sources Act - the so-called Erneuerbare-Energien-Gesetz (EEG) - with much higher subsidy rates. The rise in subsidies to renewable power generation under the EEG came along with a substantial increase in electricity prices provoking an intense public debate on the benefits of renewable energy promotion. In our regression analysis, we assess one popular justification for feed-in tariffs: the demand side effect of induced innovation. We find that the innovation impact of the German feed-in tariff scheme over the last two decades supports the positive innovation hypothesis. However, the inducement effect of the feed-in tariff scheme under the EEG is not significantly different from that of the SEG. Given the drastic cost of the EEG, we caution against the appraisal of the EEG feed-in tariff scheme solely on the grounds of its impact on technological innovation. (C) 2017 Elsevier B.V. All rights reserved. |
Aiming low and achieving it: A long-term analysis of a renewable policy in Chile (2017) 🗎🗎 | We use an Integrated Resource Planning model to assess the costs of meeting a 70% renewables target by 2050 in Chile. This model is equivalent to a long-term equilibrium in electricity and renewable energy certificate (REC) markets under perfect competition. We consider different scenarios of demand growth, resource eligibility (e.g., large hydropower), and transmission system configuration. Our numerical results indicate that the sole characteristics of the available renewable resources in the country and reductions in technology costs will provide sufficient economic incentives for private investors to supply a fraction of renewables larger than 70% for a broad range of scenarios, meaning that the proposed target will likely remain a symbolic government effort. Increasing transmission capacity between the northern and central interconnected systems could reduce total system cost by $400 million per year and increase the equilibrium share of non conventional renewable energy (NCRE) in the system from 45% to 52%, without the need for any additional policy incentive. Surprisingly, imposing a 70% of NCRE by 2050 results in a REC price lower than the noncompliance fine used for the current target of 20% of NCRE by 2025, the latter of which represents the country's maximum willingness to pay for the attributes of electricity supplied from NCRE resources. (C) 2017 Elsevier B.V. All rights reserved. |
Structural breaks in renewable energy in South Africa: A Bai & Perron break test application (2017) 🗎🗎 | In order to remedy the continuous problem of sustainable energy supply, the South African government committed itself to pursuing renewable energies (RE) as a viable alternative to traditional sources such as fossil fuels. The aim of this study is to understand whether the policies pursued by the South African government in the period 1990-2010 have had any effect on the consumers and producers of RE. To do so, the Bai & Perron (1998, 2003) break test methodology is employed to examine the evolution of RE production and consumption. Deviations from the base case are then explained in the South African economic and policy context. |
A challenge of incentive for small hydropower commercial investment in Thailand (2017) 🗎🗎 | Thailand implemented a premium-price Feed-in Tariff (FIT), or 'Adder' program, in 2006 as an incentive to generate renewable energy. However, the Adder rate for hydropower was very low, and failed to motivate investors. Later, the Thai government decided to change the Adder program to a fixed-price FIT instead. As of 2014, no studies had analysed hydroelectric power rates in Thailand. Therefore, the objective of this study is to determine the suitable rate for a fixed-price FIT for hydropower in Thailand, using the concept of the actual levelized cost of renewable energy generation. The results showed that the structure of the FIT rate was comprised of three elements: installed capacity, hydropower scheme, and grid connection. From experience with the Adder program, the rate will not be limited at only 200 kW. The proposed rate offers a steady annual return for over 25 years. The recommended rate provides an IRR of 12%, with water fee included. Moreover, we recommend an exclusive promotion rate to promote partnerships with, and to motivate, local communities to conserve and manage the water resource. Furthermore, we suggest using a guideline for calculating social cost-benefits as avoided costs, as well as allocating social benefits. (C) 2017 Elsevier Ltd. All rights reserved. |
Dynamic Policy Impacts on a Technological-Change System of Renewable Energy: An Empirical Analysis (2017) 🗎🗎 | Recently, harmonization of renewable energy policies has drawn growing attention as an important issue. To find the most effective combination, this paper identifies simultaneous interactions in an endogenous technological-change system and analyzes empirically the static and dynamic impacts of renewable energy policies in solar PV and wind power. The empirical results indicate that policy outcomes create a virtuous cycle in the technological change system through market oppurntunity, learning-by-searching, and learning-by-doing. According to the results, the static impact of technology-push and tariff incentive policies are effective on invention, while renwables obligation and CO2 tax appear to encourage cost reduction in the technologies. When the dynamic impacts of policy are considered, tariff incentives appears to outperform a renewables obligation policy with very small margin.We also found that the dynamic impact of CO2 tax varies with the level of technological development maturity. |
Effects of Transmission Congestion on Different Incentive Policies for Renewable Energy (2017) 🗎🗎 | This paper analyzes the effects of relieving power transmission congestion to encourage the development of renewable energy (RE) under different regulatory policies. The present model is based on Cournot competition and incorporates uncertainty and the variability of both renewable resources and demand. Transmission congestion particularly affects the development of RE under subsidy policies (feed-in tariff and premium payment). By investing in flexible AC transmission system (FACTS) and/or other devices that increase transmission capacity, all policies have positive incentives from the social perspective. From a private perspective, the tax policy does not provide sufficient incentives. Higher levels of transmission investment are obtained from a social perspective than from a private perspective. Finally, the existence of multiple equilibria affects the resulting social welfare and market outcomes. In particular, CO2 emissions and social welfare may significantly vary from equilibrium to equilibrium. (C) 2016 American Society of Civil Engineers. |
Optimal Operation and Economic Value of Energy Storage at Consumer Locations (2017) 🗎🗎 | We study the optimal operation and economic value of energy storage operated by a consumer who seeks to maximize long-term expected payoff (utility perceived from energy consumption minus energy cost). For a general setting that incorporates random electricity prices and the intertemporal substitution effect in energy demand, we establish a threshold structure for optimal storage operation policies through a dynamic programming approach. For an important special case with inelastic energy demand, we prove that the consumer's maximum expected payoff is piecewise linear in the storage level; under an additional assumption that both the demand and prices are deterministic, we further establish the equivalence between the optimal storage operation problem and a minimum cost flow problem. These results significantly simplify the (exact) computation of optimal threshold policies. We define the value of storage (VoS) as the consumer's net benefit obtained by optimally operating the storage. We show that if the consumer can always buy and sell electricity at the same (realized) price, then it is optimal for the consumer to use the storage only for arbitrage, and therefore the VoS does not depend on the consumer's demand. |
Complementarity and substitutability: A review of state level renewable energy policy instrument interactions (2017) 🗎🗎 | This paper provides an extensive review of two streams of literature: the first part of the review focuses on policy tools and their interrelationships and the second part focuses on the literature on the state renewable energy policy tools. Based on the reviews, this paper investigates how policymakers choose a set of interrelated renewable energy policy instruments and identify under what conditions policy instruments complement or substitute. We extend the political market framework by examining the influences of: (1) administrative agencies on the supply side; (2) interest groups on the demand side; and (3) the policy-induced problem situation changes on the adoption of state renewable energy policy tools, building upon reviews of both policy tools and policy diffusion theories. A set of hypotheses are advanced for state renewable energy policy interactions among public benefit fund (PBF), renewable portfolio standards (RPS) and corporate tax incentive (CTI). The hypotheses are tested by three Event History models, in which RPS, PBF and CTI serve as dependent variables separately. The complementary effects between previous use of RPS and adoption of PBF, between previous use of PBF and adoption of RPS, and between previous use of CTI and adoption of RPS are confirmed. We also find support for the policy substitutability between previous use of CTI and adoption of PBF. (C) 2016 Elsevier Ltd. All rights reserved. |
Driving force of rising renewable energy in China: Environment, regulation and employment (2017) 🗎🗎 | This paper studies the development of renewable energy in China by examining the driving force of environment quality, regulation and employment on renewable energy generation. We adopt renewable energy as a metric fi environment quality, and test the relationship between renewable energy and income using Environmen Kuznets Curve (EKC) theories. The impact of employment on renewable energy is tested, and dummy variable' are used to indicate when the regulation was in effect. The results show that there exists a quadratic relationshi between renewable energy and income. But the results fail to provide that the renewable energy generation is job creator when the lagged unemployment rate is included as: an explaining variable. We consider the employment population, and the finding shows that the employment can promote the development renewable energy. The regulation has significantly positive impacts on renewable energy. The interaction income and employment show that along with the income increases, the impacts of employment on renewable energy decrease. Our findings are helpful for government to figure out the determinants for rising the renewable energy generation, and take efficient measures to promote its development. |
Specifying An Efficient Renewable Energy Feed-in Tariff (2017) 🗎🗎 | Commonly-employed Feed-in Tariff (FiT) structures result in either investors or policymakers incurring all market price risk. This paper derives efficient pricing formulae for FiT designs that divide market price risk amongst investors and policymakers. With increasing deployment and renewable energy policy costs, a means to precisely apportion this risk becomes of greater importance. Option pricing theory is used to calculate efficient FiT prices and expected policy cost when investors are exposed to elements of market price risk. Expected remuneration and policy cost is equal for all FiTs while policymaker and investor exposure to uncertain market prices differs. Partial derivatives characterise sensitivity to unexpected deviations in market conditions. This sensitivity differs by FiT type. The magnitudes of these effects are quantified using numerical examples for a stylised Irish case study. Based on these relationships, we discuss the conditions under which each policy choice may be preferred. |
Renewable energy auctions - When are they (cost-)effective? (2017) 🗎🗎 | European Member States increasingly use tenders combined with competitive bidding to allocate renewable electricity support payments to renewable electricity market actors. This article contributes to the European policy debate by exploring which principal design features and context factors increase or reduce the effectiveness and cost-effectiveness of renewable electricity auctions. Volume control is among the key aims of implementing an auction, but potentially low project realisation can harm reaching the targeted volume. Qualification requirements and/or penalties are useful auction design elements to increase the implementation rates of selected projects. However, there are risks associated with these measures, which in turn increase prices. Auctions also aim at increasing (static) cost-effectiveness of renewable electricity support, which may be influenced by three main factors: first, the level of competition in the auction; second, the mitigation of speculative over- or under-bidding; and third, the level of allocation and delivery risks borne by the bidders. The article explores the fundamental trade-off in auctions between encouraging high project implementation rates (to ensure volume control) and minimising the bidder's risk (that may result in higher bidding prices). Based on theoretical insights and supported by empirical renewable electricity auction examples, it identifies factors that can influence the success of an auction but also shows there is no exact blueprint for a good auction design. |
Social rate of return to R & D on various energy technologies: Where should we invest more? A study of G7 countries (2017) 🗎🗎 | The importance of investment in Research and Development (R & D) in the energy sector is indisputable especially considering the benefits of new technologies to sustainability, security and environmental protection. However, the nature and potential of various energy technologies that are capable of improving the energy and environmental conditions globally is a challenging task for governments and policy makers that have to make decisions on the allocation of funds in R & D. To do so, the optimal resource allocation to R & D should be determined by estimating the social rate of return for R & D investments. This paper aims to estimate the social rate of return of R & D on various energy applications and technologies such as energy efficiency, fossil fuels, renewable energy sources, and nuclear for the G7 countries. The results show that primarily R & D investment on Energy Efficiency technologies and Nuclear are the ones that yield high social benefits for all G7 countries while exactly the opposite holds for Fossil fuels. |
Spatial Dependence in State Renewable Policy: Effects of Renewable Portfolio Standards on Renewable Generation within NERC Regions (2017) 🗎🗎 | While several studies have examined the effect of renewable portfolio standard laws on renewable generation in states, previous literature has not assessed the potential for spatial dependence in these policies. Using recent spatial panel methods, this paper estimates a number of econometric models to examine the impact of RPS policies when spatial autocorrelation is taken into account. Consistent with previous literature, we find that RPS laws do not have a significant impact on renewable generation within a state. However, we find evidence that state RPS laws have a significant positive impact on the share of renewable generation in the NERC region as a whole. These findings provide evidence that electricity markets are efficiently finding the lowest-cost locations to serve renewable load in states with more stringent RPS laws. In addition, our results suggest that RPS laws may be more effective tools for environmental policy than for economic development. |
Impact of electricity deregulation in the state of California (2017) 🗎🗎 | The electric industry started as a natural monopoly and was regulated to protect the customers from high prices. Electricity deregulation was expected to reduce prices by introducing competitive markets. Every country or state implementing deregulation has gone through a unique experience. In this paper, the impact of electricity deregulation in the state of California is addressed by first examining historical retail prices, and second by developing a model to estimate the grid marginal costs using historical data. Results show that, although some customers pay lower rates today, the average customer does not pay a lower rate due to deregulation. Moreover, the results of the modeling show that the wholesale prices realized were higher than the marginal cost associated with the grid. Impacts of improved grid management are discussed along with transmission investments, market operator start-up and operation costs, energy and environmental goals, advances in technology on electricity prices, and the impact of deregulation on these factors. |
Solar PV where the sun doesn't shine: Estimating the economic impacts of support schemes for residential PV with detailed net demand profiling (2017) 🗎🗎 | Countries with low irradiation and solar PV adoption rates are increasingly considering policy support for solar PV, although consumer electricity demand and solar generation profiles are often mismatched. This paper presents a methodology for policymakers in such conditions to examine more precisely the financial performance of residential solar PV from the consumer perspective as part of an ex-ante policy assessment. We model a range of prospective policy scenarios and compare policy mechanisms that compensate homeowners for generation, those that reduce their upfront costs, and those that assist with financing, using Ireland as a case study. The results confirm the intuitive notion that more generous financial remuneration schemes provide quicker payback; however we observe that in low irradiance regions there is little difference between upfront grants and feed-in-tariffs to accelerate payback timeframes. We also show the importance of retail tariff structure in consumer payback for solar PV systems, with one-part tariffs generating shorter paybacks than two-part tariff structures, although the latter is more likely to secure revenue for electricity infrastructure investment. Drawing from this analysis, the paper proposes some options for the design of policy supports and tariff structures to deliver a sustainable residential renewable electricity system in low-irradiance regions. |
Economic perspective for PV under new Italian regulatory framework (2017) 🗎🗎 | A PV market decrease in Italy has been observed in the last years due to the closure of the feed-in-tariff contribution from the Italian Government. However, a new opportunity introduced by the Italian Authority for Energy (AEEGSI) could represent a possible driver for the Italian PV market. A resolution of the AEEGSI has introduced in 2013 the technical and economic rules for a new way of exchanging power between two companies: one energy producer based on Renewable Energy Sources (RES) and a final End-User. This new opportunity paves the way for new PV investments and an increase in RES consumption, since energy can be traded free from the network charges. A mutual advantage is in fact present for both RES producers and End Users: RES producers sell their energy locally at a price higher than that the zonal-market one, while End-User energy bill is reduced. The present study defines a method for finding the best match between Producer and End-User advantages by stating the rules for the definition of the optimum sizing of a PV plant supplying a local industrial company. Net-metering contribution is also considered as a further economic boost for investment in the PV market. A further element of the analysis is devoted to the tradeoff of energy price between the two companies. Starting from the current Italian market energy prices, the study highlights how the economic indicators of the PV investor are influenced by the final price of energy paid by the End-User. The perspectives for PV investors is positive even without an economic incentive scheme of RES production. |
A dynamic simulation model for assessing the overall impact of incentive policies on power system reliability, costs and environment (2017) 🗎🗎 | The liberalization of power markets has entailed dramatic changes in power system planning worldwide. The inception of new alternative technologies, smart grids and distributed generation and storage is expected to make system planning even more challenging. Government policies still play a major role in the evolution of a country's power generation mix, even in those countries with liberalized markets. This paper presents a System Dynamics model aimed at assessing the overall technical, economic and environmental impact of renewable energy incentives and capacity payment policies. The model has been used to simulate Spain's power industry in order to assess the impact of electric power policies with the goal of getting insights regarding how to achieve an optimum power generation mix. The main conclusions of the present paper are (i) the necessity of specific regulatory actions in Spain in order to keep adequate reliability levels, avoid price spikes and boom and bust investment cycles as well as to deploy specific technologies, (ii) the fact that capacity payments are a better instrument for keeping adequate reserve margins and avoiding power price spikes than renewable energy incentives and (iii) the evidence that both instruments entail additional system costs over the base case scenario. |
The effectiveness of federal renewable policies in India (2017) 🗎🗎 | The Government of India has set ambitious targets for renewable energy. However, unsubsidized renewable energy is still at least 50% more expensive than fossil fuel power, and requires policy support at federal as well as state levels. In this context, a comparative evaluation of the effectiveness of these policies becomes important. Using financial models, we provide a framework to compare existing federal policies - generation based incentive, viability gap funding, and accelerated depreciation - for wind and solar technologies with a new class of debt-related federal policies. Our main finding is that, debt-related policies offer the most potential for cost-effectiveness in the long-term; they also perform well across other criteria. A particularly attractive policy is reduced-cost, extended-tenor debt which, compared to existing policies, would reduce total subsidies by up to 78%, have 100% viability gap coverage potential, and provide 76% of subsidy recovery. |
Estimating the implied cost of carbon in future scenarios using a CGE model: The Case of Colorado (2017) 🗎🗎 | Using Colorado as a case study, we develop a state-level computable general equilibrium (CGE) model that reflects the roles of coal, natural gas, wind, solar, and hydroelectricity in supplying electricity. We focus on the economic impact of implementing Colorado's existing Renewable Portfolio Standard, updated in 2013. This requires that 25% of state generation come from qualifying renewable sources by 2020. We evaluate the policy under a variety of assumptions regarding wind integration costs and assumptions on the persistence of federal subsidies for wind. Specifically, we estimate the implied price of carbon as the carbon price at which a state-level policy would pass a state-level cost-benefit analysis, taking account of estimated greenhouse gas emission reductions and ancillary benefits from corresponding reductions in criteria pollutants. Our findings suggest that without the Production Tax Credit (federal aid), the state policy of mandating renewable power generation (RPS) is costly to state actors, with an implied cost of carbon of about $17 per ton of CO2 with a 3% discount rate. Federal aid makes the decision between natural gas and wind nearly cost neutral for Colorado. |
Optimal design of subsidy to stimulate renewable energy investments: The case of China (2017) 🗎🗎 | This paper proposes a real options model for estimating the optimal subsidy for renewable energy power generation project by using stochastic process to describe the market price of electricity, CO2 price and investment cost. Two indicators, i.e., project value and threshold value, are used to derive the optimal subsidy. The least squares Monte Carlo simulation method is used to solve the model. The proposed model is used to empirically evaluate the optimal level of subsidy for solar photovoltaic power generation in China. The results show that carbon emission trading scheme helps reduce subsidy. Unit generating capacity, market price of electricity, CO2 price and the volatility of investment cost are negatively related with subsidy, whereas investment cost and the volatility of electricity price and CO2 price are positively related with subsidy. It is suggested that Chinese governments take some measures, e.g., promoting technological progress, establishing a nationwide carbon emission trading market, promoting the competition in renewable energy industry as well as maintaining the stability of CO2 price and electricity price, to reduce the required subsidy. |
Are renewable energy subsidies effective? Evidence from Europe (2017) 🗎🗎 | We test if policy support for renewable electricity have been effective in promoting renewables in the five largest European countries in the period 2000-2010. We collect data on the exact amount of monetary incentives and the average tariffs granted. The econometric analysis reveals a positive correlation between subsidies and the production of incentivized energy, as well as the installed capacity. We find that a 1% (lc(sic)) increase in the incentive (tariff) leads to an increase in renewable generation of 0.4-1% (18-26%). Feed-in tariffs appear to outperform tradable green certificates. Overall, the analysis shows that these policies have been effective in promoting renewable energy, both in the short and in the long run. |
Social equity issues in the distribution of feed-in tariff policy benefits: A cross sectional analysis from England and Wales using spatial census and policy data (2017) 🗎🗎 | The feed-in tariff has become a popular policy instrument globally for deploying clean energy, often involving substantial public spending commitments. Yet relatively little attention has been paid to how payments made under this policy type get distributed across socioeconomic groups. This paper links information on individual domestic photovoltaic (PV) installations registered under the feed-in tariff for England and Wales, to spatially organised census data. This makes it possible to observe which socioeconomic groups are benefitting most and least under the policy. Comparing the observed benefit distribution to a counterfactual distribution of perfect equality, a moderate to high level of inequality is found. Cross-sectional regressions suggest that settlement density, home ownership status, physical dwelling type, local information spillovers, and household social class shaped this outcome. Greater sensitivity to these factors in policy design could improve distributional outcomes under feed-in tariff policies in England and Wales, and beyond. |
Examining the impacts of Feed-in-Tariff and the Clean Development Mechanism on Korea's renewable energy projects through comparative investment analysis (2017) 🗎🗎 | Renewable energy projects in Korea have two avenues that provide subsidies to increase their financial viability. Feed-in-Tariffs (FITs) offer cost based prices for renewable electricity to compete with conventional energy producers. The Clean Development Mechanism (CDM) issues certified emission reduction (CER) credits that generate additional revenues, enhancing renewable projects' return on investment. This study investigated how these subsidies impact the financial returns on Korea's CDM projects. An investment analysis was performed on four cases including solar, hydropower, wind and landfill gas projects. Revenues from electricity sales, FITs and CERs were compared using financial indicators to measure their relative contributions on profitability. Results indicate that CDM is partial towards large scale projects with high emission reductions. Moreover, conflicts with FIT schemes can deter small scale, capital intensive projects from pursuing registration. The analysis highlights CDM's bias for particular project types, which is in part due to its impartiality towards carbon credit prices. It also reveals that Korea, a key benefactor of CDM, is susceptible to such biases, as demonstrated by the disproportionate distribution of issued CERs. Improving incentives for bundled, small scale projects, CER price differentiation, and excluding domestic subsidies during additionality testing are proposed as possible reforms. |
A techno-economic analysis of EU renewable electricity policy pathways in 2030 (2017) 🗎🗎 | The aim of this paper is to assess several pathways of a harmonised European policy framework for supporting renewable electricity (RES-E) in a 2030 horizon according to different criteria. The pathways combine two main dimensions: degrees of harmonisation and instruments and design elements. A quantitative model-based analysis with the Green-X model is provided. The results of the simulations show that there are small differences between the evaluated cases regarding effectiveness. All the policy pathways score similarly with respect to RESE deployment, i.e., with different degrees of harmonisation and whether using a feed-in tariff, a feed-in premium, a quota system with banding or a quota without banding scheme. In contrast, the policy costs clearly differ across the pathways, but the differences can mostly be attributed to the instruments rather than to the degrees of harmonisation. This is also the case with other criteria (static and dynamic efficiency and the socioeconomic and environmental benefits in terms of CO2 emissions and fossil fuels avoided). Both the degree of harmonisation and the choice of instrument influence the distribution of support costs across countries. Finally, our findings suggest that keeping strengthened national support leads to similar results to other policy pathways. |
Establishment of a base price for the Solar Renewable Energy Credit (SREC) from the perspective of residents and state governments in the United States (2017) 🗎🗎 | Solar Renewable Energy Certificates (SREC) in the United States (U.S.) have become an important driver for promoting the solar photovoltaic (PV) system. However, the SREC price volatility is considered the major barrier for installing the solar PV system due to the uncertainty of the revenue from selling the SREC. To address this challenge, this study aimed to establish a base price for SREC in order to encourage the installation of residential solar PV systems in the U.S. Toward this end, this study conducted the life cycle cost analysis to establish the minimum SREC prices required for reaching the target payback period of the residential solar PV system in the U.S. In addition, this study conducted the comparative analysis from the perspectives of residents and state governments by considering the SREC prices. This study was conducted in four steps: (i) target selection; (ii) data collection; (Hi) defining assumptions; and (iv) establishing the minimum SREC prices. The results showed that Massachusetts and New Jersey are the most superior state from the perspective of both residents and state governments. This study can help both residents and state governments to get financial advice for installing solar PV system and improving the SREC-related policies. |
Trends in transmission, distribution, and administration costs for US investor-owned electric utilities (2017) 🗎🗎 | This paper analyzes the cost of transmission, distribution, and administration for U.S. investor-owned electric utilities. We analyze data reported to the Federal Energy Regulatory Commission (FERC) from 1994 to 2014 using linear regression to understand how the number of customers in a utility's territory, annual peak demand, and annual energy sales affect annual TD &A spending. Then, we use Edison Electric Institute data for 1960 to 1992 to show trends in TD &A spending between 1960 and 2014. We find that the number of customers in a utility's territory is the single best predictor for annual TD &A costs. Between 1994 and 2014, the average cost per customer was $119/Customer-Year for transmission, $291/Customer-Year for distribution, and $333/ Customer-Year for utility administration. Total TD &A costs per customer have been approximately $700 $800/Customer-Year since 1960, but the cost per kWh of energy sold was significantly higher in the 1960s because the average customer used less than half as much energy annually versus 2014. Thus, TD &A costs per kWh are likely to increase if kWh energy sales decline in the future unless cost recovery is transitioned to a mechanism not based solely on kWh sales. |
Rationales for capacity remuneration mechanisms: Security of supply externalities and asymmetric investment incentives (2017) 🗎🗎 | Economics so far provides little conceptual guidance on capacity remuneration mechanisms (CRM) in deregulated electricity markets. Ubiquitous in real-world electricity markets, CRMs are introduced country by country in an ad hoc manner, lacking the theoretical legitimacy and the conceptual coherence enabling comparability and coordination. They are eyed with suspicion by a profession wedded to a theoretical benchmark model that argues that competitive energy-only markets with VOLL pricing provide adequate levels of capacity. While the benchmark model is a consistent starting point for discussions about electricity market design, it ignores the two market failures that make CRMs the practically appropriate and theoretically justified policy response to capacity issues. First, energy-only markets fail to internalize security-of-supply externalities as involuntary curbs on demand under scarcity pricing generate social costs beyond the private non-consumption of electricity. Second, when demand is inelastic and the potential capacity additions are discretely sized, investors face asymmetric incentives and will underinvest at the margin rather than overinvest. After presenting the key features of the theoretical benchmark model, this paper conceptualizes security of supply externalities and asymmetric investment incentives and concludes with some consideration regarding design of CRMs. |
The merit order effect of Czech photovoltaic plants (2017) 🗎🗎 | We assess the impact of photovoltaic power plants on the electricity supply curve in the Czech Republic. The merit order effect is estimated as the elasticity of electricity spot price with respect to change in supply of electricity from renewable sources. Data for the Czech electricity spot market from 2010 to 2015 are analyzed as this is the period with the steepest increase in a renewable generation capacity. The effect is estimated separately for solar and other renewable sources. We find a significant difference between these two groups. Our results show that based on hourly, daily and weekly data energy produced by Czech solar power plants does not decrease electricity spot price, creating double cost to the end consumer. However, the merit order effect based on averaged daily and weekly data is shown to exist for other renewable sources excluding solar (mainly water and wind). This contributes to the conclusion that the Czech renewables policy that prefers solar to other renewable sources may be considered as suboptimal. |
A review of renewable energy investment in the BRICS countries: History, models, problems and solutions (2017) 🗎🗎 | This paper reviews the history of renewable energy development in the BRICS countries. The financing models for renewable energy development of BRICS countries include bank financing, institutional loans, industry funds, and international financing. This paper identified several problems with financing in BRICS countries, including a lack of financing channels, investment shortage for small and medium-sized enterprises and imperfect government policies. The solutions to these problems include expanded capital markets, the financing of leasing services, and build-operate-transfer and build-own-operate projects; further, a financial citizen participation model should be employed similar to that as Germany and European Union emissions trading system (EU ETS). A financial citizen participation model means that legal entities, private individuals, and agricultural enterprises invest in renewable energy infrastructure through equity. A regional reserve ratio monetary policy is suggested to allow regions to develop renewable energy. |
Wind power costs expected to decrease due to technological progress (2017) 🗎🗎 | The potential for future cost reductions in wind power affects adoption and support policies. Prior analyses of cost reductions give inconsistent results. The learning rate, or fractional cost reduction per doubling of production, ranges from -3% to +33% depending on the study. This lack of consensus has, we believe, contributed to high variability in forecasts of future costs of wind power. We find that learning rate can be very sensitive to the starting and ending years of datasets and the geographical scope of the study. Based on a single factor experience curve that accounts for capacity factor gains, wind quality decline, and exogenous shifts in capital costs, we develop an improved model with reduced temporal variability. Using a global adoption model, the wind-learning rate is between 7.7% and 11%, with a preferred estimate of 9.8%. Using global scenarios for future wind deployment, this learning rate range implies that the cost of wind power will decline from 5.5 cents/ kWh in 2015 to 4.1-4.5 cents/kWh in 2030, lower than a number of other forecasts. If attained, wind power may be the cheapest form of new electricity generation by 2030, suggesting that support and investment in wind should be maintained or expanded. |
Solar feed-in tariffs in a post-grid parity world: The role of risk, investor diversity and business models (2017) 🗎🗎 | Over the past decade, feed-in tariffs have spurred significant deployment of solar photovoltaics in Germany and other countries. With recent cost trends, several countries are approaching retail grid parity. Some policymakers conclude that now is the time to remove feed-in tariffs, as grid parity creates a self-sustaining market, where economically rational investors will invest even in the absence of government incentives. Recent experience in key European solar markets, however, shows that with the advent of grid parity and the reduction of feed-in tariffs, investment in new solar capacity has decreased rather than increased, making it questionable whether low-carbon energy policy targets will be reached. We conduct a cross-case study analysis of three PV markets Germany, Italy and Switzerland to investigate the role of feed-in tariffs for the near- and post-grid parity stages of diffusion, accounting for investor diversity and distinguishing between implications for revenue-based and savings-based business models. We find that recent market trends are strongly driven by increased levels of risk, especially policy risk and exposure to revenue risk. We therefore suggest that relatively frugal but stable policy environments may be conducive to further growth of investment in photovoltaics and minimize cost to society. |
A DEA analysis of electricity distribution in Spain: An industrial policy recommendation (2017) 🗎🗎 | In Spain, electricity distribution represents a quarter of the total electricity cost, and consists of 347 companies classified in two different groups: five larger utilities, which feed from the transmission and have, on average, five million points of supply (P.o.S.); and 342 smaller companies, which feed from lower voltage levels and have, on average, less than 5.000 P.o.S. The unitary remuneration is four times higher in the case of the smaller companies, which are operating at lower voltage levels and with a worse quality of service. We analyze, for the year 2011, a representative sample of 102 smaller distributors in Spain using DEA methodology. Our analysis introduces the change of perspective from the individual firm to the Regulatory body. The DMtTs are the companies, but the information provided by the DEA models is oriented to reducing remuneration of inefficient units (maintaining quality), with corresponding savings for the overall system. The total reduction would rise close to 60 million Euros per year considering only the smaller companies. |
Do differentiated performance standards help coal? CO2 policy in the US electricity sector (2018) 🗎🗎 | A salient feature of the Clean Power Plan is that it imposes higher emission rate standards on coal power plants than it does on their natural gas counterparts. In this paper, I examine the consequences of this design feature by modeling a series of tradable performance standard policies. I analyze how fuel-based standard differentiation affects compliance incentives and the regulatory burden on coal stakeholders through three key outcomes: coal usage, coal plant profits, and electricity prices. Analysis of a simple analytic model shows that differentiation, compared to a policy with a uniform standard for all fuel types, always increases coal usage, but price and profit impacts are ambiguous. To quantify these outcomes, I construct and implement a detailed simulation model of the U.S. wholesale electricity market. Simulation results suggest that differentiation increases coal usage modestly, increases coal plant profits well beyond the no-regulation level, and increases electricity prices in almost every region of the country. (C) 2018 Elsevier B.V. All rights reserved. |
Toward an optimal household solar subsidy: A social-technical approach (2018) 🗎🗎 | An analytical framework is developed for integrating the social science into a socio-technical approach for assessing the optimal solar energy subsidy. Estimating the optimal solar subsidy based on the analytical framework takes into account technical environment, health, employment, and electricity accessibility benefits as well as household's prosocial behavior. Results indicate that an optimal subsidy is positively affected by the marginal external benefit; however, this effect is mitigated by the rebound effect based on motivational-crowding theory. Calibrating the model using published elasticities yields estimates of the optimal solar energy subsidy equal to approximately $0.02 per kilowatthour when prosocial behavior is omitted. The estimated optimal subsidy is in line with many current state feed-in-tariff rates, which may be the upper bound when social science is not considered in policy analysis. (C) 2018 Elsevier Ltd. All rights reserved. |
Capacity investment in electricity markets under supply and demand uncertainty (2018) 🗎🗎 | In the last decades, the weight of renewable energies sources (RES-E) in the electricity generation mix of most European countries has considerably increased, constituting an important contribution to the transition towards a low-carbon economy. Until very recently, RES-E were supported by favorable investment mechanisms specially designed to endorse investment in RES-E. More recently, as RES-E are becoming increasingly more competitive (especially wind and solar photovoltaic), RES-E are starting to be remunerated according to market mechanisms. This has generated a lively debate on the economic pros and cons of dispatching RES-E in the market. This paper contributes to this debate by developing a game theoretical model in the context of which we analyze how the inclusion of RES-E in the electricity wholesale market affects equilibrium outcomes under demand and supply uncertainty. Then, we examine how the inclusion of RES-E in the electricity wholesale market impacts firms' incentives to invest in conventional energy sources, characterizing the optimal investment under demand and supply uncertainty. We find that, when RES-E capacity and asymmetry in firms' marginal production costs are sufficiently high, RES-E producers may strategically reduce the market price, in order to evict the less efficient conventional source in that period. Although, in the short-run, this strategy may actually favor energy consumers (since prices are lower), the expectations of inactivity periods (regardless of whether they arise for strategic or market reasons) may negatively affect investment in back-up capacity, possibly leading to an increase in future prices (since less back-up capacity is available). Finally, we provide an analytical characterization of optimal investment levels in conventional energy sources under demand and supply uncertainty. (C) 2018 Elsevier Ltd. All rights reserved. |
US climate policy and the regional economics of electricity generation (2018) 🗎🗎 | We examine the interaction between price competition and policy in four ISO markets by modeling the economic dispatch of generation technologies and the evolution of generation resources over a fifteen year period beginning in 2016. Using a representative range of forward prices for natural gas and other generator costs, we model three potential pathways for federal policy: (1) the status quo, which assumes no new federal initiatives through 2031; (2) moderate and aggressive (national or regional) RPSs; and (3) carbon taxes that vary in timing and amount. The model assesses the impact of these policies on competition between electricity generators using a range of output variables, including the cost of electricity, emissions of carbon dioxide (CO2), retirement and construction trends for generation resources, and dispatch rates of generation technologies. We analyze conditions in four regional electricity markets with distinct starting generation portfolios, demand profiles (that differ seasonally and diurnally), wind and solar resources, and fuel costs. Our results provide new insights into the competitive barrier that low gas prices represent for renewables, the superior efficacy of carbon taxes (even at low rates) over RPSs, and the singular competitive advantage renewables enjoy by virtue of having near zero marginal costs. |
Advancing renewable energy in resource-rich economies of the MENA (2018) 🗎🗎 | As much of the world pushes ahead with the deployment of renewable energy, resource-rich MENA economies are lagging behind. This paper contends that while the main obstacles to deployment of renewables are grid infrastructure inadequacy, insufficient institutional capacity, and risks and uncertainties, the investment incentives lie on a policy instrument spectrum with two polar solutions: (i) the incentive is provided entirely through the market (removing all forms of fossil fuel subsidies and internalising the cost of externalities); or (ii) the incentive is provided through a full government subsidy programme (in addition to the existing fossil fuel subsidies). However, there is a trade-off between the two dimensions of the fiscal burden and political acceptance across the policy instrument spectrum, which implies that the two polar solutions themselves are not easily and fully implementable in these countries. We propose a new dynamic combinatorial approach (partial subsidy programme and partial fossil fuel price adjustment) that gradually moves towards market-based incentive provision over the medium to long-term where energy subsidies are eventually phased out. The approach balances fiscal sustainability with political stability, enabling the gradual scaling up and development of markets for renewables. (C) 2018 Elsevier Ltd. All rights reserved. |
Phasing out the US Federal Helium Reserve: Policy insights from a world helium model (2018) 🗎🗎 | This paper develops a detailed partial equilibrium model of the global helium market to study the effects of the recently decided rapid phase out of the U.S. Federal Helium Reserve (FHR), a vast strategic stockpile accumulated during the 1960s. The model incorporates a detailed representation of that industry and treats both helium producers and the FHR as players in a dynamic non-cooperative game. The goal of each player is assumed to be the maximization of discounted profit, subject to technical and resource constraints. We consider two alternative policies aimed at organizing the phase out of the FHR: the currently implemented one and a less stringent one whereby the FHR would be allowed to operate as a profit-maximizing agent during an extended period of time. Evidences gained from a series of market simulations indicate that, compared to the current policy, a less stringent policy mandate systematically increases the financial return to the U.S. federal budget, always enhances environmental outcomes as it lowers helium venting into the atmosphere, and also augments global welfare in three out of the four scenarios considered in the paper. (C) 2018 Elsevier B.V. All rights reserved. |
Contributions of flexible power generation from biomass to a secure and cost-effective electricity supply-a review of potentials, incentives and obstacles in Germany (2018) 🗎🗎 | Background: With wind power and photovoltaics, volatile renewables have emerged as central pillars of the energy transition. This increases the demand for flexibility options to compensate fluctuations in power generation. Focussing on the role of bioenergy as a renewable flexibility option, this article seeks to address two questions. The first is whether there is an option value of bioenergy as a provider of low-carbon flexibility in a future power system, which might justify continued technology-specific deployment support. The second question is whether existing market and policy incentives are effective in activating flexibility potentials, and what perspectives exist for increasing flexibility incentives. Methods: The article follows an interdisciplinary approach. First, technical potentials for flexible bioenergy plants and potential systemic contributions are examined. This is followed by an economic assessment of what flexibility incentives are provided by relevant market and policy framework conditions. Findings: Power from biomass can be well suited to provide flexible generation for grid stabilisation and residual load balancing. Biogas plants require an increase of nominal power over rated power, whereas the technical flexibilisation potential of solid biomass plants depends on specific technologies. Particularly, small-scale combined heat and power systems can deliver fast responses. For existing biogas plants, the Renewable Energy Sources Act's (EEG) flexibility premium and balancing market revenues have incentivised some changes in the production behaviour and investments in plant flexibilisation. However, decreasing spot market price levels and decreasing price variance reduce incentive strength. This also limits flexibilisation incentives for solid biomass plants. For new biogas plants, the EEG's remuneration rules set effective flexibility incentives, but 2014 reductions in remuneration rates have significantly slowed down the expansion. Conclusions: Given high technical potentials for flexibility provision, there is an option value of keeping bioelectricity in the technology mix until more is known about its future competitiveness with other low-carbon flexibility options. To maintain this option value, there is a case for setting policy incentives in a way that continued technological development remains possible. A stringent climate policy could accelerate structural change in the electricity sector, to allow for market price signals which incentivise low-carbon flexibility provision. |
Local network credits and local electricity trading: Results of virtual trials and the policy implications (2018) 🗎🗎 | Current charging methods for network infrastructure and recompense for distributed energy may not result in optimum system solutions. Once feed-in tariffs to support the development of renewable generation are phased out, the payment for grid exports is usually based on the wholesale energy value alone. Network charges are generally levied in full, with few attempts to offer a partial charge, or completely waived. Local Electricity Trading (LET) and Local Network Credits (LNCs) offer one approach to reforming charge structures. This paper examines the effects of LET and LNC on different stakeholders in four virtual trials of medium scale distributed generation projects around Australia, and the implications for policy. The trials found the large value gap between behind the meter systems and grid exports may lead to duplication of network assets, inefficient sizing and operation of distributed generators, and a lack of incentive for dispatchable generators to operate at peak times. The trials indicated that in most circumstances, the combination of LNC and LET addresses all four problems identified to some degree. |
Is renewable energy a cost-effective mitigation resource? An application to the Spanish electricity market (2018) 🗎🗎 | This paper evaluates the net effect of renewable energy policy in Spain from 2002 to 2017 and calculates its cost-effectiveness in terms of CO2 emission reductions in the production of electricity. Our conclusions indicate that although the phasing out of Feed-in Tariffs reduced the regulatory costs, it also limited renewable participation in the electricity market, leading to an increased electricity price and higher emissions. According to our results, the joint effect of (i) the value of avoided emissions due to renewable energy participation and (ii) the merit order effect was able to compensate for the regulatory costs (subsidies) up until 2010, while the sign of the net effect was reversed from 2011 to 2017. Finally, we find that the economic implications of emission reductions are highly dependent on how the social cost of carbon is measured. |
A dynamic analysis of financing conditions for renewable energy technologies (2018) 🗎🗎 | Renewable energy technologies often face high upfront costs, making financing conditions highly relevant. Thus far, the dynamics of financing conditions are poorly understood. Here, we provide empirical data covering 133 representative utility-scale photovoltaic and onshore wind projects in Germany over the last 18 years. These data reveal that financing conditions have strongly improved. As drivers, we identify macroeconomic conditions (general interest rate) and experience effects within the renewable energy finance industry. For the latter, we estimate experience rates. These two effects contribute 5% (photovoltaic) and 24% (wind) to the observed reductions in levelized costs of electricity (LCOEs). Our results imply that extant studies may overestimate technological learning and that increases in the general interest rate may increase renewable energies' LCOEs, casting doubt on the efficacy of plans to phase out policy support. |
Optimum alternatives of tandem G/G/K queues with disaster customers and retrial phenomenon: interactive voice response systems (2018) 🗎🗎 | In this paper, we study a tandem queue with retrials where the queue experiences disasters. The probability of system failure depends on the strength of equipment, which makes servers idle and causes the removal of all customers in queues and service areas at once. The customers in the queue are forced to orbit in a retrial queue during the system failure where they decide whether or not to come back to the system. Reducing the disaster arrival rate (the probability of system failure) by employing more servers and reducing the number of lost customers is very costly. Moreover, it is important to service the customers with no interruption and reduce the time in system. The developed scenarios are compared in five dimensions including time in system, cost of lost customer, operator cost, the number of uninterrupted service customers and cost of reducing disaster arrival rate (or empowering system cost). The scenarios are modeled by computer simulation. Then, the optimal scenario is chosen using data envelopment analysis. The optimal scenario maximizes system efficiency in terms of disaster arrival rate, cost of lost customers and the number of satisfied customers. In the main problem, the disasters arrive at the system according to Poisson process; the effect of changing the distribution function of disaster arrival has been investigated finally. We are among the first ones to study and optimize G/G/K tandem queuing systems with system failures and retrial phenomena in interactive voice response systems. |
Price dispersion in Australian retail electricity markets (2018) 🗎🗎 | Simshauser and Whish-Wilson (2017) examined the restructured Victorian retail electricity market and found it to be efficient as the marginal unit produced was sold at marginal cost. This article extends their analysis of price dispersion by considering the heterogeneous nature of electricity consumption when measured by volume sold (kWh). We find that customers on 'standing offer' tariffs use 18% less electricity than customers on 'high discount' products, indicating the presence of market segmentation and implicit second-degree price discrimination. Climate change policy and the emergence of new technologies such as household solar PV, battery storage and home energy management systems will create further price dispersion in Australian electricity markets due to even greater product heterogeneity. We contend that policy makers will need to facilitate, rather than prevent, both price and tariff structure dispersion with the objective of improving consumer outcomes. (C) 2017 Elsevier B.V. All rights reserved. |
The German Energiewende is an ambitious project, but the expansion of renewables needed to achieve its goals is expensive. Now, research shows that consumers would accept higher levies to finance renewables if exemption policies were abolished, forcing industries to pay their fair share. | |
Policy synergy or conflict for renewable energy support: Case of RPS and auction in South Korea (2018) 🗎🗎 | Governments provide various incentives for the production of electricity from renewable energy sources (RES-E). South Korea has promoted the use of such electricity through various programmes, such as Feed-in Tariff from 2002 to 2011, and Renewable Portfolio Standard (RPS) since 2012. The RPS appears to have been particularly effective in stimulating the use of RES-E. However, there remain several issues regarding the current RPS' policy design. This study examines South Korea's RPS by focusing on two issues. The first issue is the regulation of technology competition under the RPS; and the second issue is risk mitigation, which is generally known as a weakness of the RPS policy. This study suggests that one option for addressing both these issues is a policy mix of RPS and long-term contract auctions with a sliding premium. In particular, a technology-specific auction can be a complement to the technology-neutral RPS, not only in terms of minimising risk, but also in terms of cost and dynamic efficiencies. The synergy effect between these two policies is expected to be more significant than alternative policy combinations. |
"PACT-a-Mole": the case against using the Program Administrator Test for energy efficiency programs (2018) 🗎🗎 | A combination of reasons is resulting in the reevaluation of cost-benefit analysis of the energy efficiency programs. In particular, the Total Resource Cost test and the Societal Cost test are being questioned as to whether they should be replaced by the Program Administrator Cost test. This paper makes the case against replacing these tests. |
An Agent-based Stock-flow Consistent Model of the Sustainable Transition in the Energy Sector (2018) 🗎🗎 | In this paper, we investigate the effects on the economy of a feed-in tariff policy mechanism aimed to foster investments in renewable energy production capacity. To this purpose, we employ an enriched version of the agent-based Eurace macroeconomic model, where we have included an energy sector with a fossil-fuel power producer as well as a renewable-energy based one. Both power producers take pricing and capacity investment decisions based on the price of imported fossil fuel and the feed-in tariff government policy. Results show that the feed-in tariff policy is effective in fostering the sustainability transition of the energy sector and that it increases the level of investments with a positive impact on the unemployment rates. Moreover, we observe that its financing costs do not impact government finances, which actually improve following the better economic conditions. For high policy intensity, however, we observe an increasing GDP share of the investment sector in the economy, due to the building-up of renewable production capacity, with a resulting crowding out of consumption, higher interest rates and prices. The final outcome on household well-being therefore depends on what extent the chosen value judgment recognizes the importance of an economically and ecologically sustainable growth path. |
Household installation of solar panels - Motives and barriers in a 10-year perspective (2018) 🗎🗎 | This article compares what homeowners identified as motives and barriers for installing photovoltaic panels in Sweden in 2008-2009 and in 2014-2016. Earlier research has provided snapshots of existing barriers and motives, but not analyzed changes over time, as is done here. Between 2008 and 2014, the PV market in Sweden changed profoundly, with the introduction of subsidies and changes in rules, making it easier for households to sell electricity they produce. At the same time, regulations have increased for the households. Environmental motives have been consistent over the years. Financial incentives had become an important motive by 2014-2016. The investment cost remained a barrier, even though it has been reduced over the years. New barriers in the second period are problems relating to increased administrative burden and finding information about market conditions such as which companies exist and how much a household will be paid when selling,electricity to the grid. In 2008-2009, households installed the PV panels on their own and installation was a major barrier. This had changed radically by 2014-2016, when most of the households studied bought turnkey systems with installation included. |
The optimal research and development portfolio of low-carbon energy technologies: A study of China (2018) 🗎🗎 | To support decision-making for an optimal portfolio strategy for low-carbon energy technology research and development (R&D), this study proposes a dynamic two-stage stochastic programming model, taking into account both the uncertainty of technological change and damages of climate change. Based on China's economic and technology level and expert elicitation, an R&D investment portfolio strategy looking at three low-carbon technologies (carbon capture and storage [CCS], solar photovoltaic [PV], and nuclear), including nine projects, is investigated through the proposed model. The optimized results show that the optimal R&D technology portfolio is robust to different levels of risk in climate damage. However, the total social costs for the optimal R&D technology portfolio is lowest in the medium risk of climate damage scenario. Under different opportunity costs, the composition of the optimal R&D portfolio varies. However, projects for each of the three technologies always constitute the optimal R&D portfolio. Furthermore, the implication is that a technology synergistic R&D strategy is conducive to enhancing the level of CO2 abatement and reducing the total social cost. (C) 2017 Elsevier Ltd. All rights reserved. |
Decarbonizing the boardroom? Aligning electric utility executive compensation with climate change incentives (2018) 🗎🗎 | Despite the drastic reversal of decarbonization effort by the Trump administration, the majority of U.S. states continue policies aimed at reducing greenhouse gas (GHG) emissions and increasing renewable energy technology (RET) deployment. Although electrical power utilities are required and/or encouraged to comply with these policies, their executives lack direct incentives to do so. In this study, a novel incentive mechanism is evaluated for aligning utility executive compensation with such policies. First, an overview is provided on chief executive officer (CEO) pay and the GHG emissions of utilities. The relationship between GHG emissions, renewable energy diversification, and CEO pay is examined using the case study of three of the largest electric utilities in Michigan. The results show that the regulated utility market is not consistently rewarding CEOs with higher compensation for decreasing GHG emissions and that both an approach incentivizing RETs adoption and an approach encouraging GHG emissions have deficiencies. A combined approach is then analyzed that results in a compensation equation allowing for utility executives to receive incentive pay for reducing overall emissions and increasing renewable generation. The results indicate that by careful calibration of the proposed incentive equations the harmful effects of emissions can be prevented through CEO incentive pay. |
A real options approach to renewable electricity generation in the Philippines (2018) 🗎🗎 | Background: The Philippines is making a significant stride to become energy independent by developing more sustainable sources of energy. However, investment in renewable energy is challenged by competitive oil prices, very high investment cost for renewable energy, and high local electricity prices. This paper evaluates the attractiveness of investing in renewable energy sources over continue using oil for electricity generation. Methods: This paper uses the real options approach to analyze how the timing of investment in renewable energy depends on volatility of diesel price, electricity price, and externality for using oil. Results: The result presents a positive net present value for renewable energy investment. Under uncertainty in oil prices, dynamic optimization describes how waiting or delaying investment in renewables incurs loses. Decreasing the local electricity price and incorporating negative externality favor investment in renewable energy over continuing the use of oil for electricity generation. Conclusions: Real options approach highlights the flexibility in the timing of making investment decisions. At the current energy regime in the Philippines, substituting renewable energy is a better option than continue importing oil for electricity generation. Policies should aim at supporting investment in more sustainable sources of energy by imposing externality for using oil or decreasing the price of electricity. |
One major avenue for policymakers to meet climate targets is by decarbonizing the power sector, one component of which is raising the share of renewable energy sources (renewables) in electricity generation. However, promoting renewables -in liberalized power markets-creates a paradox in that successful penetration of renewables could fall victim to its own success. With the current market architecture, future deployment of renewable energy will necessarily be more costly and less scalable. Moreover, transition towards a full 100% renewable electricity sector is unattainable. Paradoxically, in order for renewable technologies to continue growing their market share, they need to co-exist with fossil fuel technologies. Ignoring these findings can slow adoption and increase the costs of deploying new renewable technologies. This paper spots the incompatibility between electricity liberalization and renewable policy, regardless of the country, location or renewable technologies. The Paradox holds as long as market clear prices with short term marginal costs, and renewable technology's marginal cost is close to zero and not dispatchable. | |
Analyzing tax incentives for producing renewable energy by biomass cofiring (2018) 🗎🗎 | This article examines the impacts of governmental incentives for coal-fired power plants to generate renewable energy via biomass cofiring technology. The most common incentive is the Production Tax Credit (PTC), a flat-rate reimbursement for each unit of renewable energy generated. The work presented here proposes PTC alternatives, incentives that are functions of plant capacity and the biomass cofiring ratio. The capacity-based incentives favor plants of small capacity, whereas the ratio-based incentives favor plants that cofire larger percentages of biomass. Following a resource allocation perspective, this article evaluates the impacts of alternative PTC schemes on biomass utilization and power plants' profit-earning potentials. The efficiency of these incentive schemes is evaluated by comparing with a reference profit optimization model that finds a distribution of credits that maximizes the total profits in the system. To evaluate the fairness of the proposed schemes, the results of the max-min fairness solution are used as a basis. A realistic case study, developed with data pertaining to the southeastern. United States, suggests how total system costs and efforts to generate renewable energy are impacted by both the existing and proposed incentives. The observations presented in this study provide helpful insights to policymakers in designing effective incentive schemes that promote biomass cofiring. |
A decarbonization of the energy sector calls for large new investments in renewable energy production, and several countries stimulate renewable energy production through economic instruments, such as feed-in premiums or other kinds of subsidies. When choosing the location for increased production capacity, the producer has typically limited incentives to take fully into account the investments costs of the subsequent need for increased grid capacity. This may lead to inefficient choices of location. We explore analytically the design of feed-in premiums that secure an optimal coordinated development of the entire electricity system. We show that with binding electricity transmission constraints, feed-in premiums should differ across locations. By the use of a numerical energy system model (TIMES), we investigate the potential welfare cost of a non-coordinated development of grids and wind power production capacity in the Norwegian energy system. Our result indicates that grid investment costs can be substantially higher when the location decision is based on uniform feed-in premiums compared with geographically differentiated premiums However, the difference in the sum of grid investment cost and production cost is much more modest, as location based on uniform feed-in premiums leads to capacity increase in areas with better wind conditions. (C) 2018 Elsevier Ltd. All rights reserved. | |
Explaining the interplay of three markets: Green certificates, carbon emissions and electricity (2018) 🗎🗎 | The European Union's Emissions Trading System (EU ETS) and the Swedish-Norwegian Tradable Green Certificate System (Swedish-Norwegian TGC system) are two market-based instruments that have the overlapping goals to mitigate greenhouse gas (GHG) emissions by shifting economies to cleaner energy sources. Understanding the price signals and interactions of these two newly created markets is essential for all decision makers - regulators and direct market participants - who aim to reach the predefined policy goals in the most efficient manner. The interaction between these policy instruments has been widely examined from the theoretical perspective. This research contributes to the literature by empirically examining the interplay between the prices of three markets: (1) the price of tradable green certificates (TGC) in the Swedish-Norwegian TGC system, (2) the price of carbon in the EU ETS and (3) the price of electricity in the Nord Pool. We use a multivariate vector-autoregressive (VAR) approach to take into account the endogenous relationships between these prices. Our empirical results do not support the theoretical considerations that the impacts of carbon prices on TGC prices and hence on renewable electricity production are negative. Contrary, we find that, to date, increases in carbon prices positively affect TGC prices in the short run. (C) 2018 Elsevier B.V. All rights reserved. |
The impact of Norwegian-Swedish green certificate scheme on investment behavior: A wind energy case study (2018) 🗎🗎 | In order to encourage investments in the most cost-effective renewable energy projects, Norway and Sweden have implemented a joint green certificate subsidy system, where the certificates are traded on a common market. The policies applied in the two countries, however, are not identical and differ most notably by the deadlines for receiving the subsidy. From the policy perspective, the important question is how these differences affect investment behavior in the renewable sector. This paper investigates the impact of the green certificate subsidy scheme on the value of renewable energy investments from the perspective of both Norwegian and Swedish investors based on a wind energy case study. We find that the impact of the policy is greatest when the distinctive Norwegian investment deadline is approaching, making investment optimal for the Norwegian investor for a larger range of prices. The Swedish investor, having no deadline to meet, will be more reluctant to investing. Furthermore, we find that the possibility of a collapse in the green certificate price reduces the values of the investment options. Being able to learn about the likelihood of such a price collapse leads to a small increase in the values of the options. |
How do learning externalities influence the evaluation of Ontario's renewables support policies? (2018) 🗎🗎 | Support programs for renewable electricity generation in Ontario have been in place since 2005, including feed in-tariffs and a competitive procurement process. These programs have been criticized on a number of fronts. In particular, critics claim the level of support was excessive and creating surplus supply. However, prior studies have ignored one potential benefit of renewable energy support that it can help to promote cost reductions in new technologies through learning-by-doing. This paper uses a recursive-dynamic computable general equilibrium (CGE) model featuring learning-by doing effects to assess the renewable support programs provided in Ontario. Our results, in line with previous studies, do not justify the high support rates paid in Ontario given our core range of assumptions. But our modeling approach allows us to identify the combination of key parameter values relating to learning effects and environmental damages that justify the observed rates. These parameters are hard to measure empirically, and our modeling approach introduces a new tool for examining the impact of variations in these parameters on policy analysis. |
Analysis of carbon-abatement investment for thermal power market in carbon-dispatching mode and policy recommendations (2018) 🗎🗎 | In this paper, we present a framework that aims to minimise power generation costs while satisfying carbon emission constraints. We then construct a carbon-abatement investment-option game model for asymmetric generation companies. The results show that the investment behavior of generation companies is largely affected by the critical value of the electricity price after carbon-abatement investment (relative decarbonization price). When the relative decarbonization price is lower than the critical value, only generation companies with low emission are motivated to invest in carbon abatement. By contrast, companies with high emission will only make such investments when the relative decarbonization price is higher than the critical value. We find that raising the proportion of competitive electricity will stimulate generation companies to invest in carbon abatement, while the influence of carbon-emission targets on investment behavior is uncertain. Compared with implementing a subsidy, increasing the relative decarbonization price can motivate generation companies to invest in carbon abatement more effectively. (C) 2018 Elsevier Ltd. All rights reserved. |
An equilibrium market power model for power markets and tradable green certificates, including Kirchhoff's Laws and Nash-Cournot competition (2018) 🗎🗎 | We investigate the economic impacts of introducing tradable green certificates to promote electricity produced from renewable energy sources. We formulate a mixed complementarity, multi-region, partial equilibrium model, clearing both the electricity and green certificate markets under the assumption of Nash-Cournot market competition. We introduce a mixed complementarity formulation of the tradable green certificate policy scheme. The main contribution of this paper is to combine a public support scheme for electricity production with a power market model in which strategic generators compete and exercise market power in a capacitated transmission network with spatial energy exchange. Any policy instrument interfering with the free market solution in a partial equilibrium model will reduce social welfare as a result of deadweight losses from the policy. These welfare losses may be substantial. We show that losses from tradable green certificates influence different market actors depending on the market conditions, but existing firms are likely to bear most of these losses. In markets with Cournot competition, where producers act strategically, green certificates help to increase market competition if new firms are able to enter the market. Existing firms will not be motivated to compete with new generation capacity. The consumer surplus from introducing tradable green certificates under Cournot competition may increase, despite the deadweight losses the policy incurs. (C) 2018 The Authors. Published by Elsevier B.V. |
Investment in the future electricity system - An agent-based modelling approach (2018) 🗎🗎 | Now that renewable technologies are both technically and commercially mature, the imperfect rational behaviour of investors becomes a critical factor in the future success of the energy transition. Here, we take an agent-based approach to model investor decision making in the electricity sector by modelling investors as actors with different (heterogeneous) anticipations of the future. With only a limited set of assumptions, this generic model replicates the dynamics of the liberalised electricity market of the last decades and points out dynamics that are to be expected as the energy transition progresses. Importantly, these dynamics are emergent properties of the evolving electricity system resulting from actor (investor) behaviour. We have experimented with varying carbon price scenarios and find that incorporating heterogeneous investor behaviour results in a large bandwidth of possible transition pathways, and that the depth of renewables penetration is correlated with the variability of their power generation pattern. Furthermore, a counter-intuitive trend was observed, namely that average profits of investors are seen to increase with carbon prices. These results are a vivid and generic illustration that outcome based policy cannot be solely based on market instruments that rely on perfect rational and perfectly informed agents. (C) 2018 The Authors. Published by Elsevier Ltd. |
Identifying barriers to large-scale integration of variable renewable electricity into the electricity market: A literature review of market design (2018) 🗎🗎 | For reaching the 2 degrees C climate target, the robust growth of electricity generation from variable renewable energy sources (VRE) in the power sector is expected to continue. Accommodation of the power system to the variable, uncertain and locational-dependent outputs of VRE causes integration costs. Integrating VRE into a well-functioning electricity market can minimize integration costs and drive investments in VRE and complementary flexible resources. However, the electricity market in the European Union (EU), as currently designed, seems incapable to deliver this end. This paper aims to provide a comprehensive literature review of barriers to the large-scale market integration of VRE in the EU electricity market design. Based on the set-up of the EU electricity market, a framework was developed to incorporate the most pertinent market integration barriers and resulting market inefficiencies. This paper concludes that an overhaul is needed for the current EU electricity market to address all barriers identified. Firstly, a discrete auction intraday market, a marginal pricing balancing market, a two-price imbalance settlement and a nodal pricing locational marginal pricing mechanism seem more promising in limiting integration costs. Secondly, to support business cases of VRE and complementary flexible resources in the electricity market, a level playing field should be established and the price cap should be lifted up to the value of lost load (VOLL). Meanwhile, to fit VRE's market participation, a higher time resolution of trading products and later gate closure time in different submarkets would be required. Lastly, feed-in support schemes currently widely used for VRE investments might be inconsistent with market integration, as they increase integration costs and lock VRE investments in a subsidy-dependent pathway. To avoid such lock-in, further investigation of alternative capacity-based support schemes is recommended. |
Investigating the effect of renewable energy incentives and hydrogen storage on advantages of stakeholders in a microgrid (2018) 🗎🗎 | The objective of this research is to investigate the effect and cost-efficiency of different renewable energy incentives and potential for hydrogen energy storage to the perceived viability of a microgrid project from the prospective of different stakeholders, i.e., government, energy hub operators and consumers in Ontario province, Canada. Hourly simulation of a microgrid in which wind and/or hydrogen are produced is used for the analysis. Results show that using underground seasonal storage leads to the government paying less incentive per kg of CO2 emission reduction as it lowers levelized cost of hydrogen and provides a higher carbon emission reduction potential. Results also show that for the same incentive policy, incentivizing hydrogen production with grid electricity or a blend of wind power and grid electricity and producing hydrogen using wind power with underground hydrogen storage are more cost-efficient options for government than incentivizing wind power production alone. Regarding the renewable energy incentives, a combination of capital grant and FIT is shown to be more cost-efficient incentive program for the government than FIT only programs. However, FIT programs are more effective for promoting renewable energy infrastructure. |
Competitive retail electricity market under continuous price regulation (2018) 🗎🗎 | The introduction of retail competition in various states in United States was expected to lower electricity bills, expand the choice set of consumers, and encourage horizontal differentiation by providing value-added services. However, to date, most regulators in states with retail choice often maintain their interventions on retail electricity rates, particularly for residential consumers. In this paper, we use data from the State of Connecticut as a case study to describe a competitive retail electricity market under continuous price regulation, and discuss policy implications. |
Adoption of solar and wind energy: The roles of carbon pricing and aggregate policy support (2018) 🗎🗎 | This paper analyzes the roles of policies and preferences in national adoption of solar and wind energy technologies. We use cross-sectional and panel regressions for both the European Union and a broader international sample. We find that countries that price carbon emissions have gone on to adopt more solar and wind energy. The aggregate level of policy support, measured in euros per megawatt hour, appears to have been important for solar energy adoption. We also find that solar energy adoption has been larger in countries with higher proportions of people concerned about climate change. In addition, we assess the effects of other key explanators including financial system size and income levels. |
Politics in the US energy transition: Case studies of solar, wind, biofuels and electric vehicles policy (2018) 🗎🗎 | We examine the politics of US state and federal policy supporting wind and solar in the electricity sector and biofuels and electric vehicles in the transportation sector. For each technology, we provide two policy case studies: the federal Production Tax Credit (PTC) and state Renewable Portfolio Standards (RPS) for wind; state Net Energy Metering (NEM) and the federal investment tax credit (ITC) for solar; federal excise tax incentives and the Renewable Fuel Standard (RFS) for biofuels; and California's Zero Emission Vehicle (ZEV) mandate and federal tax incentives for electric, vehicles. Each case study traces the enactment and later revision of the policy, typically over a period of twenty-five years. We use these eight longitudinal case studies to identify common patterns in the politics of US renewable energy policy. Although electricity and transportation involve different actors and technologies, we find similar patterns across these sectors: immature technology is underestimated or misunderstood; large energy bills provide windows of opportunity for enactment; once enacted, policies are extended incrementally; there is increasing politicization as mature technology threatens incumbents. |
Price elasticities of retail energy demands in the United States: New evidence from a panel of monthly data for 2001-2016 (2018) 🗎🗎 | Price elasticities play an important role in energy demand forecasting, which in turn shapes energy policy and investment decisions. However, there is still considerable debate around how responsive customers are to energy prices, and whether investments in metering and consumer education have made them more responsive in recent decades. Using a Generalized Leontief (GL) demand system and a rich panel of monthly data covering 2001-2016 for the lower 48 United States, we estimate own- and cross-price elasticities of retail demand for electricity, natural gas and fuel oil for the three major customer classes: residential, commercial and industrial. These estimates indicate that retail energy demand in the United States was highly price-inelastic over 2001-2016, consistent with historical and current estimates used by many utility planners. Our findings suggest that, with current technologies and behavior, higher energy prices will not induce significant reductions in demand. Hence, energy efficiency standards and utility demand-side programs are still an important strategy for managing energy demand growth, mitigating energy price risk, and reducing the environmental impacts associated with energy use. Finally, while our analysis uses data from the United States, our approach is general and can be readily extended to other countries that have similar data available. |
Tariff revisions and the impact of variability of solar irradiation on PV policy support: The case of Italy (2018) 🗎🗎 | The solar irradiation is one the most critical parameter to ensure the overall profitability of photovoltaic (PV) projects. During the period of the European solar boom, the PVGIS-3 radiation data have been largely used by policy makers in setting remuneration levels, as well as by project developers, banks and asset managers for professional assessment of the underlying financial return of the investment. High quality and more accurate data included in the updated PVGIS-CMSAF show that solar resources in Europe have been greatly underestimated by PVGIS-3. The present paper evaluates how reported changes in solar irradiation have affected both PV projects profitability and overall costs of subsidy for final consumers. By focusing on a large sample of Italian PV plants, our findings highlight that solar irradiation levels higher than those initially assumed have caused excessive rents and windfall profits for PV project developers thus potentially harming electricity users which are indirectly bearing the burden of the renewable energy sources (RES) incentives. In regulatory contexts suffering from information asymmetries between RES producers and regulatory agencies, support tariff set by public authorities should be periodically revised according to transparent procedures, whenever significant changes in long-term solar irradiation data occur. |
Analysing the impact of renewable energy regulation on retail electricity prices (2018) 🗎🗎 | Retail electricity prices have substantially increased in the last decade in the European Union (EU) as a result of different regulations, raising the concern of policy makers. The growth in the support costs for electricity from renewable energy sources (RES-E) has often been singled out as a main driver of the increase in these prices. The aim of this paper is to analyse the degree of influence of RES-E promotion costs on the evolution of the retail price of electricity in the EU Member States. The analysis is carried out for households as well as for industry, with the help of a panel data econometric model. Our results show that the impact of renewable energy promotion costs on retail electricity prices is positive and statistically significant, although relatively small. Differences across consumer types can be observed. An increase of 1% in those costs induces an average increase of only 0.023% in industrial retail prices and 0.008% in the residential retail prices. This impact on retail prices is mediated by the type of support scheme which is adopted, with price-based support instruments showing a greater effect than quantity-based ones. |
Sociodynamic modeling of small-scale PV adoption and insights on future expansion without feed-in tariffs (2019) 🗎🗎 | Understanding complex phenomena such as energy transitions, which bear technical, economic and social dimensions, requires a multi-directional approach. Expansion of the solar energy in the energy mix of a country is similarly complex, as its decentralized nature brings about a necessity of public approval and trust besides its economics. We therefore develop a combined socio-economic model, which is based on the sociodynamics framework, for the household-level adoption of photovoltaics (PV). We apply the model to the cases of German and Italian PV expansion and make a retrospective analysis regarding their dynamics, in order to identify the importance of various factors such as the profitability and the public opinion throughout their expansion timeline. We then project our model for the German PV expansion onto the near future and investigate the requirement of feed-in tariffs to maintain the expansion targets under various scenarios. Results of our projection point at the importance of the self-consumption of PV electricity; an average self-consumption ratio higher than 25% makes a phase-out of feed-in tariffs by 2030 possible, whereas 50% self consumption renders the feed-in tariff regulation obsolete even in today's economic conditions. |
Blind spots in energy transition policy: Case studies from Germany and USA (2019) 🗎🗎 | Energy transitions aim at economic prosperity through 'green-collar' job-creation, greater energy Independence', and/or reduced emissions. These objectives imply creating policy-supported national renewable technology industries, ideally reducing clean energy costs to a point where support becomes unnecessary. Two dimensions of competition arise: renewables competing with incumbent technologies, and local renewable technology industries competing with others globally. Policy can, sometimes, overlook the evolution of such competitive pressures due to three blind-spots. Policy support may: create demand that outstrips the domestic industry's capacity to expand - generating jobs overseas; underestimate the pace at which costs of a new technology are falling and become inadvertently overgenerous; underestimate innovation potential in incumbent technologies, which necessitates longer-than-anticipated support for the renewable technology or, at worst, cease support before the new technology is sustainably cost-competitive. These blind-spots suggest that policymakers may incorporate more realistic representations of foreseeable changes in the competitive dynamics of industry and trade into transition planning. Ultimately, clean energy penetration intends to reduce absolute fossil-fuel consumption, which may trigger a more competitive response from affected suppliers than seen so far. This will be experienced as reductions in production costs due to demand clearing down the supply cost-curve and the supply cost-curve itself moving downwards. (C) 2018 The Authors. Published by Elsevier Ltd. |
Do European renewable energy mutual funds foster the transition to a low-carbon economy? (2019) 🗎🗎 | Economic growth and development around the world are leading to increasing worldwide demand for energy, whose production still mainly comes from fossil fuels generating large amounts of greenhouse gas emissions, which contribute to global warming and climate change. To mitigate climate change, the European Union implemented an energy policy strategy that encourages firms to implement sustainable energy systems. This could generate investment opportunities in energy efficiency and renewable energy projects around the world for European mutual funds. Therefore, the main aim of this paper is to analyze the financial performance of energy and renewable energy mutual funds using conditional and unconditional models. To this end, we have a sample of 4496 mutual funds commercialized in Europe in the period 2007-2018. Our results indicate that renewable energy mutual funds perform similarly to the market using conditional models. However, they underperform their conventional peers using a specialized market benchmark, reaching similar performance to black energy funds. While the total expense ratio negatively affects renewable energy financial performance, other fund characteristics, such as size or Socially Responsible Investing (SRI) certification, do not affect it. (C) 2019 Elsevier Ltd. All rights reserved. |
Rethinking the electricity market design: Remuneration mechanisms to reach high RES shares. Results from a Spanish case study (2019) 🗎🗎 | Electricity systems experience a period of transition towards decarbonisation and face multiple uncertainties. Variable renewable energy resources undergo a rapid cost decline while policy makers push for stricter decarbonisation targets to limit global warming and to comply with international commitments such as the 2015 Paris Agreement. In this context, a better understanding on how today's electricity market design has to be modified to comply with high shares of variable RES generation is required. This work demonstrates the need to extend the current electricity market design by additional remuneration mechanisms to reach imposed quotas of renewable generation and provide investment incentives for new firm capacity. A Spanish case study presented in this paper explores the electricity system transition between 2025 and 2040. An electricity system resource expansion model (SPLODER) is used to study different policies and estimate the evolution of investments and costs over the transition period. Results indicate that the interactions between energy market prices, additional capacity and RES remuneration mechanisms are particularly sensible to policy decisions, demand growth and technological developments. Conclusions indicate that such remuneration mechanisms must account for the uncertainty of future electricity market developments and additional hedging alternatives are required to ensure the cost recovery of new generation technologies. |
An analysis of price spikes and deviations in the deregulated Turkish power market (2019) 🗎🗎 | The successful operation of a real time market is related to the planning in the day ahead market. We analyze the day ahead and real time market data for the Turkish power market for the period 2012-2015 to classify price spikes and their causes. We also focus on the levels of deviation between the day ahead market values and the real time market values. We define price deviation and load deviation ratios to measure the level of deviation both in price and demand. The analysis for the load is based on load shedding and cycling values. We analyze the mean and standard deviation in market prices and we determine the price spike as a two sigma deviation from the mean value. It is shown that 60% of the price deviation ratios are in the range of ( +/- 20%), while 44% are in the range of ( +/- 10%) and 35% are in the range of (+/- 5%). We also show that 56.9% of the spikes are due to problems in the generation of natural gas based power plants which affect the day ahead and real time prices. A total of 29.2% of the spikes are due to power plant and system failures that affect only real time prices. The share of high temperature based spikes is 13.9% which is a result of air conditioner usage. |
The Cost of Energy Review recommended that, in the face of radical technical change, government should: move towards an Equivalent Firm Power capacity auction, integrating the renewables; establish independent public system operators at the national and regional levels; and move towards an economy-wide carbon price. These have met resistance from vested interests, in defence of the economic rents that have accumulated from the dense web of interventions that have accumulated. The paper shows that the first two of these reforms are nevertheless inevitable with active demand, storage, and decentralized generation technologies inverting the old assumptions of passive demand, no storage, and ever larger-scale generation that have underpinned the electricity industry for the past century. Delay in implementation means continued excess costs of energy and delays innovation. | |
Economic and Efficiency Analysis of China Electricity Market Reform Using Computable General Equilibrium Model (2019) 🗎🗎 | China's electricity industry has been undergoing a process of regulatory reform. This study aims to analyse the impact of liberalization on the electricity market assuming different degrees of scope of the reforms by applying a computable general equilibrium (CGE) model. In this paper, we consider the three sub-sectors of the electricity industry, namely generation, transmission and distribution. We assume that the reform will phase out the entry barriers on the generation side and allow for competition on the distribution side, while keeping the transmission side under regulation. The results showed that the reform could enhance efficiency in the electricity sector and reduce energy prices for households. Introduction of a complete competition model would decrease welfare by 5.394 billion yuan, if contrasted to a limited competition model. The composite energy price would decline under both scenarios, whereas the quantity of energy consumed by the households would go up. This research, thus, contributes to literature on the economic effects of China's electric power market reform, and can be used as a case study to support policy decisions for the decision-makers. |
Addressing integration challenges of high shares of residential solar photovoltaics with battery storage and smart policy designs (2019) 🗎🗎 | In many countries, the integration of growing shares of residential solar photovoltaics is beginning to challenge existing electricity systems. First, residential solar photovoltaics aggravates sharp system-wide load changes and, in turn, increases the need for fast-ramping generation capacity. Second, it reduces the demand for electricity provision from the grid, causing an increase in electricity prices as grid costs are recovered over smaller volumes of electricity. Battery storage (BS) mitigates the first integration challenge by flattening the system-wide load, but elevates the second by increasing self-consumption behind-the-meter. In face of this dilemma, the integration of high shares of residential solar photovoltaics requires policymakers to re-design public support policies. In this article, we develop an agent-based model to simulate California's residential 'solar-plus-storage' market between 2005 and 2030 in four different policy scenarios. By applying a multi-technology, multi-policy approach, we quantify the complex interplay between the diffusion of individual technologies, several interacting policies and systemic challenges. Our results show that California's policy status quo initiated a BS uptake and, in turn, a flattening of the system, but, in the long run, will increase the electricity prices. To avoid this, we outline a policy reorientation-including a gradual phase-out of the prevailing feed-in remuneration and an introduction of fixed charges for owners of solar photovoltaic systems. Our results imply that the policy debate should be re-focused away from a single-technology single-policy perspective towards a system integration perspective. Neglecting this could not only jeopardize the affordability of electricity and climate change mitigation plans, but also put at risk the reliability of the electricity supply system. With investment costs of renewables expected to continue to decrease, this further implies that even countries without public support for renewables are likely to face challenges associated with their integration. |
Preferences for and potential impacts of financial incentives to install residential rooftop solar photovoltaic systems in Australia (2019) 🗎🗎 | Shifting the production of energy from fossil fuels to renewable resources contributes towards the reduction of greenhouse gas emissions needed for climate change mitigation. Many countries, including Australia, have had generous financial incentives in place to support households to adopt renewable energy technologies, such as rooftop photovoltaic solar panels. Given the increasing reductions in, and eventually a shift, from subsidies to market-based mechanisms the trend of new solar panel adoption is unclear. Solar power is a particularly relevant climate change mitigation technology in Australia given the country's high insolation rates. Australia has one of the highest rates of residential solar adoption in the world with 20% of households having solar panels. This study uses Australia as a case study because of the range of incentives available and the potential impacts of changes in incentive policies which are already under way. To determine preferences for changes in incentives and to predict consumer choices for adopting solar panels under future policy changes, a choice model was applied. Results showed that about two-thirds of the respondents would be willing to install a photovoltaic system. Installation costs had the greatest influence on choice of a photovoltaic system, followed by a 10-year and a 5-year guarantee of being able to sell excess solar power to retailers, and a high feed-in-tariff. Being able to access an interest free loan did not affect respondents' choices, and up-front rebates were preferred to be at least AUD 4000. Income, education, knowledge about Australia's renewable energy polices and believing in environmental benefits of solar energy all positively influenced the willingness to install a photovoltaic system while age had a negative effect. Preferences for financial incentives varied significantly across respondents. About a third of respondents were sufficiently sensitive to costs and incentives that a substantial cut in subsidies would probably dissuade them from installing a photovoltaic system. Younger people and those knowledgeable about renewable energy policies preferred low installation costs but were not motivated by incentives. Factors likely to influence their decision-making included their level of electricity consumption, rising electricity prices and decreasing costs for storage systems, and they may conclude that solar photovoltaic systems pay off even without government subsidies, which are gradually being phased out. (C) 2019 Elsevier Ltd. All rights reserved. |
Modelling German electricity wholesale spot prices with a parsimonious fundamental model - Validation & application (2019) 🗎🗎 | In this paper, we introduce a parsimonious fundamental model for the German day-ahead market. The methodology approximates the supply stack by a piecewise linear function and considers fundamental information, e.g. power plant availabilities, must-run production and cross-border exchange. We reduce complexity by considering technology classes, uncoupled time periods and only one market area. The model accurately reproduces the hourly historical prices and electricity production volumes for most thermal production units in Germany. In a case study, we investigate the effects of the German nuclear phase-out decision. We find an additional price decrease and reduced electricity imports in the counterfactual scenario. |
Do Almost Mature Renewable Energy Technologies Still Need Dedicated Support Towards 2030? (2019) 🗎🗎 | The discussion on whether and bow to continue support for almost mature renewable electricity (RES-E) technologies, such as onshore wind and PV, has recently intensified. In this paper we analyze arguments in the literature in favor and against the phase-out of renewables support in the context of increasingly competitive RES-E tecbnologies. We conclude that there are good reasons to continue dedicated RES-E policies beyond 2020 for those technologies. Dedicated RES-E support can provide a predictable, secure investment framework that lowers the risk premiums required by investors and therefore reduces the capital costs of RES-E. In addition, there are still significant cost reduction potentials for these technologies. The increased use of renewables has multiple socio-economic benefits in addition to climate change mitigation. These arguments are still valid when looking at the current market situation characterized by oversupply and low prices on both the CO2 market and some power markets in Europe. Since renewables are not the main reason for the current oversupply, it would not be effective to take actions towards restoring market equilibrium in the form of radical or overall phase-out of RES-E support. |
Liberalization and customer behavior in the Portuguese residential retail electricity market (2019) 🗎🗎 | The final step that Portugal is taking to reach a fully liberalized electricity market is the deregulation of the retail market by phasing-out regulated electricity prices and reducing the administrative burdens in this area. These attempts are done to promote the entrance of companies into the retailing business and to actively engage the end-users in the market. This analysis shows that despite high consumer switching rates during the 2013-2015 period, the retail market in Portugal is still highly concentrated. The retail rates are also not following the changes in the wholesale market price. |
The Impact of Government Subsidy on Renewable Microgrid Investment Considering Double Externalities (2019) 🗎🗎 | Since microgrids require public support to make economic sense, governments regularly subsidize renewable microgrids to increase their renewable energy market penetration. In this study, we investigated the optimal subsidy level for governments to correct the market failure of microgrids and analyzed the impacts of regulation on the interaction between a microgrid and a distribution network operator (DNO). Specifically, we proposed economic rationales for government subsidies for microgrids regarding public interest benefits in relation to double externalities (learning spillover effect and environmental externality). We incorporated the double externalities into a three-echelon game model in an electricity supply chain with one regulator, one microgrid, and one DNO, in which the regulator decides the subsidy level to achieve maximal social welfare. We found that the double externalities and double marginalization caused underinvestment in microgrid capacity in the scenario without government intervention. The government could choose the appropriate subsidy level to achieve the system optimum, which led to a triple win for the microgrid, the DNO, and the social planner. Our analytical results also showed that the microgrid gained more benefits from regulation than the DNO. The microgrid may offer a negative wholesale price to the DNO in exchange for more opportunities to import electricity into the grid, especially when the investment cost is sufficiently low. Our study suggests that supporting microgrids requires a subsidy phase-out mechanism and alternative market-oriented policies with the development of the microgrid industry. |
NONPARAMETRIC TESTING FOR DIFFERENCES IN ELECTRICITY PRICES: THE CASE OF THE FUKUSHIMA NUCLEAR ACCIDENT (2019) 🗎🗎 | This work is motivated by the problem of testing for differences in the mean electricity prices before and after Germany's abrupt nuclear phaseout after the nuclear disaster in Fukushima Daiichi, Japan, in mid-March 2011. Taking into account the nature of the data and the auction design of the electricity market, we approach this problem using a Local Linear Kernel (LLK) estimator for the nonparametric mean function of sparse covariate-adjusted functional data. We build upon recent theoretical work on the LLK estimator and propose a two-sample test statistics using a finite sample correction to avoid size distortions. Our nonparametric test results on the price differences point to a Simpson's paradox explaining an unexpected result recently reported in the literature. |
Strategic investment decisions under the nuclear power debate in Belgium (2019) 🗎🗎 | In view of the current nuclear power debate in Belgium, we analyze how uncertainty about a nuclear phase-out, coupled with the implementation of renewable energy subsidies and nuclear taxes, affects investment capacity and productivity decisions by Belgian electricity suppliers. To achieve this goal, considering the market shares of the Belgian market, we build a Stackelberg two-step equilibrium model in which investment decisions are made in a first step under uncertainty regarding a nuclear phase-out, and productivity decisions are subsequently made in a second step for different investment possibilities found in the first step. Our analysis indicates that, regardless of subsidies, an increase in the probability of nuclear license extension results in lower levels of investment - primarily in renewable energy -. These lower investment levels in turn result in a lower total production and a higher electricity price in a subsequent period in the future. We also show that the implementation of renewable energy subsidies reduces the effect of an increase in probability of nuclear license extension on producer's decisions regarding expanded capacity and therefore, on total future profits in the market. (C) 2019 Elsevier B.V. All rights reserved. |
The impact of the under enforcement of RPS in China: An evolutionary approach (2019) 🗎🗎 | The implementation of renewable portfolio standards (RPS) in China is limited by the interests of the sector being regulated. Power companies generally lack the incentive to generate renewable power. They can be expected to resist the implementation of RPS standards, which will in turn affect the successful implementation of the RPS policy. Thus studying the strategic interaction and co-evolution between the government and power companies under the RPS regulation is of great importance. The RPS policy has uncertain effects because of its complexity, market dynamics and information asymmetry. Given this, we study the expected effect of the under-enforcement of RPS standards using an evolutionary approach. In the context of bounded rationality, our model creates a regulatory evolutionary game model of RPS between the regulators and types of power companies based on cost structures. This model considers the competitive relationship between power companies of fossil and renewable sources in the face of the static and dynamic subsidies and punishment mechanisms. The show that a dynamic subsidy and punishment mechanism not only helps achieve a better regulatory effect than a static mechanism, but also restrains the evolutionary oscillation. |
A real option model for geothermal heating investment decision making: Considering carbon trading and resource taxes (2019) 🗎🗎 | By considering carbon trading and resource tax, this study established a bidimensional binominal lattice of a compound real option pricing model to help investors make decisions for geothermal heating projects. Two types of real options, to defer and to abandon, are simultaneously considered. Further, a case study on the decision making for a geothermal heating project in the Xiongan New Area in China was conducted to verify the feasibility of the proposed model. The results show that 1) the investors should delay the "invest-decision" at least one year under the real option rule but that investment value would at least 0.9 times more than that by the net present value method; 2) different subsidies methods could influence the investment time and project value, and one-time subsidies may lead to larger project value but delay the investment time; 3) The project value could be increased by conducting carbon trading but could be reduced by resource tax implementation; and 4) the value of option to defer is negatively sensitive to the initial fossil fuel price, but the value of the option to abandon is positively sensitive to the volatility of carbon price. (C) 2019 Elsevier Ltd. All rights reserved. |
Economic analysis of marsh gas development in countryside of China: A case study of Gongcheng County in Guangxi Province (2019) 🗎🗎 | Marsh gas is an important type of renewable energies and plays important role to solve the energy issue in remote countryside. This article captures the development of marsh gas in Gongcheng County of China with game theory model. Firstly, the development history of marsh gas in Gongcheng County is introduced. Secondly, the economic effects of all subsidy strategy are discussed. Subsidy to family marsh gas popularizes the marsh gas. Thirdly, whether to subsidize firms depends on transportation costs. Therefore, for the disperse residents, subsidy to family marsh gas seems more rational than that to firms. For concentrated residents, the conclusions are contrary. (C) 2019 The Authors. Published by Elsevier Ltd. |
Modelling the effectiveness of climate policies: How important is loss aversion by consumers? (2019) 🗎🗎 | Reliable decarbonisation policies can only be developed with a thorough understanding of how consumers choose between energy technologies. Current energy models assume optimal consumer decisions which may result in expectations of the effectiveness of climate policies that are far too optimistic. Prospect Theory, on the other hand, aims to model real-life choices, based on empirical observations that losses have a relatively larger influence on decisions than gains, relative to a reference point. Here, we show for the first time how loss aversion can be included into a global energy model with high spatial resolution, using heating technology uptake as a case study. We simulate the future heating technology diffusion for 59 world regions covering the globe, with and without the consideration of loss aversion. We find that ignoring the implications of loss aversion overestimates the market uptake of renewables, in individual countries as well as on the global level. As a consequence, loss aversion results in higher projected CO2 emissions by households, and the need for much stronger policy instruments for achieving decarbonisation targets. In the case of residential heating, a carbon tax of 200 (sic)/tCO(2) is projected to reduce overall emission levels to a similar extent than a carbon tax of 100 (sic)/tCO(2) without the consideration of loss aversion. Even for similar degrees of decarbonisation, accounting for loss aversion implies substantial changes in the underlying technology composition: technology choices become subject to a conservative shift towards low-carbon technologies which are relatively less efficient, but already more established in local markets. |
Response of scale and leverage of thermal power enterprises to renewable power enterprises in China (2019) 🗎🗎 | Power generation structures in China remain dominated by coal, despite the overwhelmingly favorable response to the poll: To resist or not to resist? Since the renewable power enterprises have to compete with thermal power enterprises in a limited incremental market, the thermal power enterprises have the motivation to develop strategic responses to protect their own interests and meet policy requirements. Previous studies on renewable energy policies may have underrated or ignored the possible responses of rivalry from thermal power enterprises to the positive shock to renewable power enterprises. Considering the adverse effects of this response on the development of renewable power enterprises, it is necessary to reveal the short-term competitive response of thermal power enterprises. This paper conducts generalized impulse response analysis to estimate the scale and leverage of the response of thermal power enterprises to the unexpected positive impact on renewable power enterprises' scale and leverage using a VAR-based model. The results indicate that thermal power enterprises are more likely to adopt resistant strategies to the positive shock to the scale of renewable power enterprises in the first quarter, whether or not these responses are profitable. Particularly, scale strategy is preferential for thermal power enterprises, which may have negative effect on the development of renewable power enterprises and slowed renewable energy transition. We suggest that the policies should consider the possible scale expansion of thermal power enterprises and mitigate the competition between thermal and renewable energy enterprises. |
Optimal Timing of Onshore Wind Repowering in Germany under Policy Regime Changes: A Real Options Analysis (2019) 🗎🗎 | In this paper, we investigate capacity expansion, the technological development of wind turbine generators, and the merits of onshore wind repowering in Germany. We analyze the regulatory framework that is presently in place and its impact on the profitability of the onshore wind parks commissioned under previous regulatory frameworks. The optimal timing of repowering under today's market premium model is scrutinized. Repowering in a market without subsidies for onshore wind energy is also evaluated. In the two cases (regimes) investigated, the electricity price is modeled stochastically as a geometric Brownian motion process. More specifically, using a real options modeling framework for investments under a free market regime, we analyze how the regime change affects the optimal timing of repowering. Further, we check the results for their robustness via a sensitivity analysis for both analyzed regimes. We find that repowering well before the plant's expected end of life ('early repowering') can be economically preferable under the German Renewable Energy Sources Act 2017 remuneration scheme and that, due to the electricity spot market price development, repowering under the market premium regime is more profitable than it is under the free market regime. The economic viability is strongly influenced by the duration of the initial tariff granted to the old installation, the expected digression factor of the future reference tariff, and the increase in electricity generation achieved through repowering. |
An experimental approach to climate finance: the impact of auction design and policy uncertainty on renewable energy equity costs in Europe (2019) 🗎🗎 | This paper aims at shedding some lights on how policy induced uncertainty affects the cost of capital of renewable energy power plants. To this end, the paper focuses on renewable energy auctions and on the ongoing Brexit negotiations. First, the paper reviews auction frameworks across Europe and discusses the impact of the different designs on project risk. Then, a stated preference approach is leveraged to investigate how policy design and the uncertainty regarding the future arrangements between the UK and the EU contribute to determine the cost of equity for renewable energy. The results show that improved auction design can help to lower the equity cost between 0.5% and 1.5%. The evidence on Brexit is rather weak and - if anything - suggests only a higher relevance of these negotiations for English-based investors than for those based in EU27. |
Energiewende @ Risk: On the Continuation of Renewable Power Generation at the End of Public Policy Support (2019) 🗎🗎 | This paper aims to analyze what happens with renewable energy power plants, such as onshore wind, photovoltaics and biomass, when the public policy support based on the Renewable Energy Law expires. With its expiration, the first renewable energy (and especially onshore wind) power plants will have to be scrutinized as to whether they can economically continue operation, whether they have to be repowered, or whether they need to be decommissioned. The relative merits of these three alternatives are evaluated by applying real options analysis. In contrast to traditional project evaluation techniques, the real options approach takes advantage of the use of uncertain parameters included in the model, such as the development of the electricity price or electricity output. The results obtained suggest that parameters such as the level of future operation and maintenance costs, the expected development of the electricity price at the spot market, and the interrelations between these, as well as the development of the electricity output from renewables can significantly affect the profitability of these power plants and thus impact the decision about their further optimal operation. |
Green Affordable Housing: Cost-Benefit Analysis for Zoning Incentives (2019) 🗎🗎 | In the year 2017, about 89% of the total energy consumed in the US was produced using non-renewable energy sources, and about 43% of tenant households were cost burdened. Local governments are in a unique position to facilitate green affordable housing, that could reduce cost burdens, environmental degradation, and environmental injustice. Nonetheless, limited studies have made progress on the costs and benefits of green affordable housing, to guide decision-making, particularly in small communities. This study investigates density bonus options for green affordable housing by analyzing construction costs, transaction prices, and spillover effects of green certifications and affordable housing units. The authors employ pooled cross-sectional construction cost and price data from 422 Low-Income Housing Tax Credit (LIHTC) projects and 11,016 Multiple Listing Service (MLS) transactions in Virginia. Using hedonic regression analyses controlling for mediating factors, the study finds that the new construction of market-rate green certified houses is associated with small upfront costs, but large and statistically significant price premiums. In addition, the construction of market-rate green certified houses has large and statistically significant spillover effects on existing non-certified houses. Existing non-certified affordable housing units show small and often insignificant negative price impacts on the transaction prices of surrounding properties. The study concludes that the magnitude of social benefits associated with green building justifies the local provision of voluntary programs for green affordable housing, where housing is expensive relative to its basic cost of production. |
Policy considerations for limiting electricity theft in the developing countries (2019) 🗎🗎 | The study analyzed electricity theft through a three layered principal-agent-client model. The factors that entrench corruption and theft are its beneficial features of lowering the cost of electricity for the consumers and generating private illegal incomes for the corruptible employees. We show that an individual steals electricity only if the subjective pecuniary gains are higher than the associated costs e.g. fine imposed in case of detection or dismissal from job. The study finds that efficiency wages along with higher deterrence and active consumer involvement in reporting the crime can help in combating corruption and pilferage in electricity sector. |
Deregulation of power generation planning and elimination of coal power subsidy in China (2019) 🗎🗎 | In this research, we define three kinds of subsidy to coal power under the existing institutional structure in China. They are an environmental subsidy, a squeezing-out renewable subsidy, and a price-protection subsidy. Based on a practical account framework, solid dataset, and reasonable assumptions, we estimate a total subsidy of 263.7 billion Chinese Yuan in 2016. We also provide a reference estimate on environmental subsidy by using the Externality Cost approach. Though these subsidies will be removed by 2020, with the deregulation of the power sector, such a shift will trigger stranded asset risks. We conclude with policy implications for the deregulation of power generation planning and market reform to Chinese policymakers. |
Missing money, missing policy and Resource Adequacy in Australia's National Electricity Market (2019) 🗎🗎 | From 2012 to 2017, 5000 MW of coal plant exited Australia's National Electricity Market (NEM) with an average notice period of just 5.2 months. Exit at-scale peaked just as imbalances in the market for natural gas emerged along with Renewable Energy entry lags due to policy discontinuity. By 2016-2017, the culmination of events produced more than 20 Lack of Reserve notices, two blackouts including a black system event, and forward prices at record levels. These conditions are traced to policy decisions a decade earlier. Lessons for other energy markets undergoing transformation include transparency over exit-decisions, policy stability and limits to gas export capacity. |
Policy uncertainties: What investment choice for solar panel producers? (2019) 🗎🗎 | Solar power has achieved great development in the last decade, and it should continue to play a central role in the face of climate change and sustainable development challenges. This paper builds a real options model that provides a microeconomic analytical framework with the Least Squares Monte Carlo (ISM) method to assess the investment choices of a typical solar panel producer in China facing trade and domestic supply- and demand-side policy uncertainties. It builds a baseline scenario and three policy scenarios with decreasing anti-dumping and countervailing charges, constant feed-in tariff (FIT) level and reduced investment cost. A typical producer will have to make an investment decision on building a new production line in five years based on a decision impact analysis within 20 years. The result shows an immediate investment decision for all scenarios. The producer will have higher return from investment in building a solar power plant with a constant FIT. Export is the optimal choice in other scenarios where investment return is lower. After sensitivity analysis, the paper concludes and can be used as a toolkit for solar panel producers and a reference for policy makers to evaluate the impact of policy uncertainties. (C) 2018 Published by Elsevier B.V. |
Modelling the EU Internal Electricity Market: The PRIMES-IEM Model (2019) 🗎🗎 | The paper presents a newly built model used to simulate the European Union (EU) internal electricity market and assess market reform policies. The model performs an hourly simulation of all stages of the wholesale markets at a Pan-European scale, covering the sequence of day-ahead, intra-day, and balancing/reserve auctions. The model includes market coupling in all market stages, estimates scarcity bidding by generators endogenously, and determines electricity trade as a flow-based allocation of interconnections via the market auctions implicitly. The model solves a unit-commitment program, formulated as a mixed-integer optimisation problem, under demand and generation constraints, interconnection possibilities, technical restrictions of the cyclic operation of power plants, and the provision of ancillary services. The novelty of this approach is the inclusion of distortions in all stages of the markets to evaluate the impacts of their removal, and the operation of the markets in a segmented versus an integrated manner in the EU. The model calculates revenues and costs per power plant in the EU on a country basis and the value of cross-border flows. The model evaluated market reform measures, including the abolishment of priority dispatch of renewable energy plants, the establishment of flow-based allocation of interconnectors without NTC limitations, the activation of demand response, and the market coupling in intra-day markets. The model application has been in the context of the electricity market design initiative included in the Clean Energy for all Europeans policy package proposed by the European Commission in 2016. |
Distributive PV trading market in China: A design of multi-agent-based model and its forecast analysis (2019) 🗎🗎 | China's photovoltaic power generation has experienced an ever-growing speed recently while fast expansion also exposed problems like insufficient power consumption and subsidy gaps in the finance of the government. Now the pilot project for promoting the distributed PV trading market was proposed to address the problem. Accordingly, this study simulates the trading market by analysing the economic behaviours of various agents in an expanded multi-agent-based model with extensions of local consumption principle and matchmaking bidding, which explores the interactions between agents, the trading market and the environment. This study documents that: (1) the trading market can be successfully implemented with the descending subsidy and the grid parity target; (2) the trading market can significantly facilitate local power consumption and release the burden of PV abandonment (e.g. the simulation implies that the abandonment rate of PV in the Gansu Province in 2018 could be reduced from 10.3% to 6%); (3) All firms gain considerable profits after the trading market introduced, and the government also achieves significant benefits from carbon emissions abatement; (4) the power grid suffers from negative margins while the downward trend would eventually end. This raises new perspectives on proposing proper incentive mechanisms like the system of permitted income. (C) 2019 Elsevier Ltd. All rights reserved. |
On the Stability of Energy-Only Markets with Government-Initiated Contracts-for-Differences (2019) 🗎🗎 | Rising levels of variable renewable energy (VRE) in Australia's National Electricity Market have been driven by a 20% renewable energy target by 2020. This certificated renewable portfolio standard has successfully driven new investment, allocated risk amongst buy- and sell-side market participants and met overall policy objectives. But a policy vacuum for achieving long-term CO2 emission targets post-2020 has led to sub-national and, potentially, national governments initiating contract-for-differences (CfDs) to drive further investment activity in new plant-with virtually no coordination between the jurisdictions. In a gross pool energy-only market setting, replacing on-market transactions between retailers and generators with off-market transactions between governments and generators may have unintended side-effects vis-a-vis market stability. In this article, an energy-only gross pool is modeled with rising levels of off-market government-initiated CfDs, with a specific focus on spot and forward contract market outcomes. Model results show that as VRE plant enters, coal plant exit, and on-market firm hedge contracts historically supplied by coal plant are progressively replaced by off-market CfDs. In the event, while a tractable equilibrium can be maintained in the spot market, shortages of primary issuance hedge contracts emerge in the forward market. Any shortage of hedge contract capacity is likely to raise forward contract price premiums above efficient levels, force price-elastic customers into accepting unwanted spot market exposures and may unintentionally foreclose non-integrated (2nd tier) energy retailers, all of which harms consumer welfare. A wide-ranging program of government CfDs may therefore not be compatible with an energy-only market design. |
The Practice and Potential of Renewable Energy Localisation: Results from a UK Field Trial (2019) 🗎🗎 | The adaptation of electricity demand to match the non-despatchable nature of renewable generation is one of the key challenges of the energy transition. We describe a UK field trial in 48 homes of an approach to this problem aimed at directly matching local supply and demand. This combined a community-based business model with social engagement and demand response technology employing both thermal and electrical energy storage. A proportion of these homes (14) were equipped with rooftop photovoltaics (PV) amounting to a total of 45 kWp; the business model enabled the remaining 34 homes to consume the electricity exported from the PV-equipped dwellings at a favourably low tariff in the context of a time-of-day tariff scheme. We report on the useful financial return achieved by all participants, their overall experience of the trial, and the proportion of local generation consumed locally. The energy storage devices were controlled, with user oversight, to respond automatically to signals indicating the availability of low cost electricity either from the photovoltaics or the time of day grid tariff. A substantial response was observed in the resulting demand profile from these controls, less so from demand scheduling methods which required regular user configuration. Finally results are reported from a follow-up fully commercial implementation of the concept showing the viability of the business model. We conclude that the sustainability of the transition to renewable energy can be strengthened with a community-oriented approach as demonstrated in the trial that supports users through technological change and improves return on investment by matching local generation and consumption. |
Financial de-risking to unlock Africa's renewable energy potential (2019) 🗎🗎 | African countries are in a unique position to reap the socio-economic and environmental benefits of renewable resources as a means for meeting increasing energy demand in a sustainable way. A critical obstacle for the deployment of renewable energy technologies in Africa is the difficulty of attracting sufficient and affordable finance. This paper compares the impact of financial conditions on the cost of electricity generation across six renewable and three fossil-based technologies in 46 African countries. The results show large cost variations and highlight the extent to which renewables are disadvantaged by current financial practices. The energy-economy-environment model TIAM-ECN is used to show how lowering financing costs results in a much higher deployment of renewables. For example, solar PV could account for 10-15% of total electricity generation by 2050, even without explicit climate policy, thanks to financial de-risking programmes. The results demonstrate that changes in financing schemes could outweigh the impact of technology learning. This paper also demonstrates that, once ambitious climate policies are in place, reducing financing costs for renewables could be an efficient way to lower greenhouse gas emissions. Financial de-risking is thus a key ingredient for unlocking the renewable energy potential in Africa. |
Ex-post evaluation of clean production agreements in the Chilean industrial sectors (2019) 🗎🗎 | Voluntary agreements (VAs) have become an attractive instrument to encourage clean production in the world, since they can be adapted to each industrial sector and country in which they are implemented. In Chile, VAs are known as Clean Production Agreements/Acuerdos de Produccion Limpia (APLs). In this context, the present study aims to perform an ex - post evaluation of the APLs that have been signed and implemented in different industrial sectors of Chile to establish if there is a causal relationship between this program and the reduction in consumption of water, electricity, fuels and CO2 emissions. For the above, a pseudo-panel technique is used with data from firms that are grouped into cohorts by industrial sector according to the ISIC code, which are obtained from the different versions of the Annual National Industrial Survey between 2001 and 2014. The results show that the APLs have only contributed to significantly reduce the consumption of fuel oil (46.8%) and liquefied petroleum gas (15.7%), which coincides with a statistically significant reduction in CO2 emissions (11.2%). Therefore, it can be concluded that the APLs have been successful, but that they also require improvements in their design to reduce the consumption of water, electricity and of other fuels. (C) 2018 Elsevier Ltd. All rights reserved. |
The effect of price regulation on energy imbalances: A Difference in Differences design (2019) 🗎🗎 | Providing adequate incentives to schedule energy programs accurately is a critical feature of liberalized electricity markets, particularly those with large shares of intermittent, renewable energy resources. In this regard, two main regulatory approaches are widely adopted in Europe. The single pricing scheme rewards or penalizes market agents according to the impact of their individual imbalances on the system imbalance. The dual pricing scheme penalizes (at best does not reward) all individual energy imbalances. This study theoretically identifies and then provides supporting empirical evidence of potential inconsistencies between market agents' balancing responsibility and the economic incentives provided by these pricing rules (de facto, opportunities for arbitrage in sequential markets). The causal effect of imbalance price regulations on the volume of the energy imbalances is investigated by exploiting a quasi-experimental change in regulation in the Italian power system. A difference-in-differences design provides robust evidence that the volume of intentional imbalances significantly decreases when moving from a single to dual pricing scheme. We conclude that the economic incentives of a dual pricing scheme are better aligned with a market agent's responsibility to be balanced and worth of further consideration from a policy perspective. (C) 2019 Elsevier B.V. All rights reserved. |
Impact of state policies on generating capacity for production of electricity and combined heat and power from forest biomass in the United States (2019) 🗎🗎 | This research enhances the understanding of the complex relationship between state policies and decisions to invest into bioenergy generation capacity. Specifically, the paper evaluates the impact of state policies on large-scale generating capacity (over 1 Megawatt) for production of electricity and combined heat and power from forest biomass in the United States. Controlling for state-specific factors, the article investigates which policy types (regulation, information provision, production incentives, tax incentives, or project financing) and policy foci (e.g. policies specifically targeting forest bioenergy vs. renewable energy production in general) were associated with higher bioenergy capacities in the years 2004-2013. The analysis is based on a unique dataset of 450 state bioenergy policies in effect in the years 2003-2012. The introduction of tax incentives (especially tax credits), as well as policy packages with ten or more policies is associated with higher installed bioenergy capacity. In contrast, no statistically significant relationship was found between bioenergy capacity and introduction of production incentives, project financing, and regulations. Apart from policy impacts, the strongest predictor of installed capacity is the sufficient availability of forest biomass. (C) 2018 Elsevier Ltd. All rights reserved. |
Buffering volatility: Storage investments and technology-specific renewable energy support (2019) 🗎🗎 | Mitigating climate change will require integrating large amounts of highly intermittent renewable energy (RE) sources in future electricity markets. Considerable uncertainties exist about the cost and availability of future large-scale storage to alleviate the potential mismatch between demand and supply. This paper examines the suitability of regulatory (public policy) mechanisms for coping with the volatility induced by intermittent RE sources, using a numerical equilibrium model of a future wholesale electricity market. We find that the optimal RE subsidies are technology-specific reflecting the heterogeneous value for system integration. Differentiated RE subsidies reduce the curtailment of excess production, thereby preventing costly investments in energy storage. Using a simple cost-benefit framework, we show that a smart design of RE support policies significantly reduces the level of optimal storage. We further find that the marginal benefits of storage rapidly decrease for short-term (intra-day) storage and are small for long-term (seasonal) storage independent of the storage level. This suggests that storage is not likely to be the limiting factor for decarbonizing the electricity sector. (C) 2019 Published by Elsevier B.V. |
Residential Consumers' Willingness to Pay Price Premium for Renewable Heat in South Korea (2019) 🗎🗎 | Heat accounts for about one-third of the final energy use and it is mostly produced using fossil fuels in South Korea. Thus, heat production is an important source of greenhouse gas emissions. However, using renewable heat that is directly produced from renewable energy, such as bioenergy, geothermal, or solar heat can save energy and reduce greenhouse gas emissions, rather than transforming conventional fuel into heat. Therefore, an energy policy for renewable heat urgently needs to be established. It is such situations that this paper attempts to assess the consumers' additional willingness to pay (WTP) or the price premium for renewable heat over heat that is produced from fossil fuels for residential heating. To that end, a nationwide contingent valuation survey of 1000 households was conducted during August 2018. Employing the model allowing for zero WTP values, the mean of the additional WTP or premium for one Gcal of heat produced using renewable energy rather than fossil fuels was estimated to be KRW 3636 (USD 3.2), which is statistically meaningful at the 1% level. This value represents the price premium for renewable heat over heat that is based on fossil fuels. Given that the heat price for residential heating was approximately KRW 73,000 (USD 65.1) per Gcal at the time of the survey, the additional WTP or the price premium corresponds to about 5% of that. When considering that the cost of producing renewable heat is still significantly higher than the cost of producing fossil fuels-based heat, more efforts to lower the production costs of renewable heat as well as financial support of the government for producing and supplying renewable heat are needed to ensure residential consumers' acceptance of renewable heat. |
Impact of policy mix concerning renewable portfolio standards and emissions trading on electricity market (2019) 🗎🗎 | Few studies of policy mix concerning renewable portfolio standards (RPS) and emissions trading (ET) investigate a scenario in which the retailer is required to comply with quota obligations. This paper focuses on the impact of RPS, with an ET counterpart, on the electricity market when RPS are imposed on the state grid companies. The evolution game is employed to model transactions between multiple buyers and multiple sellers. The results show that ET enhances the price competitiveness of electricity from renewable energy source (RES-E) and reduces power generating companies' profit at the same time. On the other hand, when the RPS level goes up, the state grid companies gain a windfall created by the difference between the lower wholesale price of thermal power and the unchanging retail price. The windfall will be used to pay for the increasing cost of supporting RES-E. Thus, the thermal power generating companies are confronted with the double cost when introducing ET and RPS, but the state grid companies do not pay for the cost of supporting RES-E. This paper appeals to the Chinese government for the assessment of policy effects from a policy mix perspective. (C) 2018 Elsevier Ltd. All rights reserved. |
Econometric modeling of CO2 emissions abatement: Comparing alternative approaches (2019) 🗎🗎 | As investments and policies that promote renewable energy (RE) projects in electricity systems are most often grounded on the goal of reducing emissions of greenhouse gases, and actual investment and policy decisions are shaped by the estimates of the accrued emissions savings, it is crucial that these estimates are as accurate as possible. In this paper we compare different econometric models that estimate the amount of carbon abated due to RE in terms of their results and their inherent methodological benefits and drawbacks. Specifically, we use the British, French and Spanish grids as case studies for the application of a selection of econometric models and compare the resulting CO2 abatement estimates. We find that, across the three markets, estimates can vary substantially across the different models - this can lead to an over or underestimation of the emissions abated by RE. Overall, our results highlight the need for choosing econometric specifications that lead to results that are congruent with the operational framework of the examined power systems. |
On the Influence of Renewable Energy Sources in Electricity Price Forecasting in the Iberian Market (2019) 🗎🗎 | The mainstream of EU policies is heading towards the conversion of the nowadays electricity consumer into the future electricity prosumer (producer and consumer) in markets in which the production of electricity will be more local, renewable and economically efficient. One key component of a local short-term and medium-term planning tool to enable actors to efficiently interact in the electric pool markets is the ability to predict and decide on forecast prices. Given the progressively more important role of renewable production in local markets, we analyze the influence of renewable energy production on the electricity price in the Iberian market through historical records. The dependencies discovered in this analysis will serve to identify the forecasts to use as explanatory variables for an electricity price forecasting model based on recurrent neural networks. The results will show the wide impact of using forecasted renewable energy production in the price forecasting. |
US federal government subsidies for clean energy: Design choices and implications (2019) 🗎🗎 | Subsidies for clean energy deployment have become a major component of U.S. federal energy and climate policy. After a surge in spending under the American Recovery and Reinvestment Act of 2009, they are an even larger component but now face increased scrutiny. Given their lasting presence, how does one design these subsidies to be as cost-effective as possible? Surprisingly, the conceptual framework and empirical evidence available to help policymakers identify which subsidies generate the most "bang for the buck" are limited. To help answer this question, we begin with an overview of the justifications for, and the arguments against, subsidizing clean energy technologies. Next, we briefly describe major subsidies. Finally, we summarize key design choices, suggesting an increased focus on upfront cash payments for physical outcomes such as capacity. This contrasts with the considerable focus on tax credits, loan guarantees, production, and cost-based subsidies which have been more prominent to date. (C) 2019 Elsevier B.V. All rights reserved. |
Reforming the electric power industry in developing economies evidence on efficiency and electricity access outcomes (2020) 🗎🗎 | Since the 1990s, many developing countries have restructured their electric power industry. Policies such as breaking up, commercializing and privatizing utilities, allowing for independent power producers, installing independent regulators, and introducing competitive wholesale markets were meant to improve the industry's efficiency and service quality. We exploit more than 30 years of data from over 100 countries to investigate the impact of power sector reforms on efficiency (represented by network losses) and access to electricity (represented by connection rates and residential power consumption). Crucially, reforms are likely to be endogenous with respect to sector performance: a crisis in electricity supply might well trigger reform efforts. We deal with endogeneity using reform activity in neighboring countries as an instrument. Our results suggest that reforms strongly and positively impact electricity access. According to our preferred specification, a full reform program would increase connection rates by 20 percentage points and per capita consumption by 62 percent: these are large effects that are stable across a range of robustness checks. Moreover, the effect of improving access is largest in South Asian countries. In contrast to previous studies, we do not find robust evidence to support the theory that reforms reduce network losses. |
Market diffusion of household PV systems: Insights using the Bass model and solar water heaters market data (2020) 🗎🗎 | This paper aims to present insights about distributed photovoltaic (PV) generation technology diffusion in the household market. A quantitative approach using the Bass model to project distributed PV systems adoption is chosen to base and conduct the analysis. Since distributed PV in Brazil still presents a very small market penetration, historical data is still insufficient to obtain robust estimates. Therefore, parameters from PV markets of other countries and parameters from the solar water heaters (SWH) market in Brazil are used in the analysis. The latter approach is carefully justified. A comparative analysis of distributed PV and SWH market features indicates that SWH diffusion parameters lead to a better representation of innovators behavior for residential PV adoption in Brazil than the parameters borrowed from other countries, which are used by the official projections performed by the Brazilian regulator of the electricity sector. Moreover, we propose a different approach for estimating the final potential market. We discuss the limitations of the official projections, since results indicate that official projections overestimated the diffusion of residential PV market in the early years. Finally, it is suggested that inaccurate signals could be given to stakeholders. (C) 2020 International Energy Initiative. Published by Elsevier Inc. All rights reserved. |
Predicting collusive patterns in a liberalized electricity market with mandatory auctions of forward contracts (2020) 🗎🗎 | In this paper, the main objective is to analyze the effect of the introduction of regulated long-term tariffs in liberalized electricity generation markets, which are supposed to guarantee reasonable and predictable prices to consumers. Several authors have argued that the introduction of this kind of regulation increases competition and leads to offer prices closer to marginal costs. Spanish electricity market brings a unique opportunity to analyze and use mandated auctions as a natural experiment (fixed-price contracts that were implemented between 2007 and 2013). The main contribution of this study is to develop and to validate the hypothesis of the existence of strong incentives to increase prices in daily electricity markets when fixed long-term tariffs are applied. Using triple difference-in-differences, we find that prices increased 15 percent 70 days before the mandated auctions (compared to a control group: Nord Pool market) and that effect disappeared once the auction was no longer carried out. The theoretical and the empirical findings support our policy implications: The uncompetitive outcome seems to be driven by a highly concentrated market, a high elasticity to react to competitive regulations, a context of high volatility and the particularities of the auction design. |
Impact of Long-Term Water Inflow Uncertainty on Wholesale Electricity Prices in Markets with High Shares of Renewable Energies and Storages (2020) 🗎🗎 | Renewable energy shares in electricity markets are increasing and therefore also require an increase in flexibility options. Conventional electricity price modelling with optimisation models in thermally dominated markets is not appropriate in markets with high shares of renewable energies and storages because price structures are not adequately represented. Previous research has already identified the impact of uncertainty in renewable energy feed-in on investment and dispatch decisions. However, we are not aware of any work that investigates the influence of uncertainties on price structures by means of optimisation models. Appropriate modelling of electricity price structures is important for investment and policy decisions. We have investigated the influence of uncertainty concerning water inflow by applying a second stage stochastic dual dynamic programming approach in a linear optimisation model using Norway as an example. We found that the influence of uncertainty concerning water inflow combined with high shares of storages has a strong impact on the electricity price structures. The identified structures are highly influenced by seasonal water inflow, electricity demand, wind, and export profiles. Additionally, they are reinforced by seasonal primary energy source prices and import prices. Incorporating uncertainties in linear optimisation models improves the price modelling and provides, to a large extent, an explanation for the seasonal patterns of Norwegian electricity market prices. The paper explains the basic pricing mechanisms in markets with high shares of storages and renewable energies which are subject to uncertainty. To identify these fundamental mechanisms, we focused on uncertainty regarding water inflow, but the basic results hold true for uncertainties regarding other renewable energies as well. |
Coal phase-outs and carbon prices: Interactions between EU emission trading and national carbon mitigation policies (2020) 🗎🗎 | The European Union Emission Trading System (EU ETS) constitutes the core instrument of the European Union climate protection policy. It limits greenhouse gas emissions of its member states and aims at facilitating an efficient allocation of emission reduction across national borders. Accompanying this policy at the European level, individual member states have introduced national mitigation policies, including renewable energy (RES) expansion measures or coal phase-outs. This study examines to what extent national policies affect the effectiveness of the EU ETS and to what degree the impact is reflected in prices for European Union Allowances (EUA). To investigate this question, a fundamental optimization model of the European electricity markets is deployed and model endogenous EUA prices are derived with a set of future market scenarios. Overall findings indicate that fundamental market forces strongly affect EUA prices. Furthermore, national policies play a critical role: The expansion of RES does not affect the capacity of the EU ETS to provide sufficient price signals for the desired level of decarbonization but a coal phase-out has a strong price-suppressing effect. A withdrawal of certificates can re-establish the effectiveness of the EU ETS but prices can rise drastically when overestimating the necessary amount. |
Effects of long-term tariff regulation on investments under low credibility of rules: Rate-of-return and price cap in Russian electricity grids (2020) 🗎🗎 | The transition from a short-term cost-plus tariff regulation to either a long-term rate-of-return or long-term price cap regulation in Russia started in 2009 and was completed in 2012, causing substantial changes in investment over the course of the reform. We estimate panel data of 46 Russian electricity distribution entities with a dynamic investment model using the system generalized method of moments and addressing potential endogeneity issues. We show that, despite the noncredible regulatory policy, the transition from short-to long-term regulation had a positive and significant effect on the investment rate of regulated entities. The specific long-term regulation design applied in Russia from 2008 to 2017 (either rate-of-return or price cap) had no effect on the investment rate. These results are important for the introduction of changes in regulatory frameworks in developing countries. |
Exploring investment potential in a context of nuclear phase-out uncertainty: Perfect vs. imperfect electricity markets (2020) 🗎🗎 | In view of the ongoing nuclear power debate in Europe, we analyze how uncertainty about a nuclear phaseout affects investment capacity decisions by Belgian electricity suppliers depending on the type of market structure considered. To achieve this goal, we build a structural model and solve it by using game-theoretic and optimization approaches, in order to consider the different types of market structure, namely oligopoly (simplified to a duopoly in this case), and the two extremes of the competition spectrum, i.e., monopoly and perfect competition. We show that higher levels of investment in new electricity generation capacity are reached with decreasing probability of nuclear license extension and/or with higher levels of competition in the market. Moreover, investments in perfectly competitive markets are less influenced by changes in the probability of future nuclear license extension, resulting in a more stable long-term investment climate. However, the consideration of possible changes in market structure and gradual nuclear phase-out is crucial in order to not overestimate investment potential in Belgium. |
The future of coal and renewable power generation in Australia: A review of market trends (2020) 🗎🗎 | Recent estimates of the levelized cost of energy (LCOE) indicate a watershed moment where market forces have become the foremost driver in the replacement of coal by renewable sources. Current studies indicate an energy market is emerging in which not only new renewable plants are more cost effective than new coal fired power plants (CFPPs), but also the former is becoming more cost effective than existing CFPPS on a levelized cost of energy (LCOE) basis. However, an accelerated retirement of existing CFPPs depends both on the price received by power plants on a time weighted basis and on the total cost of energy which, in addition to the LCOE, takes into account costs of distribution and storage needed to overcome intermittent supply. We use Australia - which is undergoing the world's most rapid decarbonisation of power consumption - as a case study to analyse the economics of this transition and to identify its key drivers. In doing so, we provide an updated estimate of the LCOE for renewable and non-renewable power sources for Australia. We confirm that, currently, the LCOE of both solar PV and wind are substantially below that of coal. It is pointed out that LCOEs are an imperfect metric to gauge the rate of transition which will equally depend on total costs of energy and the prices received by energy providers. However, accounting for total costs (most importantly the cost of intermittency and distribution) we show that, combined with other types of non CFPP storage, the time weighted average price received for renewable power is now above that of CFPPs. In Australia, that is being reflected in purchasing power agreements and auction prices for current and future commercial solar and wind projects. Taking into account the strong and continuing downward trajectory of renewables' total costs we find that a market forces driven further acceleration of the retirement of Australian CFPPs could occur if Government policy does not intervene. (C) 2020 Published by Elsevier B.V. on behalf of Economic Society of Australia, Queensland. |
Insights on Germany's Future Congestion Management from a Multi-Model Approach (2020) 🗎🗎 | In Germany, the political decision to phase out nuclear and coal-fired power as well as delays in the planned grid extension are expected to intensify the current issue of high grid congestion volumes. In this article, we investigate two instruments which may help to cope with these challenges: market splitting and the introduction of a capacity mechanism. For this purpose, we carry out a comprehensive system analysis by jointly applying the demand side models FORECAST and eLOAD, the electricity market model PowerACE and the optimal power flow model ELMOD. While a German market splitting has a positive short-term impact on the congestion volumes, we find the optimal zonal delimination determined for 2020 to become outdated by 2035 resulting in new grid bottlenecks. Yet, readjusting the zonal configuration would lower the ability of the market split to provide regional investment incentives. Introducing a capacity mechanism with a congestion indicator allows allocating new power plants in regions with higher electricity demand. Consequently, we find the required congestion management to be substantially reduced in this setting. However, given the large amount of design parameters, any capacity mechanism needs to be carefully planned before its introduction to avoid new inefficiences on the market side. |
Managing the liberalization of Italy's retail electricity market: A policy proposal (2020) 🗎🗎 | Italy will phase out electricity retail price regulation by July 1st, 2020. Until then, residential customers and small businesses who do not choose their supplier are served under a regulated tariff named "maggior tutela" (greater protection), supplied by the local distributor at a price set by the regulator. We review the literature on electricity retail competition - with particular regard to its expected effects on prices, innovation, and customer engagement - and the conditions under which competition is expected to deliver benefits. We perform a Structure-Conduct-Performance analysis of Italy's retail electricity market for residential customers, finding two issues potentially problematic: excessive market concentration and low customer engagement. We propose a phase-out mechanism that relies on graduality, asymmetric regulation, and a mandatory, opt-out collective switching exercise. The mechanism aims to rapidly reduce market concentration by leveraging behavioral incentives to customers to switch to the cheapest supplier. |
Nuclear decommissioning after the German Nuclear Phase-Out an integrated view on new regulations and nuclear logistics (2020) 🗎🗎 | With Germany's nuclear phase-out, 23 reactors need to be dismantled in the near future. Initiated by the difficult financial situation of affected utilities in 2014, a major discourse on ensuring financial liability led to a redistribution of liabilities and finances, with the utilities remaining in charge of dismantling, while liability for interim and final storage now transferred to the public. This paper assesses whether the new regulation is ultimately likely to be to the benefit of the public. It introduces a two-stage stochastic optimization framework encompassing the different dismantling phases, resulting waste flows and storage levels of low- and intermediatelevel waste (LLW and ILW) as well as the associated costs. Results show that storage risk - proclaimed as a major barrier to efficient decommissioning - is not a major driver for the optimal decommissioning schedule. However, a delay of ten years might increase interim storage costs now borne by the public by over 20%. Lacking experience and handling capacity of the industry could significantly shrink the buffer currently included in utility funds in order to deal with dismantling uncertainties. Our analysis reveals the storage gate as the new crucial interface between utilities and the public storage provider. |
Identification of the Efficiency Gap by Coupling a Fundamental Electricity Market Model and an Agent-Based Simulation Model (2020) 🗎🗎 | A reliable and cost-effective electricity system transition requires both the identification of optimal target states and the definition of political and regulatory frameworks that enable these target states to be achieved. Fundamental optimization models are frequently used for the determination of cost-optimal system configurations. They represent a normative approach and typically assume markets with perfect competition. However, it is well known that real systems do not behave in such an optimal way, as decision-makers do not have perfect information at their disposal and real market actors do not take decisions in a purely rational way. These deficiencies lead to increased costs or missed targets, often referred to as an "efficiency gap". For making rational political decisions, it might be valuable to know which factors influence this efficiency gap and to what extent. In this paper, we identify and quantify this gap by soft-linking a fundamental electricity market model and an agent-based simulation model, which allows the consideration of these effects. In order to distinguish between model-inherent differences and non-ideal market behavior, a rigorous harmonization of the models was conducted first. The results of the comparative analysis show that the efficiency gap increases with higher renewable energy shares and that information deficits and policy instruments affect operational decisions of power market participants and resulting overall costs significantly. |
Evaluating the economic return to public wind energy research and development in the United States (2020) 🗎🗎 | The U.S. government has invested in wind energy research since 1976. Building on a literature that has sought to develop and apply methods for retrospective benefit-to-cost evaluation for federal research programs, this study provides a quantitative analysis of the economic social return on these historical wind energy research investments. Importantly, the study applies multiple innovative methods and varies important input parameters to test the sensitivity of the results. The analysis considers public wind research expenditures and U.S. wind power deployment over the period 1976-2017, while also accounting for the full useful lifetime of wind projects built over this period. Assessed benefits include energy cost savings and health benefits due to reductions in air pollution. Overall, this analysis demonstrates sizable, positive economic returns on past wind energy research. Under the core analysis and with a 3% real discount rate, the net benefits from historical federal wind energy research investments are found to equal $31.4 billion, leading to an 18 to 1 benefit-to-cost ratio and an internal rate of return of 15.4%. Avoided carbon dioxide emissions are not valued in monetary terms, but are estimated at 1510 million metric tons. Alternative methods and input assumptions yield benefit-to-cost ratios that fall within a relatively narrow range from 7-to-1 to 21-to-1, reinforcing in broad terms the general finding of a sizable positive return on investment. Unsurprisingly, results are sensitive to the chosen discount rate, with higher discount rates leading to lower benefit-to-cost ratios, and lower discount rates yielding higher benefit-to-cost ratios. |
How to deal with the risks of phasing out coal in Germany (2020) 🗎🗎 | Germany has an ambitious climate target for 2030 that cannot be achieved without reducing the high share of coal in power generation. In the face of this, the government has recently decided to directly phase out coal capacity. Yet implementing such a policy comes with two important risks: (1) the decommissioning path might actually be insufficient to reach the 2030 climate target; and (2) the waterbed effect that arises from any additional national policy within the EU Emissions Trading Scheme (EU ETS) cap. In this paper, we quantify these risks using the numerical electricity market model LIMES-EU, and consider options for dealing with them. Our results show that the coal capacity phase out risks missing the 2030 target slightly, but a carbon price floor of at least 35 (sic)/tCO(2) would eliminate this risk. Further, we find a substantial waterbed effect, which could be partly alleviated through a carbon price floor coalition of countries, and even fully by cancelling 1.1 GtCO(2) of certificates. Yet given the difficulties and challenges that come with either option, members implementing a carbon price floor policy should advocate extending it to the full EU ETS level. (C) 2020 Elsevier B.V. All rights reserved. |
Incumbent's Bane or Gain? Renewable Support and Strategic Behavior in Electricity Markets (2020) 🗎🗎 | Incumbent firms play a decisive role in the success of renewable support policies. Their investments in renewables as well as their operational strategies for their conventional CO2 emitting technologies affect the transition to a sustainable energy system. We use a game theoretical framework to analyze incumbents' reactions to different renewable support policies, namely feed-in tariff (FIT), feed-in premium (FIP), and auction-based policies. We show that a regulator should choose a support scheme based on concerns about either market power or emission abatement: in FIT-based policies, the inctumbent's strategic behavior leads to lower CO2 emissions, but a higher market price compared to FIT-based policies. Furthermore, for FIP-based policies, the regulator might want to incentivize incumbents directly (to further reduce CO2 emissions) or newcomers (to further reduce market power). Particularly in FIP-based auctions, incumbents have the incentive to obtain all auctioned capacity, which could lead to an unchanged market price despite the entrance of new capacity into the market. |
The price is right? How pricing and incentive mechanisms in California incentivize building distributed hybrid solar and energy-storage systems (2020) 🗎🗎 | Distributed energy resources, including photovoltaic solar and energy storage, are seeing increased deployment. The optimal configuration and operation of these resources depend on several external factors, including energy pricing, incentive programs, and the provision of capacity payments. We model, as a mixed-integer optimization problem, the design and operation of a hybrid energy system that consists of photovoltaic solar arrays that are coupled with energy storage using a shared inverter. We apply our optimization model to a case study that considers two locations in California and a variety of pricing and subsidy regimes. We demonstrate that a well designed time-variant retail tariff provides reasonable incentives for building and operating a hybrid energy system. On the other hand, investment tax credits and the provision of capacity payments can be considerably more distortionary. In particular, constraints that govern the investment tax credit in the United States can hamper significantly the deployment of the hybrid energy systems that we examine. |
Neither crowding in nor out: Public direct investment mobilising private investment into renewable electricity projects (2020) 🗎🗎 | Rapid structural change towards a low-carbon energy supply requires significant additional investments into innovative but high-risk low-carbon technologies. Mobilising greater private investments requires applying the right policy instruments, but while fiscal measures and regulation have been well researched, systematic quantitative evidence about the effect of public direct investment is lacking. Absent empirical evidence, contradictory theoretical arguments claim that such public (co-)investments either 'crowd out' or 'crowd in' private investors. In this paper we show that the macroeconomic concept of crowding out/in is inapplicable to sectoral studies such as of renewable electricity. Instead, both neoclassical microeconomics and evolutionary economics suggest public direct investment to have a positive effect due to either externalities or market creation effects. We also provide the first quantitative estimate of the effect of public direct investment on private investment into renewable electricity technologies for 17 countries in the period 2004-2014. Using FGLS and static and dynamic GMM estimators, we find that public investments not only have a positive but also consistently the largest effect on private investment flows relative to feed-in tariffs, taxes and renewable portfolio standards in general, and for wind and solar technologies separately. Implications for policy aimed at accelerating the low-carbon transition are discussed. |
Linking carbon market and electricity market for promoting the grid parity of photovoltaic electricity in China (2020) 🗎🗎 | In order to achieve the power supply change from traditional energy to clean energy in China, improving the grid parity rate of photovoltaic (PV) power is a key problem to be addressed. To establish a harmonious grid price between PV power and coal-fired power, this paper investigates the impact of carbon emission quota (CEQ) price on both PV power revenue and efficiency by constructing the carbon -electricity linkage mode with following innovative works. First, we set a trading mechanism that involves PV power plants and links carbon-electricity markets, and then propose market clearing rules for both CEQ and PV power prices. Second, we integrate market factors into the framework of power cost structure of different power sources based on the Life Cycle Cost (LCC) Theory. Third, we characterize the volatility of CEQ prices by offsetting the reduced fiscal subsidy of PV power and balancing grid price of different power sources. Our key findings show that the plan of improving current trading linkage of carbon-electricity market and grid parity scheme of PV power will be brought forward to 2023 that is 2 years ahead of schedule. What's more, in the case of completely cancelling subsidy, CEQ price should be tripled by using this linkage to accelerate PV grid parity. By showing the possible trading benefit of carbon markets, this paper will help reduce the generation cost of PV power grid connection. (C) 2020 Elsevier Ltd. All rights reserved. |
Patience is a virtue: A data-driven analysis of rooftop solar PV permitting timelines in the United States (2020) 🗎🗎 | Local permitting can ensure the safe installation and operation of rooftop solar photovoltaic (PV) systems. At the same time, burdensome local permitting processes and local variation in requirements may pose challenges to PV deployment. In this article, we explore new data on the durations between key steps in the PV permitting process in the United States. The data suggest that a typical customer can expect to wait around 25-100 days from permit application until an installed system passes inspection. Permit durations vary significantly across jurisdictions, due in part to differences in local permitting policies. However, permit durations vary as significantly within jurisdictions as across them, in part due to significant variation across installers, suggesting that installer strategies and practices play an important role in permitting timelines. Permit durations have declined over time, reflecting progress from permit streamlining policies and jurisdiction learning-by-doing, though durations have stabilized in recent years. The data suggest that typical PV customers still face long and uncertain permitting timelines in the United States. |
Carbon Tax and Trading Price on Power Plant with Carbon Capture and Storage under Incentive Regulation Theory (2020) 🗎🗎 | This paper investigates how the government can develop subsidies or tax policies to incent power plants to effectively carry out carbon capture to reduce carbon emissions. According to the government's incentive model for carbon capture power plants, the regulation mechanism is developed when government controls carbon emission. When regional or national carbon emission quota is tense, significant effect can be obtained when regulators make regulations to take off low efficiency power plants. In addition, it is verified that the regulators should not blindly pursue a reduction in carbon emissions regardless of the cost. Therefore, regulators need to pay more attention to control the costs of carbon capture equipment and technology. Finally, by parametric and numerical analyses, the conditions of the power plant to maximize corporate surplus are further studied. |
Strategic business risk evaluation for sustainable energy investment and stakeholder engagement: A proposal for energy policy development in the Middle East through Khalifa funding and land subsidies (2020) 🗎🗎 | This article projects business risk through deferent industrial scenarios in concentrated solar investments in the United Arab Emirates (UAE). Nationwide, the government seeks a sustainable solution through energy policy development and engagement of the stakeholders for clean energy generation at wider level in the long run. Support has been extended through various support schemes. In the current study, Monte Carlo simulations and net present value (NPV) risk are used to analyse the return on investment. A 5 MW concave solar panel project is evaluated. We have assessed the impact of local factors on profits through NPV. The study proposes that a higher NPV is expected if the concave solar panel project is financed 50% by Khalifa funding. The study also proposes a robust policy and highlights the opportunity of business profitability if the government subsidises land leasing with respect to each scenario. Additionally, the study also proposes a policy to maintain the interests of investors in the UAE. |
Renewable energy support policy evaluation: The role of long-term uncertainty in market modelling (2020) 🗎🗎 | Policy makers are tasked with selecting, designing, and implementing policies to support the transition to a sustainable power system. As part of the task, they often turn to models to quantify and compare the options available to them. In this work, we investigate the importance of the approach to representing long-term uncertainty in the modelling used to evaluate different decarbonisation or renewable support policies. We compare six different policies options; a cap on CO2 emissions (as with a cap and trade scheme), a CO2 price, a renewable capacity target, a green certificates scheme, a renewable generation subsidy, and a renewable capital grant. In a case study of a small power system, we find that using common modelling approaches that attempt to capture uncertainty as multiple different independent scenarios (such as scenario analysis or Monte-Carlo simulation) perform poorly at representing the reaction of a competitive electricity market as measured by a stochastic optimisation model. We find that a policy maker using this approach to make decisions could set a policy 55% more restrictive than required to meet their target. Further, we find that a deterministic model that ignores uncertainty can underestimate carbon abatement costs by up to 86%. Incorporating uncertainty as individual scenarios only slightly improves this result and biases the estimated costs between price and quantity based approaches. Modelling scenarios individually underestimates the cost of quantity targeting policies by up to 66% and overestimates the cost of price based policies by up to 4%. Finally, we find that incorporating uncertainty as individual scenarios results in wind being selected as the most cost efficient technology to respond to decarbonisation policies, on average. However, when considering that decision makers must invest under uncertainty, solar capacity is preferable. The results provide a strong case for the use of the stochastic optimisation approach to incorporating long-term uncertainty into electricity market modelling for renewable energy support policy analysis, despite the additional computational burden. |
Regulatory jurisdiction and policy coordination: A bi-level modeling approach for performance-based environmental policy (2020) 🗎🗎 | This study discusses important aspects of policy modeling based on a leader-follower game of policymakers. We specifically investigate non-cooperation between policymakers and the jurisdictional scope of regulation via bi-level programming. Performance-based environmental policy under the Clean Power Plan in the United States is chosen for our analysis. We argue that the cooperation of policymakers is welfare enhancing. Somewhat counterintuitively, full coordination among policymakers renders performance-based environmental policy redundant. We also find that distinct state-by-state regulation yields higher social welfare than broader regional regulation. This is because power producers can participate in a single power market even under state-by-state environmental regulation and arbitrage away the CO2 price differences by adjusting their generation across states. Numerical examples implemented for a stylized test network illustrate the theoretical findings. |
Quantifying the effect of renewable generation on day-ahead electricity market prices: The Spanish case (2020) 🗎🗎 | The penetration of renewable generation has grown since the electricity sector has been deregulated. To account for that, this paper proposes a methodology to estimate the downward effect of renewable generation participation upon the day-ahead electricity market prices, since such an effect is quite intuitive observing the merit order of the generating units. The European Electricity Market Matching Algorithm (EMMA) is currently based on Euphemia (Price Coupling of Regions), though there are several differences among countries across Europe. The new algorithm proposed uses market orders, which include aggregate hourly orders such as aggregate supply and demand curves. These orders are simple orders and the marginal price is affected by complex orders, especially by the minimum income condition (MIC) used in the Iberian Electricity Market and considered in our proposed algorithm. A case study of the Spanish day-ahead electricity market is evaluated for 2015, for which a daily generation sample is composed of 16 days in 2015. The sample is created following the characteristics of thermal production, renewable production and inframarginal production. The conclusions are drawn comparing the simulations of the real marginal prices and the new marginal prices after incorporating renewable generation participation into the aggregate demand curve at the maximum price. (c) 2020 Elsevier B.V. All rights reserved. |
Offshore wind competitiveness in mature markets without subsidy (2020) 🗎🗎 | Offshore wind energy development has been driven by government support schemes; however, recent cost reductions raise the prospect of offshore wind power becoming cheaper than conventional power generation. Many countries use auctions to provide financial support; however, differences in auction design make their results difficult to compare. Here, we harmonize the auction results from five countries based on their design features, showing that offshore wind power generation can be considered commercially competitive in mature markets. Between 2015 and 2019, the price paid for power from offshore wind farms across northern Europe fell by 11.9 +/- 1.6% per year. The bids received in 2019 translate to an average price of euro51 +/- 3 MWh(-1), and substantially different auction designs have received comparably low bids. The level of subsidy implied by the auction results depends on future power prices; however, projects in Germany and the Netherlands are already subsidy-free, and it appears likely that in 2019 the United Kingdom will have auctioned the world's first negative-subsidy offshore wind farm. Offshore wind power has often been assumed to be costly and dependent on subsidies to survive. Using the latest auction data from five European countries Jansen et al. show that in mature markets offshore wind is already competitive without subsidies. |
Individual ground source heat pumps: Can district heating compete with real estate owners' return expectations? (2020) 🗎🗎 | Technological development has decreased costs and improved the efficiency of heat pumps (HPs). In some cases, heat produced with HPs is already less expensive compared to district heating (DH) systems that have high market shares in many European countries. This has generated a phenomenon in which old customers are leaving DH systems, and new customers are not joining DH even if it is available. The study evaluates the economic performance of alternative heating systems (DH, ground source HP with electricity, and a hybrid of these two) for new buildings in selected city in Finland: residential, office, retail and industrial. The aim of this study is to demonstrate the rationale for property owners to invest in ground source HPs. In addition, the study examines whether DH pricing can be developed to improve the competitiveness against HP systems. The results show that currently, HPs are highly profitable for all studied customer types with current DH pricing models used in selected DH company. However, with new pricing models, the competitiveness of DH improves substantially. In conclusion, we suggest that DH companies renew their pricing models to include several customers segments as well as hybrid heating customers. |
Economic Analysis of Renewable Energy Regulation in France: A Case Study for Photovoltaic Plants Based on Real Options (2020) 🗎🗎 | In this work, a novel methodology based on the real options theory has been developed for the evaluation of photovoltaic energy projects with a capacity greater than 100 KW in France. French legislation that regulates these types of projects presents two real options: on the one hand, the producer has a put option that consists of choosing between a Feed-in Tariff system and electricity market sale prices every year, and this put option coincides with public subsidies granted by the French Administration. On the other hand, the French Administration has a call option that provides a benefit to the public sector. This option supposes a limit on the subsidized production of electricity and reduces the value of the project to the promoter. The value of the put option is 4.28 Euro per MWh generated. The Extended Net Present Value has a value of -5.26 million Euros. The breakeven point of the project is achieved with an increase of 59% in the regulated rate. This means that the French Administration must increase the value of public subsidies if it wants to develop large-scale projects. |
Cash vs. solar power: An experimental investigation of the remuneration-related design of community solar offerings (2020) 🗎🗎 | This paper investigates the effect of two different community solar remuneration models on the overall willingness to buy of Swiss electricity customers (n = 496). Based on practical observation, the two main remuneration models that dominate today's implementation landscape for community solar were identified. The first of the former delivers solar power directly from community solar plants, while the second delivers financial compensation instead of solar power. A between-subject-design experiment applying pro-environmental behavior as approximation for intrinsic motivation demonstrated that remuneration schemes which avoid mentioning financial benefits and instead compensate customers with the solar power are particularly attractive to green electricity customers who have higher intrinsic motivation to consume pro-environmental electricity. Offering financial benefits may even discourage these customers from participating in community solar. On the other hand, offering financial benefits appeals to default electricity customers whose intrinsic motivation for proenvironmental behavior is too weak to trigger a reaction to the ecological and local benefits of community solar alone. When designing policies around community solar or implementing community solar projects, policy makers and practitioners should thus carefully analyze the customer base and its composition in order to match remuneration schemes to customer preferences. |
Capital and policy impacts on Australian small-scale solar installations (2020) 🗎🗎 | This paper investigates whether capital constraints are evident for uptake of small-scale solar photovoltaic installations, using cross-sectional regressions with Australian regional data up to March 2019. There is an inverse U-shaped relationship between a number of different measures of capital and small-scale solar installations for both the 0-10 and 10-100 kW capacity categories. The positive relationship between capital and solar installations at the low end of the capital distribution suggests that capital constraints may provide an ongoing challenge for policymakers seeking to encourage the uptake of small-scale solar installations. There is also a negative association between average income and small-scale solar installations. Policymakers seeking to increase small-scale solar installations may achieve efficiency gains by targeting capital constraints rather than income constraints. An effective capital subsidy for addressing capital constraints, the Small-scale Renewable Energy Scheme, has had a substantial impact on solar uptake for systems in both the 0-10 and 10-100 kW capacity categories. In contrast, there is a lack of evidence of a substantial effect of several other policies targeting community organisations. |
The impacts of an integrated European adjustment market for electricity under high share of renewables (2020) 🗎🗎 | The European Commission has set a target of establishing an integrated Europe-wide electricity market for day-ahead and intraday transactions. However, there are still many open questions on the potential benefits of a Europe-wide intraday market integration and the harmonizing market rules. This paper intends to provide a precise insight into the potential impacts of EU policies regarding integrating electricity markets on market efficiency and on different market players with the aim of supporting policy makers to increase the penetration of renewables in a cost efficient manner. In this paper, we investigate and compare the current option of regional intraday electricity market with the option of an integrated Europe-wide one, with reference to the three European test cases with high renewable penetration: the Iberian electricity market including Spain and Portugal, the Italian electricity market including Italy and Slovenia, and the electricity market of Germany. We consider two 2030 scenarios: (i) the regional/local intraday electricity market, and (ii) the integration of the current regional intraday market of the test cases into a single intraday market in Europe. The two scenarios are modelled through stochastic Monte Carlo simulation, considering uncertainty on electricity demand, wind and solar power. The performance of the intraday market under the two options are compared in terms of generation cost, electricity prices, producer' surplus, and load expenditure inside the European test cases. The simulation results lead to the conclusion that integrating to a Europe-wide intraday electricity market is not advantageous for power producers inside the European countries with high share of variable renewable generation, in terms of annual generation surplus. However, from the customers' point of view, intraday market integration is beneficial, leading to lower cost to loads. Furthermore, it is shown that the flexibility provided by the installed capacity of hydro pumped-storage generators within Europe, by 2030, eliminates the planned curtailment of renewable energy sources in day-ahead and intraday markets and confines the impact of market integration on the market performance indicators. |
Alternatives for current net metering policy for solar PV in the Netherlands: A comparison of impacts on business case and purchasing behaviour of private homeowners, and on governmental costs (2020) 🗎🗎 | To stimulate grid-connected solar PV systems on private dwellings, the Netherlands currently have a net metering policy, but questions have been raised on its continuation. In this study, several alternative policy options were assessed on the financial case for private homeowners investing in a PV system (simple payback time), on purchasing behaviour (using a technology adoption model), and on governmental costs. While continuation of net metering policy leads to ongoing improvement of the financial case up to levels that could be considered overstimulation, three policy alternatives can be set up so that they stabilise simple payback times of recent and future generations of PV systems. Under these alternative instruments, deployment of PV systems in this market segment is indicatively estimated to be 15-20% lower by the year 2030 than with continuation of net metering policy, while corresponding governmental cost reduction indications would be more than 50%. We conclude that from a cost effectiveness point of view there is reason to change to an alternative instrument. We did not find any decisive arguments pro or con either of the three alternative instruments, neither on the basis of the three main impacts analysed nor from other aspects reviewed more qualitatively. (C) 2019 The Authors. Published by Elsevier Ltd. |
Does the short-term boost of renewable energies guarantee their stable long-term growth? Assessment of the dynamics of feed-in tariff policy (2020) 🗎🗎 | Feed-in tariff (FiT) is one of the most efficient ways that many governments throughout the world use to stimulate investment in renewable energies (REs) technology. For governments, financial management of the policy could be challenging as it needs a considerable amount of budget to support RE producers during the long remuneration period. In this paper, it has been illuminated that the early growth of REs capacity could be a temporary boost. And the socio-economic structure of the system will backlash the policy if some social mechanisms are not considered. Social tolerance for paying REs tax and potential investors' trust emanated from budget-related mechanisms-which have rarely been considered in the previous researchesare taken into consideration to reflect the roots of the policy resistance behavior. Iran was chosen as the case, which is in the infancy period of FiT implementation with the target of 5 gigawatt (GW) REs capacity until 2021. To illuminate such interrelated complexities, in an integrated framework, system dynamics (SD) methodology was used. Computer simulation shows that the likely financial crisis will not only lead to inefficient REs development after the target time (2021) but may also cause the existing plants to fail. Three alternative policies are tested in the model, and the results demonstrate that the most favorable policy is "adjusting the REs tax on electricity consumption based on budget status" which hits the target in 2021 and reach around 14 GW until 2035 without inducing any negative social externalities and financial crises. Policymakers can use this model to test other scenarios and improve the FiT policy design before the implementation phase. (c) 2020 Elsevier Ltd. All rights reserved. |
Merchant renewables and the valuation of peaking plant in energy-only markets (2020) 🗎🗎 | Merchant renewables are a new asset class. With historically high cost structures and low wholesale prices associated with merit order effects, continuity of entry has been reliant on Renewable Portfolio Standards or other policy initiatives such as government-initiated Contracts-for-Differences. But in Australia's National Electricity Market, sharply falling costs of renewables and volatile wholesale market conditions over the period 2017-2020 led to a surprising number of merchant intermittent renewable investments. Adding to the merchant renewable fleet are older wind plants whose inaugural long-dated PPAs recently matured. Rolling over PPAs is possible, but not necessarily optimal. In this article, a merchant gas turbine, merchant wind, and an integrated portfolio comprising both plants are valued in the NEM's South Australian region. Asset valuations reveal surprising results. The modelling sequence shows stand-alone gas turbine valuation metrics suffer from modest levels of missing money, that merchant wind can commit to some level of forward (fixed volume) swap contracts in-spite of intermittent production, but the combined portfolio tightens overall valuation metrics significantly. Above all, the combined portfolio is financially tractable, overcoming the missing money for a gas turbine plant undertaking peaking duties. In a NEM region where intermittent renewable market share exceeds 50%, this suggests the energy-only, real-time gross pool design may yet be deemed suitable vis-a-vis meeting environmental objectives and Resource Adequacy. (C) 2020 Elsevier B.V. All rights reserved. |
The way towards European electricity intraday auctions - Status quo and future developments (2020) 🗎🗎 | This paper sheds light on the status quo of currently implemented electricity intraday auctions in Europe and offers an outlook for future developments. First, we compare the two market mechanisms "continuous trading" and "auction" and identify advantages and disadvantages. Then, we investigate the currently existing six intraday auctions in Europe. We compare crucial auction characteristics such as the number of auctions, tradable market period(s), gate opening time and gate closure time, and find a wide variety in auction designs. By examining relevant European regulation and recent regulatory decisions, we illustrate that future European intraday auctions can either be implemented as cross-border auctions or complementary regional auctions. We find that complementary regional auctions of the borders Portugal-Spain, CCR Greece-Italy and CCR Italy-North are already approved. |
The short-term costs of local content requirements in the Indian solar auctions (2020) 🗎🗎 | Developing and emerging economies are implementing local content requirements to spur domestic manufacturing, though their costs and benefits are not well understood and difficult to quantify. Here, we provide an empirical assessment of the short-term costs of local content requirements using a credible counterfactual. We analyse data on government-run solar photovoltaic auctions held in India between 2014 and 2017 and exploit the fact that not all of the auctioned contracts entailed local content requirements. We find that local content requirement policies resulted in a similar to 6% per kWh increase in the cost of solar photovoltaic power generated from those projects when compared to similar projects not subject to the same local content requirement policy. During this three-year time period, Indian solar panels remained around 14% more expensive than international panels. We found some evidence of short-term increases in domestic manufacturing capacity, yet during this short period Indian firms did not increase market share or break into export markets. |
The economics of heat pumps and the (un)intended consequences of government policy (2020) 🗎🗎 | In Europe, space and water heating account for approximately 80% of final energy use in the domestic sector. For many European countries the electrification of heat provision, via heat pumps (HPs), provides a promising decarbonisation pathway. The UK is no different, but recently concerns have been raised about the financial attractiveness of HPs given how, through various policy choices, taxes and levies are applied more heavily on electricity bills than gas bills. In this paper, we critically examine this argument by assessing the financial attractiveness of HPs across their lifetime for a typical UK household and within the current UK tax and regulatory regime. The results suggest taxes and levies do weaken the economic case for HPs: their current distribution having an unintended impact on the economics of HPs. Nonetheless, they are not the only reason for HPs comparative financial disadvantage. Upfront costs and HP performance, both influence the extent to which taxes and levies impact the economics of HPs. The results have implications for the future deployment of HPs in the UK and point towards policies to increase deployment (to drive down costs) and increase HP performance as being important. |
Promoting renewable energy through willingness to pay for transition to a low carbon society in Japan (2020) 🗎🗎 | This study aims to assess the impact of willingness to pay (WTP) on achieving future renewable energy (RE) resource targets in Japan. Electricity production from RE is an effective measure to mitigate climate change. As a policy to promote renewable electricity technologies deployment, the cost of RE is generally covered by a levy, which usually ignore user's attitudes or affordability, and may become increasingly dissatisfied by consumer for its increase with the RE expansion. Considering the potentially crucial role of WTP in levy decision for RE, we developed a series of models to simulate WTP through 2030 under three RE development scenarios and two economic growth cases. This allowed evaluation of the necessary investment subsidies for adopting RE to meet national targets in each prefecture of Japan. Median WTP is estimated to increase from approximately 1000 to 2400 JPY/(household$month) during 2015-2030. The investment required to meet future RE targets decreases sharply with increases in WTP by consumers. In particular, for prefectures with high WTP such as Tokyo, the investment required could be covered only by consumers' WTP; no subsidies would be required. These results highlighted the opportunities of WTP assessment for efficient utilization of government subsidies for shifting towards greater use of renewable energy with flexible energy polices by policy-makers. (c) 2020 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). |
Price and subsidy under uncertainty: Real-option approach to optimal investment decisions on energy storage with solar PV (2021) 🗎🗎 | Renewable generation sources still have not achieved economic validity in many countries including Korea, and require subsidies to support the transition to a low-carbon economy. An initial Feed-In Tariff (FIT) was adopted to support the deployment of renewable energy in Korea until 2011 and then was switched to the Renewable Portfolio Standard (RPS) to implement more market-oriented mechanisms. However, high volatilities in electricity prices and subsidies under the RPS scheme have weakened investment incentives. In this study we estimate how the multiple price volatilities under the RPS scheme affect the optimal investment decisions of energy storage projects, whose importance is increasing rapidly because they can mitigate the variability and uncertainty of solar and wind generation in the power system. We applied mathematical analysis based on real-option methods to estimate the optimal trigger price for investment in energy-storage projects with and without multiple price volatilities. We found that the optimal trigger price of subsidy called the Renewable Energy Certificate (REC) under multiple price volatilities is 10.5% higher than that under no price volatilities. If the volatility of the REC price gets doubled, the project requires a 26.6% higher optimal investment price to justify the investment against the increased risk. In the end, we propose an auction scheme that has the advantage of both RPS and FIT in order to minimize the financial burden of the subsidy program by eliminating subsidy volatility and find the minimum willingness-to-accept price for investors. |
Economic feasibility of the investment in residential photovoltaics system considering the effects of subsidy policies: A Korean case (2021) 🗎🗎 | The economic feasibility of the investment is critical for residential users' decision making in investing in photovoltaic (PV) systems because the high costs of installing PV technology may be burdensome. Therefore, governments in many countries have been implementing policies to reduce the economic burden of household users' PV investments and thus promote solar energy to household users. The purpose of this paper is to perform an economic feasibility analysis of investments in residential PV systems that considers the effects of several subsidy plan alternatives using the empirical data of Korea. The result shows that the residential PV investment project would be economically viable without subsidy; however, a payback period exceeds 8 years, which could be perceived by residential customers as too long to be attractive enough to invest in a PV system at present. In addition, we found that the net present value is highest under the production based subsidy scheme, whereas the payback period is shortest with a lump-sum subsidy. |
A machine learning model to investigate factors contributing to the energy transition of utility and independent power producer sectors internationally (2021) 🗎🗎 | There is evidence of independent power producers dominating the electricity sector's uptake of renewable energy, with utilities lagging behind. Here, we build a machine-learning-based model with multiple dependent variables to simultaneously explore environmental policy and market structure contributions to investment patterns in different technologies by utility and independent producer sectors across 33 countries over 20 years. With the analysis enabling the capture of non-linear relationships, our findings suggest substantial resistance of gas capacity to even strict carbon pricing policies, while coal appears more responsive. There is also an indication of policy pricing in effects. The positive link of renewables subsidies and fossil fuel disincentives to renewables expansion, particularly wind, is more prominent for independent power producers than utilities. Regarding market structures, different characteristics tend to matter for renewables growth compared to fossil fuel reductions. The results also suggest considerable differences in policy and market factor contributions to technology choices of Organisation for Economic Co-operation and Development vis-a'-vis emerging economies. |
Internal hedging of intermittent renewable power generation and optimal portfolio selection (2021) 🗎🗎 | This paper introduces a scheme for hedging and managing production costs of a risky generation portfolio, initially assumed to be dispatchable, to which intermittent electricity generation from non-dispatchable renewable sources like wind is further added. The proposed hedging mechanism is based on fixing the total production level in advance, then compensating any unpredictable non-dispatchable production with a matching reduction of the dispatchable fossil fuel production. This means making no recourse to short term techniques like financial hedging or storage, in a way fully internal to the portfolio itself. Optimization is obtained in the frame of the stochastic LCOE theory, in which fuel costs and CO2 prices are included as uncertainty sources besides intermittency, and in which long term production cost risk, proxied either by LCOE standard deviation and LCOE CVaR Deviation, is minimized. Closed form solutions for optimal hedging strategies under both risk measures are provided. Main economic consequences are discussed. For example, this scheme can be seen as a method for optimally including intermittent renewable sources in an otherwise dispatchable generation portfolio under a long term capacity expansion perspective. Moreover, within this hedging scheme, (1) production cost risk is reduced and optimized as a consequence of the substitution of the dispatchable fossil fuel generation with non-dispatchable CO2 free generation, and (2) generation costs can be reduced if the intermittent generation can be partially predicted. |
Make or brake - Rich states in voluntary federal emission pricing (2021) 🗎🗎 | Voluntary participation can improve multilateral environmental governance. We model voluntary participation of states in unanimously approved federal environmental policy. A Paretoimproving federal emission price coexists with state-level emission pricing. Federal revenues are distributed equally per capita (egalitarian), in proportion to states' historical emission levels (sovereignty), or states' actual payments (juste retour). We find that the existence of Paretoimproving uniform federal prices depends on wealth differences, transfer rules, and on whether or not states anticipate transfers. Sovereignty transfers work in all cases. Differences in wealth can undermine egalitarian transfers. Juste retour transfers render federal policy ineffective if states anticipate them. The richest state prefers the lowest Pareto-optimal federal price ("minimum price") as it becomes the largest net-donor. Adding different population sizes, the richest and largest (smallest) state prefers the minimum price with sovereignty and juste retour transfers (egalitarian transfers). Therefore, rich states brake and simultaneously make possible passing unanimous federal policy. |
The effect of contract methods on the lead time of a two-level photovoltaic supply chain: revenue-sharing vs. cost-sharing (2021) 🗎🗎 | In the photovoltaic industry, a large number of photovoltaic power plants are not delivered according to construction schedules, resulting in considerable impacts on various stakeholders. Lead time has been identified as one of the key issues that urgently needs to be resolved. In this paper, we study a two-level photovoltaic supply chain consisting of the customer, the assembler, and the module manufacturer. The basic model, revenue-sharing model, and cost-sharing model are established to analyze the lead time of the module manufacturer and the assembler considering the decline of government subsidies. The results indicate that the cost-sharing contract can effectively control the lead time of the module manufacturer, but the revenue-sharing contract cannot exert this control. Furthermore, if the government subsidy drops from 0.0553 USD/kWh to 0.01195 USD/kWh, the production capacity will be reduced by approximately 37% due to the reduction in installed capacity, and the lead time will decrease by about 27%. For the module manufacturer, when the non-production capacity costs drop by 20%, the profit increases by about 58%. However, when the production capacity costs are reduced by 20%, the profit increases by only about 6%. (c) 2021 Elsevier Ltd. All rights reserved. |
Measuring the effects of environmental policies on electricity markets risk (2021) 🗎🗎 | This paper studies how environmental policies, such as renewable portfolio standards (RPS) and carbon taxes, might contribute to reducing risk exposure in the electricity generation sector. We illustrate this effect by first computing long-term market equilibria of the Chilean generation sector for the year 2035 using a risk-averse planning model, considering uncertainty of hydrological scenarios and fossil fuel prices as well as distinct levels of risk aversion, but assuming no environmental policies in place. We then compare these risk-averse equilibria to generation portfolios obtained by imposing several levels of RPS and carbon taxes in a market with risk-neutral firms, separately. Our results show that the implementation of both policies can provide incentives for investments in portfolios of generation technologies that limit the risk exposure of the system, particularly when high levels of RPS (35%) or high carbon taxes (35 $/tonCO2) are applied. However, we find that in the case of a hydrothermal system, the resulting market equilibria under RPS policies yield expected generation cost and risk levels (i.e. standard deviation of costs) that are more similar to the efficient portfolios determined using a risk-averse planning model than the ones we find under the carbon tax. |
The effect of environmental policies on risk reductions in energy generation (2021) 🗎🗎 | We demonstrate that environmental policies can decrease the risks in energy generation for private investors when several renewable technologies are simultaneously triggered. This is because diverse renewable technologies can hedge the intermittent generation of other forms of renewable power. Our study is distinct from previous literature, which has not examined environmental policies through a risk-reduction analysis, or has only considered a few technologies-such as wind and solar-when analyzing risk-reduction benefits. This paper is important, as environmental policies can be justified not only due to environmental benefits, but also economically from a risk-reduction perspective by using basic diversification gains. (C) 2020 Elsevier B.V. All rights reserved. |
Computing a Strategic Decarbonization Pathway: A Chance-Constrained Equilibrium Problem (2021) 🗎🗎 | US transmission systems and wholesale electricity markets, albeit federally regulated, often span across multiple state jurisdictions. In this environment, state regulators can strategically exploit this techno-economic coupling to advance their clean energy policy goals at the expense of neighboring jurisdictions. This paper investigates strategic regulatory competition to understand its effect on achieving Renewable Portfolio Standards (RPS). We formulate a chance-constrained equilibrium problem with equilibrium constraints (CC-EPEC), which considers multiple state regulators, acting in coordination with in-state power companies, to implement RPS goals in the least-cost manner. To solve this CC-EPEC, we customize a Progressive Hedging (PH) algorithm. The case study uses the CC-EPEC and PH algorithm to analyze the effects of state regulatory competition in the ISO New England system. |
Captive power, market access and macroeconomic performance: Reforming the Bangladesh electricity sector (2021) 🗎🗎 | Integrating the captive capacity with the on-grid supply has been advocated as a way to improve resource utilization in the electricity market in developing and emerging countries. Despite many countries granting Captive Power Plants (CPPs) access to the grid, integration may still be hindered by other barriers to entry. In Bangladesh, CPPs are required to sell their electricity surplus, but there is no evidence of trading with the national grid, mostly due to high connectivity costs. In this paper we develop and estimate a fit-for-purpose Dynamic Stochastic General Equilibrium (DSGE) model to examine the effects of the Bangladeshi CPPs connecting to the national grid and selling their surplus at regulated prices. The model parameters are set through a combination of calibration and Bayesian estimation. We find that if CPPs are connected to the national grid, steady-state industrial output, GDP, and household consumption decrease due to pre-existing energy price distortions. These results support the second-best theory, which implies that merely connecting the CPPs to the national grid without firstly removing market distortions can lead to economically inefficient outcomes. Instead, government should first consider alternative reforms such as phasing out subsidized tariffs and enabling a competitive market environment. |
Sustainability of renewable energy investment motivations during a feed-in-tariff scheme transition: evidence from a laboratory experiment (2021) 🗎🗎 | This study analyzes the effects of a feed-in-tariff (FIT) scheme's transition on renewable energy investments. We model an individual's investment decisions as a public goods game where the FIT scheme's purchasing price acts as a subsidy that lowers the individual's investment cost. Using a laboratory experiment, we study the effects of a decreasing purchasing price by comparing it to a counterfactual situation where the FIT scheme is not introduced. Although a high purchasing price induces higher investments, this external incentive seems to crowd out an individual's intrinsic motivation: when the purchasing price decreases to zero, an individual's investments are lower than they are in the counterfactual situation. Considering the possibility that motivation crowding out has occurred during the FIT phase-out process, it is important to introduce a new policy instrument without a break to stimulate renewable energy investments. |
How does new energy storage affect the operation and revenue of existing generation? (2021) 🗎🗎 | As energy storage is integrated into grids through policies or market forces, it has an effect on the dispatch, economics, and retirement of other generators. While the complementary relationship between storage and renewables is well-known, the effect of storage additions is not necessarily limited to renewables. This work models the system effects of new storage on the generation, operating income, and retirement of power plants at three levels of increasing complexity. First, we evaluate the marginal effects of storage on generation sources without any effects on market prices or dispatch. Second, we use a dispatch model to study bulk storage in New York Independent System Operator (NYISO), Midcontine nt ISO (MISO), and California ISO (CAISO), allowing storage to shift dispatch patterns and affect the operation/income of existing generators. Third, we examine the mid- and long-term effects on the generation fleet by accounting for the retirement of power plants that lose sufficient annual revenue from new storage. Results suggest that marginal new storage increases coal generation and decreases natural gas generation in the West and Midwest, and does the opposite in New England and California. With bulk storage additions, the operating income of all other generating units is reduced unless retirement is included. With retirements considered, the least flexible generation-coal, nuclear, and solar-gain the most operating income with storage. In all cases, simple cycle gas turbines lose the most operating income as they are offset by storage during the discharge phase and then retired in the long term. |
Assessing the renewable energy policy paradox: A scenario analysis for the Italian electricity market (2021) 🗎🗎 | The renewable energy policy paradox states that the combination of liberalized markets with low marginal cost and intermittent technologies tends to reduce electricity prices and, hence, the profitability of new investments in wind and solar energy, thus rendering price-incentive policies less effective or more costly. Most simulation models are not suited to assess the feasibility of middle and long-term goals under the price policies already in place. To fill this gap, this study applies a novel hybrid top-down-bottom-up dynamic macrosimulation model to the Italian economy (2015-2040). To incorporate uncertainty about the future costs of generation and storage technologies, fossil fuel prices, demand elasticities, macroeconomic performance and price incentives, we rely on exploratory model analysis to build scenarios from three clusters out of the 1000 different simulations. Our results suggest a decreasing trend in electricity prices in contrast to the latest official projections. Accordingly, the expansion of renewable energy slows down and none of the 1000 simulations reach the 2030 target of 55% renewable energy in electricity supply. Despite the ineffectiveness of the price subsidy policy in the first ten years (2021-2030), it is still crucial to reach very high penetration of variable renewable energy sources by 2040. |
The price of risk in residential solar investments (2021) 🗎🗎 | Households are key actors in decarbonizing our economy, especially when it comes to investments in a decentralized energy system, such as solar photovoltaics (PV). The phasing-out of feed-in tariffs, and unexpected policy changes in the wake of an increasingly polarized climate debate, require residential PV investors to bear new risks. Conducting a discrete choice experiment coupled with a randomized informational treatment among potential residential solar investors in Switzerland, we test whether policy and market risks deter households from investing in solar. We find that salient policy risk reduces households' intention to invest in solar, especially for risk-averse individuals. Conversely, households seem less sensitive to market risk: residential solar investors accept volatile revenues, as long as a price floor for excess electricity sold to the grid is guaranteed. Our study suggests that keeping perceived policy uncertainty low is more important for residential solar investors than fully hedging against electricity market risk. |
On the long-term efficiency of market splitting in Germany (2021) 🗎🗎 | In Europe, the ongoing renewable expansion and delays in the planned grid extension have intensified the discussion about an adequate electricity market design. Against this background, we jointly apply an agent-based electricity market model and an optimal power flow model to investigate the long-term impacts of splitting the German market area into two price zones. Our approach allows capturing long-term investment and short-term market behavior under imperfect information. We find strong impacts of a German market splitting on electricity prices, expansion planning of generators and required congestion management. While the congestion volumes decrease significantly under a market split in the short term, the optimal zonal configuration for 2020 becomes outdated over time due to dynamic effects like grid extension, renewable expansion and new power plant investments. Policymakers and regulators should therefore regularly re-assess bidding zone configurations. Yet, this stands in contrast to the major objective of price zones to create stable locational investment incentives. |
Coordination of risk-based generation investments in conventional and renewable capacities in oligopolistic electricity markets: A robust regulatory tool (2021) 🗎🗎 | Investment in new generation capacity is considerably affected by issues such as regulatory-determined incentives, techno-economic uncertainties and financial risks. In addition, increased penetration of re-newables such as wind capacities resulting in decreased market prices, leads to the augmented risk of investing in conventional generations such as thermal technologies, which may hamper generation adequacy. Thus, to meet regulatory goals for adequacy and environmental considerations, regulators should determine investment incentives considering targets for techno-environmental issues and generation investors' risks. So, this paper presents a bi-level robust regulatory model, in which regulator in the first level designs incentives considering generation companies' (GENCOs') investment response to regulatory decisions. In the second level, a robust game-theoretic model is considered to capture interactions between risk-averse GENCOs, facing uncertainties such as rivals' behavior and non-dispatchable generations. The effectiveness of proposed model is demonstrated by IEEE-RTS and ERCOT test systems and the results are compared with those obtained in the deterministic cases. As the results show, capacity payments and feed-in premiums should be coordinately designed to meet regulatory targets for techno-environmental conditions. Besides, more levels of uncertainties lead to designing more levels of investment incentives with respect to the deterministic case. Moreover, the more is the level of GENCOs' risk-aversion, the more is the cost of designed incentives for promising regulatory targets considering GENCOs' risk-hedging. (C) 2020 Elsevier Ltd. All rights reserved. |
Effects of coordinating support policy changes on renewable power investor choices in Europe (2021) 🗎🗎 | The economic context for renewable power in Europe is shifting: feed-in tariffs are replaced by auctioned premiums as the main support schemes. As renewables approach competitiveness, political pressure mounts to phase out support, whereas some other actors perceive a need for continued fixed-price support. We investigate how the phase-out of support or the reintroduction of feed-in tariffs would affect investors' choices for renewables through a conjoint analysis. In particular, we analyse the impact of coordination - the simultaneousness - of policy changes across countries and technologies. We find that investment choices are not strongly affected if policy changes are coordinated and returns unaffected. However, if policy changes are uncoordinated, investments shift to still supported - less mature and costlier - technologies or countries where support remains or is reintroduced. This shift is particularly strong for large investors and could potentially skew the European power mix towards an over-reliance on a single, less mature technology or specific generation region, resulting in a more expensive power system. If European countries want to change their renewable power support policies, and especially if they phase out support and expose renewables to market competition, it is important that they coordinate their actions. |
A review of the value of solar methodology with a case study of the US VOS (2021) 🗎🗎 | Distributed generation with solar photovoltaic (PV) technology is economically competitive if net metered in the U.S. Yet there is evidence that net metering is misrepresenting the true value of distributed solar generation so that the value of solar (VOS) is becoming the preferred method for evaluating economics of grid-tied PV. VOS calculations are challenging and there is widespread disagreement in the literature on the methods and data needed. To overcome these limitations, this study reviews past VOS studies to develop a generalized model that considers realistic future avoided costs and liabilities. The approach used here is bottom-up modeling where the final VOS for a utility system is calculated. The avoided costs considered are: plant O&M fixed and variable; fuel; generation capacity, reserve capacity, transmission capacity, distribution capacity, and environmental and health liability. The VOS represents the sum of these avoided costs. Each sub-component of the VOS has a sensitivity analysis run on the core variables and these sensitivities are applied for the total VOS. The results show that grid-tied utility customers are being grossly under-compensated in most of the U.S. as the value of solar eclipses the net metering rate as well as two-tiered rates. It can be concluded that substantial future work is needed for regulatory reform to ensure that grid-tied solar PV owners are not unjustly subsidizing U.S. electric utilities. |
Prosumage of solar electricity: Tariff design, capacity investments, and power sector effects (2021) 🗎🗎 | We analyze how tariff design incentivizes households to invest in residential photovoltaic and battery storage systems, and explore selected electricity sector effects. To this end, we develop an open-source electricity sector model that explicitly features prosumage agents and apply it to German 2030 scenarios. Results show that lower feed-in tariffs substantially reduce investments in residential photovoltaics, yet optimal battery sizing and self-generation are relatively robust. With increasing fixed parts of retail tariffs and, accordingly, lower volumetric retail rates for grid consumption, households have lower incentives for self-consumption. As a consequence, optimal battery capacities and self-generation are smaller, and households contribute more to non-energy power sector costs. A cap on hourly feed-in by households may relieve distribution grid stress without compromising PV expansion or prosumage models for households. When choosing tariff designs, policy makers should not aim to (dis-)incentivize prosumage as such, but balance effects on renewable capacity expansion and system cost contribution. |
Electricity market transitions in Australia: Evidence using model-based clustering (2021) 🗎🗎 | We examine the energy profiles and paths of the participating states of Australia's National Electricity Market between 2011 and 2019, using a model-based clustering approach. We identify 25 distinct electricity generation clusters or profiles, ranked based on their fossil-fuel generation shares. We find that all Australian states show a transition towards more sustainable electricity generation profiles, but the speed and extent of these transitions vary widely across time and states. States showing faster transitions exhibit a combination of high hydro, wind and solar endowments, retiring fossil-fuel infrastructure, and ambitious state-level policies. We find that electricity generation profiles with high shares of gas generation exhibit high prices, while profiles with high shares of coal generation exhibit low prices. However, increasing shares of renewables, particularly when these set the marginal prices, are associated with decreasing prices. Wholesale price variance has increased in all clusters over the examined period, but high-priced events are not exclusively associated with any particular state or profile. |
Regulatory Induced Risk Aversion in Coal Contracting at US Power Plants: Implications for Environmental Policy (2022) 🗎🗎 | Seminal work argues that electric utilities sign long-term contracts with coal suppliers prior to making relationship-specific investments in order to avoid the possibility of ex post hold-up. This paper provides empirical evidence that risk aversion also plays an important role in the coal contracting behavior of US power plants. Specifically, I show that plants facing more spot coal price uncertainty sign longer duration coal contracts, purchase contract coal from a larger number of origin counties, and pay higher contract coal prices. One plausible mechanism for this risk aversion is that regulators are less likely to incorporate high input cost realizations into the regulated output price they set for electric utilities. Using my estimate of plant-level risk aversion, I calculate that the ratio of the aggregate costs incurred by plants under cap and trade relative to a carbon tax is 1.27. This highlights the importance of implementing climate policy that limits carbon price volatility. |