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.
Politicians in a number of jurisdictions with cap-and-trade markets for greenhouse gas (GHG) emissions or carbon taxes have argued that the evidence is in and the conclusion is clear: Carbon pricing doesn’t work. A number of journalists and environmental groups have jumped on the bandwagon, amplifying a misguided message.
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.
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.
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.
Climage change is a serious global threat with impacts that are already being felt. In response, a growing number of environmentalists are taking the position that there should be no new energy developments that involve fossil fuels in any form.
This paper identifies the key features of successful electricity market designs that are particularly relevant to the experience of low-income countries. Important features include: (1) the match between the short-term market used to dispatch generation units and the physical operation of the electricity network, (2) effective regulatory and market mechanisms to ensure long-term generation resource adequacy, (3) appropriate mechanisms to mitigate local market power, and (4) mechanisms to allow the active involvement of final demand in a short-term market.
In this report we identify the key drivers of observed market outcomes in the Colombian electricity supply industry during the fourth quarter of 2015 and first quarter of 2016, the time period covered by the most recent El Niño Event. We analyze how effective the market rules and market structure of Colombian electricity supply industry are in managing El Niño Events.
A spatial equilibrium model of the world coal market is developed that accounts for coal to natural gas switching in the electricity sector in the United States and Europe, the potential for China to exercise monoposony power in its coal purchasing behavior, and the impact of increasing the western US coal export port capacity. The global coal market equilibrium is computed as the solution to a nonlinear complementarity problem. Where possible parameters of the model are estimated econometrically.
Hourly plant-level wind and solar generation output and real-time price data for one year from the California ISO control area is used to estimate the vector of means and the contemporaneous covariance matrix of hourly output and revenues across all wind and solar locations in the state. Annual hourly output and annual hourly revenues mean/standard deviation efficient frontiers for wind and solar resource locations are computed from this information.
This paper formulates and estimates a household-level, billing-cycle water demand model under increasing block prices that accounts for the impact of monthly weather variation, the amount of vegetation on the household’s property, and customer-level heterogeneity in demand due to household demographics. The model utilizes US Census data on the distribution of household demographics in the utility’s service territory to recover the impact of these factors on water demand. An index of the amount of vegetation on the household’s property is obtained from NASA satellite data.
Railroad regulation in the post-Staggers Act regime compares the revenues earned to a measure of the “variable cost” of the shipment. While revenues are readily observed, the “variable cost” is calculated using the “Uniform Rail Costing System” (URCS) that was developed by the Interstate Commerce Commission. We characterize the properties of the URCS rail costing methodology and its role in rate regulation, and we assess whether it produces an economically valid estimate of the cost caused by a rail shipment.
Coal has been the world's fastest-growing energy source in absolute terms for over a decade. Coal also emits more CO2 than any other fossil fuel and contributes to serious air pollution problems in many regions of the world. If we hope to satisfy the demand for affordable energy in emerging economies while protecting the environment, we need to develop a keen understanding of the market that supplies coal. This book offers an in-depth analysis of the key producers and consumers that will most influence coal production, transport, and use in the future.
The authors ran a game-based simulation of an electricity market with both an RPS and a cap-and-trade market for greenhouse gas emissions allowances. High renewable energy shares reduced and shifted the output of thermal units and pushed down both electricity and carbon prices. The markets for renewable energy, carbon allowances, and spot and forward electricity interacted in complex ways that are relevant to the behavior of actual markets.