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Working Paper

The Future of Electricity Retailing and How We Get There

Frank Wolak, Ian Hardman
Program on Energy and Sustainable Development , 2020

Electricity retailing is at a crossroads. Technological change is eroding revenues from the traditional electricity retailing business model. However, many of these new technologies have the potential to create new products and revenue streams for electricity retailers. We assess the future of electricity retailing under two possible approaches by policymakers and regulators to addressing these challenges and new opportunities: a reactive approach and a forward-looking approach.

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Working Paper

Market Design in a Zero Marginal Cost Intermittent Renewable Future

Frank Wolak
Program on Energy and Sustainable Development , 2020

The basic features of an efficient short-term wholesale market design do not need to change to accommodate a significantly larger share of zero marginal cost intermittent renewable energy from wind and solar resources. A large share of controllable zero marginal cost generation does not create any additional market design challenge relative to a market with a large share of controllable positive marginal cost generation. In both instances, generation unit owners must recover their fixed costs from sales of energy, ancillary services, and long-term resource adequacy products.

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Journal Article

Learning about Electricity Market Performance with a Large Share of Renewables from the COVID-19 Lock-Down

Christoph Graf, Federico Quaglia, Frank Wolak
Program on Energy and Sustainable Development , 2020

We show that the negative demand shock due to the COVID-19 lock-down has reduced net-demand system demand less the amount of energy produced by intermittent renewables and net imports that must be served by controllable generation units. Introducing additional intermittent renewable generation capacity will also reduce the net-demand, which implies the lock-down can provide insights about how electricity markets will perform with a large share of renewable generation capacity.

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Working Paper

An Experimental Comparison of Carbon Pricing Under Uncertainty in Electricity Markets

Trevor L. Davis, Mark C. Thurber, Frank Wolak
Program on Energy and Sustainable Development , 2020

We report on an economic experiment that compares outcomes in electricity markets subject to carbon-tax and cap-and-trade policies. Under conditions of uncertainty, price-based and quantity-based policy instruments cannot be truly equivalent, so we compared three matched carbon-tax/cap-and-trade pairs with equivalent emissions targets, mean emissions, and mean carbon prices, respectively.

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Policy Brief

Economic Policy Challenges Facing California's Next Governor: Electricity Policy Reform

Frank Wolak
A Publication of the Hoover Institution , 2020

Californians like to think of themselves as environmentally conscious and forward-thinking. The state’s energy and environmental policies reflect these sentiments. With the passage of SB 100, California has one of the nation’s most ambitious renewable energy goals for its electricity supply industry. The California Solar Initiative rebate program has led to more rooftop solar capacity in the state than the total rooftop solar capacity installed in the next eight highest-capacity states.

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Working Paper

Breaking routine for energy savings: An appliance-level analysis of small business behavior under dynamic prices

Jiyong Eom, Frank Wolak
Program on Energy and Sustainable Development , 2020

Small businesses are typically committed to providing a positive customer experience and therefore may exhibit a response to dynamic electricity prices different from residential or industrial customers. We conduct a field experiment to determine the extent to which small businesses respond through re-configuration of typical routines throughout the experiment period versus through adjustments to specific dynamic pricing events.

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Journal Article

Measuring the Ability to Exercise Unilateral Market Power in Locational-Pricing Markets: An Application to the Italian Electricity Market

Christoph Graf, Frank Wolak
Program on Energy and Sustainable Development , 2020

An increasing number of wholesale electricity markets employ locational pricing mech­anisms where energy prices account for some or all aspects of the transmission network configuration. A major concern of regulators is that suppliers may have the ability to exercise unilateral market power by impacting the extent to which transmission con­straints bind. We extend the residual demand curve as a measure of the ability to exercise unilateral market power from a single price market to residual demand hyper­surfaces in locational pricing markets.

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Journal Article

Market Performance Assessment in Locational Markets with Non-Convexities

Christoph Graf, Federico Quaglia, Frank Wolak
Program on Energy and Sustainable Development , 2020

We extend the competitive benchmark pricing model of Borenstein et al. (2002) to locational-pricing markets. We further extent this model to account for transmis­sion network security constraints as well as technical constraints on thermal power plants that introduce non-convexities in their operating cost functions. We apply both models to assess the performance of the Italian wholesale electricity market for the year 2018.

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Working Paper

Retail Pricing in Colombia to Support the Efficient Deployment of Distributed Generation and Electric Vehicles

Shaun McRae, Frank Wolak
Program on Energy and Sustainable Development , 2020

Electricity tariff reforms will be an essential part of the clean energy transition. Existing tariffs rely on average cost pricing and often set a price per unit that exceeds marginal cost. The higher price encourages over-adoption of residential solar panels and under-adoption of electric alternatives to fossil fuels. However, an efficient tariff based on fixed charges and marginal cost pricing may harm low-income households. We propose an alternative methodology for setting fixed charges based on the predicted willingness-to-pay of each household.

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Working Paper

Promoting Energy Efficiency in Emerging Economies Through Consumer Education: Results From a Field Experiment in Mexico

Ognen Stojanovski, Gordon Leslie, Frank Wolak, Juan Enrique Huerta Wong, Mark C. Thurber
SSRN , 2020

Abstract

We report on the results of a field experiment in Puebla, Mexico that informed randomly-selected households facing a nonlinear price schedule about how different electricity-consuming actions might change their electricity bills.

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Commentary

Long-Term Resource Adequacy with Significant Intermittent Renewables

Frank Wolak
2020

The electricity supply industry in a low-carbon world will have over 50 percent share of intermittent renewables.  This large share of intermittent renewables will require investments in both grid-scale and distributed storage, active demand-side participation by customers, and automated distribution network monitoring and on-site load-shifting techologies.  Market design should support business models that lead to adoption of these pricing policies and technologies.

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Working Paper

Simplified Electricity Market Models with Significant Intermittent Renewable Capacity: Evidence from Italy

Christoph Graf, Federico Quaglia, Frank Wolak
National Bureau of Economic Research , 2020

Using hourly offer curves for the Italian day-ahead market and the real-time re-dispatch market for the period January 1, 2017 to December 31, 2018, we show how thermal generation unit owners attempt to profit from differences between a simplified day- ahead market design that ignores system security constraints as well as generation unit operating constraints, and real-time system operation where these constraints must be respected.

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Working Paper

Locational Marginal Network Tariffs for Intermittent Renewable Generation

Thomas Tangeras, Frank Wolak
Program on Energy and Sustainable Development , 2019

The variability of solar and wind generation increases transmission network operating costs associated with maintaining system stability. These ancillary services costs are likely to increase as a share of total energy costs in regions with ambitious renewable energy targets. We examine how ecient deployment of intermittent renewable generation capacity across locations depends on the costs of balancing real-time system demand and supply.

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Working Paper

Wholesale Electricity Market Design

Frank Wolak
Program on Energy and Sustainable Development , 2019

Wholesale electricity market design requires an explicit regulatory process to set the market rules for compensating and charging market participants for their actions. This has led to market designs tailored to the initial conditions in the industry and the political forces driving the restructuring process in that region. The experience of the past 25 years with wholesale market design has led to increasing standardization, particularly within the United States and within Europe. This paper identifies the key features of successful electricity market designs.

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Working Paper

Transmission Planning and Operation in the Wholesale Market Regime

Frank Wolak
Program on Energy and Sustainable Development , 2019

The different incentives generation unit owners face for locating and operating their units in the wholesale market regime versus the vertically-integrated monopoly regime has wide-ranging implications for the design and operation of the transmission network in the two regimes. This logic implies different measures of grid reliability in the two regimes—engineering reliability in the vertically-integrated monopoly regime and economic reliability in the wholesale market regimes.

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Commentary

In California, a third-world solution to a first-world problem

Frank Wolak
The Hill , 2019

California’s decision to allow Pacific Gas and Electric (PG&E) to shut off electricity to hundreds of thousands of Californians because high winds and dry conditions may cause a downed powerline to start a wildfire is a third-world solution to a first-world problem.

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Policy Brief

For wind and solar, big is (usually) better

Mark Thurber
Energy for Growth Hub , 2019

Thurber:  "Big is beautiful" for wind and solar

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Working Paper

Can Forward Commodity Markets Improve Short-Term Market Performance? Evidence from Wholesale Electricity

Akshaya Jha, Frank Wolak
Program on Energy and Sustainable Development , 2019

Economists traditionally argue that forward commodity markets allow more effi- cient risk-sharing and information aggregation. However, there is little empirical evidence that commodity markets provide economic benefits to producers and con- sumers of the commodity. This paper demonstrates that the introduction of finan- cial trading to California’s electricity market on February 1st, 2011 improved price discovery and lowered production costs.

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Working Paper

Transformation and Modernization of the Wholesale Electricity Market in Colombia

Frank Wolak
Program on Energy and Sustainable Development , 2019

This report provides recommendations on the six topic areas in the transformation and modernization theme “Competition, participation and structure of the electricity market.” These are: (1) investment, reliability charges, and contracts; (2) generation diversification, of Non-Conventional Renewable Energy Sources (NCRES) and greater number of agents; (3) new services and agents: storage systems and aggregators; (4) restrictions, nodal prices and infrastructure; (5) market structure; and (6) pathways to de-carbonization and implications for market design.

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Working Paper

Reference Dependence in the Demand for Gasoline

Laurence Levin, Matthew S. Lewis, Frank Wolak
Program on Energy and Sustainable Development , 2019

Recent behavioral models of reference-dependent or context-dependent preferences have posited that consumers form reference points or consideration sets based on expectations. We investigate this hypothesis empirically within the retail gasoline market. Given that gasoline consumers have been shown to form price expectations based on past price lev- els, reference- or context-dependence would likely cause gasoline demand to become more price-sensitive when prices are high relative to the recent past (i.e., higher than expected).

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Working Paper

Measuring the Impact of Own and Others' Experience on Project Costs in the U.S. Wind Generation Industry

John W. Anderson, Gordon Leslie, Frank Wolak
National Bureau of Economic Research , 2019

We investigate the relationship between accumulated experience completing wind power projects and the cost of installing wind projects in the U.S. from 2001-2015. Our modeling framework disentangles accumulated experience from input price changes, scale economies, and exogenous technical change; and accounts for both firm-specific and industry-wide accumulated experience.

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Journal Article

The benefits of purely financial participants for wholesale and retail market performance: lessons for long- term resource adequacy mechanism design

Frank Wolak
Oxford Review of Economic Policy , 2019

In April 2015, Singapore introduced an anonymous futures market for wholesale electricity. Using data on prices and other observable characteristics of all competitive retail contracts signed from October 2014 to March 2016, a larger average quantity of open futures contracts that clear during the term of the retail contract a month before the retail contract starts delivery predicts a lower price for the retail contract. This outcome is consistent with increased futures market purchases by independent retailers causing lower retail prices.

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Working Paper

Market power and incentive-based capacity payment mechanisms

Shaun McRae, Frank Wolak
Program on Energy and Sustainable Development , 2019

Capacity markets provide guaranteed payments to electricity generation unit own- ers for having the “firm capacity” to produce electricity. Historically, these markets are plagued by the weak incentives they provide for plants to be available during high-demand hours. The reliability payment mechanism in the Colombian electricity market provides market-based incentives for plants to produce during periods of system scarcity. This market has served as a model for the design of capacity markets in a number of jurisdictions in North America and Europe.

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Book

Coal

Mark C. Thurber
Polity , 2019

By making available the almost unlimited energy stored in prehistoric plant matter, coal enabled the industrial age – and it still does. Coal today generates more electricity worldwide than any other energy source, helping to drive economic growth in major emerging markets. And yet, continued reliance on this ancient rock carries a high price in smog and greenhouse gases.

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Journal Article

The Role of Efficient Pricing in Enabling a Low- Carbon Electricity Sector

Frank Wolak
International Association for Energy Economics , 2019

Producers and consumers will make the investments and innovations necessary to transition to a low carbon electricity supply industry only if they are compensated for their efforts. In the absence of explicit government support for these activities, this outcome will occur only if wholesale and retail prices provide this compensation. Efficient wholesale and retail pricing provides compensation for the cost-effective deployment of these innovations. Multi-settlement locational marginal pricing markets set efficient short-term wholesale electricity prices.

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