PESD - Publications Page

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.

Thurber:  "Big is beautiful" for wind and solar

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

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.

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).

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.

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.

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.

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.

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.

Progressive Democrats assert that the Green New Deal is the best way to reduce global greenhouse gas emissions.

But this claim ignores the fact that subsidizing “green” energy technologies, such as wind and solar, is less effective than taxing the greenhouse gas emissions produced by brown energy sources, such as oil, natural gas and coal.

We report results from a large field experiment that with a few hours prior notice provided Danish residential consumers with dynamic price and environmental signals aimed at causing them to shift their consumption either into or away from certain hours of the day. The same marginal price signal is found to cause substantially larger consumption shifts into target hours compared to consumption shifts away from target hours.

A number of formerly regulated multiproduct industries have a transitional or permanent residual regulatory mandate to protect consumers from "excessive" prices. The legislation that deregulated most rail rates contains a statutory mandate for the regulator to protect shippers from "excessive" prices. Fulfilling this mandate has been challenging because of the cost and administrative burden to shippers in obtaining regulatory relief.

As the old saying goes, politics makes strange bedfellows.  A national carbon tax to fund increased border security fits that description. President Trump's request for these funds is a major sticking point with Democrats in the current budget impasse. However, many of the younger generation of Democrats elected to the House in the midterm election strongly support government action to address the climate challenge. 

We analyze how market design influences bidding in multiunit procurement auctions where suppliers have asymmetric information about production costs. Our analysis is particularly relevant to wholesale electricity markets, because it accounts for the risk that a supplier is pivotal; market demand is larger than the total production capacity of its competitors. With constant marginal costs, expected welfare improves if the auctioneer restricts offers to be flat. We identify circumstances where the competitiveness of market outcomes improves with increased market transparency.

Solar lanterns are promoted across rural Sub-Saharan Africa to improve both lighting in homes and educational outcomes. We undertake a randomized controlled trial in Zimba District, Zambia, to evaluate whether solar lanterns help children study more effectively and improve academic performance. Our research design accounts for potential income effects arising from the giveaways of lanterns and also “blinds” participants to the study’s purpose.

Many countries with electricity shortages - such as Nigeria, Ghana, Mozambique, and Tanzania - have large gas reserves but face challenges developing gas for power.

The gas-to-power value chain can break down in many places and is rarely financially viable if the power sector is not.  Successful development of domestic gas for domestic power requires careful attention to gas and electricity pricing.  International companies and governments may be incentivized to take the more straightforward payout from exports, even where domestic gas use could add more value to the economy.

Charging full requirements customers for distribution network services using the traditional cents per kilowatt-hour (KWh) price creates economic incentives for consumers to invest in distributed generation technologies, such as rooftop solar photovoltaics, despite the fact that marginal cost of grid-supplied electricity is lower.

^Abstract

We show that a common regulatory mandate in electricity markets that employ locational marginal pricing (LMP) requiring all electricity retailers to purchase their wholesale electricity at the same quantity-weighted average of these prices can improve the performance of imperfectly competitive wholesale electricity markets. Linking loca- tional markets strengthens the incentive for vertically integrated firms to participate in the retail market, which increases competition in the short-term wholesale market.

Are gas and renewables good for each other, or are they on a collision course?  We explored this question using a multi-player, web-based game.

The ability of an electricity-generating firm with market power to influence the market price depends strongly on the volume the firm has pre-sold in the forward, or hedge, markets. However, the choice of hedge level may be a strategic decision in itself. In this analysis we show that the profit-maximizing choice of the hedge level depends on the extent to which the hedge price varies with the firms hedging decision, which relates to the transparency of the forward market. A lack of transparency results in the hedge price being independent of the firms hedge level.

This paper proposes a model of the behavior of an expected profit-maximizing merchant storage owner with the ability to exercise unilateral market power. The resulting non-linear bilevel optimization problem is transformed into a single-level stochastic bilinear program using the Karush-Kuhn-Tucker conditions of the lower-level Independent System Operator dispatch problem. By discretizing the offers and bids of the merchant storage owner, the problem is formulated as a stochastic disjunctive program.

Abstract

Daily city-level expenditures and prices are used to estimate the price responsiveness of gasoline demand in the United States. Using a frequency of purchase model that explicitly acknowledges the distinction between gasoline demand and gasoline expenditures, the price elasticity of demand is consistently found to be an order of magnitude larger than estimates from recent studies using more aggregated data. Estimating demand using higher levels of spatial and temporal aggregation is shown to produce increasingly inelastic estimates.