<![CDATA["Serving the energy market" - Articles - Energy market design]]> http://www.erasmusenergy.com en-us N/A dejong@maycroft.com Fri, 08 Aug 2008 01:50:16 CEST 20 <![CDATA[Risk-aversion and willingness to pay in choice experiments]]> http://www.erasmusenergy.com/articles/163/1/Risk-aversion-and-willingness-to-pay-in-choice-experiments/Page1.html Published in:
Publication year: 2007

This paper extends the linear utility model commonly used for estimating the willingness to pay for non-market goods to a non-linear model with decreasing marginal utility. The proposed approach relaxes the assumption of constant rate of substitution between income and non-market commodities, an assumption which can be especially restrictive in cases when the non-market good is a luxury commodity or a new good whose benefits are not completely known. The adopted non-linear formulation can therefore accommodate risk-averse behavior with respect to nonmarket goods particularly when the non-market attributes are measured by discrete variables. The proposed models have been applied to data from a choice experiment for energy efficiency measures in apartment buildings. The econometric specification is based on a fixed-effect logit model. The results suggest that ignoring consumers’ risk-aversion toward new non-market goods could lead to an underestimation of the marginal willingness to pay. However, consistent with previous studies the non-linear effect of income does not have a considerable effect on the estimation results.]]> no@spam.com (Mehdi Farsi) Fri, 15 Feb 2008 14:03:59 CET http://www.erasmusenergy.com/articles/163/1/Risk-aversion-and-willingness-to-pay-in-choice-experiments/Page1.html <![CDATA[Benchmarking and regulation in the electricity distribution sector]]> http://www.erasmusenergy.com/articles/162/1/Benchmarking-and-regulation-in-the-electricity-distribution-sector/Page1.html Published in:
Publication year: 2007
Co-author 1: Aurelio Fetz
Co-author 2: Massimo Filippini

In the last two decades electricity distribution sector have witnessed a wave of regulatory reforms aimed at improving efficiency through incentive regulation. Most of these regulation schemes use benchmarking namely measuring a company’s efficiency and rewarding them accordingly. The reliability of efficiency estimates is crucial for an effective implementation of those incentive mechanisms. A main problem faced by the regulators is the choice among several legitimate benchmarking models that usually produce different results. After a brief overview of the benchmarking methodologies, this paper summarizes the methods used in the regulation practice in several OECD countries, in which the benchmarking practice is relatively widespread. Repeated observation of similar companies over time namely panel data, allows a better understanding of unobserved firm-specific factors and disentangling them from efficiency estimates. Focusing on parametric cost frontier models, this paper presents two alternative approaches that could be used to improve the reliability of benchmarking methods, and based on recent empirical evidence, draws some recommendations for regulatory practice in power distribution networks.]]> no@spam.com (Mehdi Farsi) Fri, 15 Feb 2008 13:57:23 CET http://www.erasmusenergy.com/articles/162/1/Benchmarking-and-regulation-in-the-electricity-distribution-sector/Page1.html <![CDATA[Economies of scale and scope in the Swiss Multi-Utilities Sector]]> http://www.erasmusenergy.com/articles/161/1/Economies-of-scale-and-scope-in-the-Swiss-Multi-Utilities-Sector/Page1.html Published in:
Publication year: 2007
Co-author 1: Aurelio Fetz
Co-author 2: Massimo Filippini

This paper explores the economies of scale and scope in the electricity, gas and water utilities. These issues have a crucial importance in the actual policy debates about unbundling the inte-grated utilities into separate entities, a policy which has often been supported by the ongoing reforms in the deregulation of network industries. This paper argues that the potential im-provements in efficiency through unbundling should be assessed against the loss of scope economies. Several econometric specifications including a random-coefficient model have been used to estimate a cost function for a sample of utilities distributing electricity, gas and/or water to the Swiss population. The estimates of scale and scope economies have been compared across different models and the effect of heterogeneity among companies have been explored. While indicating considerable scope and scale economies overall, the results sug-gest a significant variation in scope economies across companies due to unobserved heterogeneity.]]> no@spam.com (Mehdi Farsi) Tue, 12 Feb 2008 11:22:31 CET http://www.erasmusenergy.com/articles/161/1/Economies-of-scale-and-scope-in-the-Swiss-Multi-Utilities-Sector/Page1.html <![CDATA[Experimental tests of competitive markets for electric power]]> http://www.erasmusenergy.com/articles/160/1/Experimental-tests-of-competitive-markets-for-electric-power/Page1.html Published in:
Publication year: 2001
Co-author 1: Timothy Mount
Co-author 2: William Schulze
Co-author 3: Robert Thomas
Co-author 4: Ray Zimmerman

Testing the performance of electricity markets using POWERWEB has already shown that relatively inexperienced players can identify and exploit market power in load pockets. When transmission constraints are not binding, however, auctions with six players have been shown to be efficient. There is evidence from operating electricity markets that prices can be driven above competitive levels when the largest supplier controls less than 20% of total installed capacity. This is accomplished by causing price spikes to occur. In experiments, uncertainty about the actual load and paying standby costs regardless of whether or not a unit is actually dispatched contribute to volatile price behavior. The objective of this paper is to investigate characteristics of a market that affect price volatility. The tests consider three different sets of rules for setting price when there are capacity shortfalls, and the following four market structures:
1. Load is responsive to price
2. Price forecasts are made before
market settlement
3 A day-ahead market and a balancing
market auction
4. Suppliers are paid actual offers (a
discriminatory auction)]]> no@spam.com (Simon Ede) Mon, 28 Jan 2008 17:05:24 CET http://www.erasmusenergy.com/articles/160/1/Experimental-tests-of-competitive-markets-for-electric-power/Page1.html <![CDATA[Market Efficiency, Competition, and Communication: Experimental results]]> http://www.erasmusenergy.com/articles/158/1/Market-Efficiency-Competition-and-Communication-Experimental-results/Page1.html Published in:
Publication year: 2002
Co-author 1: C.A. Vossler
Co-author 2: T.D. Mount
Co-author 3: V. Barboni
Co-author 4: R.J. Thomas
Co-author 5: R.D. Zimmerman

Economic theory gives no clear indication of the minimum number of producers necessary for a market to define competitive price-quantity equilibria which approximate price equal to marginal cost. Previous work and FERC Guidelines generally suggest that 6 to 10 generators may be workably competitive. Our experiments with PowerWeb suggest that a higher number of suppliers may be necessary to approximate competitive market solutions, this in the absence of any communication among producers. As communications rules are altered to parallel differing types of antitrust enforcement, market results with 24 participants approach pure monopoly values.]]> no@spam.com (Duane Chapman) Mon, 28 Jan 2008 16:41:47 CET http://www.erasmusenergy.com/articles/158/1/Market-Efficiency-Competition-and-Communication-Experimental-results/Page1.html <![CDATA[Auction Design for Competitive Electricity Markets]]> http://www.erasmusenergy.com/articles/157/1/Auction-Design-for-Competitive-Electricity-Markets/Page1.html Published in:
Publication year: 1997
Co-author 1: Tmothy Mount
Co-author 2: William Schulze
Co-author 3: Ray Zimmerman
Co-author 4: Robert Thomas

Alternatively, the Market Coordinator could ask the private generating firms to furnish their operating cost data (confidentially of course) to facilitate system dispatch. We can see little reason for the private firms to say no or to try to play games and provide incorrect data. - Schweppe et al (1988), pp 115-6.]]> no@spam.com (Robert Ethier) Mon, 28 Jan 2008 16:25:55 CET http://www.erasmusenergy.com/articles/157/1/Auction-Design-for-Competitive-Electricity-Markets/Page1.html <![CDATA[Alternative Auction Institutions for Purchasing Electric Power: An Experimental Examination]]> http://www.erasmusenergy.com/articles/156/1/Alternative-Auction-Institutions-for-Purchasing-Electric-Power-An-Experimental-Examination/Page1.html Published in: Bulk Power System Dynamics and Control IV – Restructuring
Publication year:
Co-author 1: William Schulze
Co-author 2: Tim Mount
Co-author 3: Ray Zimmerman
Co-author 4: Robert Thomas
Co-author 5: Richard Schuler

This paper reports on research being conducted by a combination of economists and electrical engineers at Cornell University who are examining potential auction institutions for restructured markets for electric power. As it is a report on developing results and analysis, the discussion remains general throughout. The research follows two related but independent strands. The first looks at the performance of various alternative auction mechanisms under different market sizes. The setting is a single sided auction with multiple units being offered and a vertical, multiple unit demand. This was conducted in the absence of a network, the equivalent of a system where transmission of electric power is lossless and costless.]]> no@spam.com (John Bernard) Mon, 28 Jan 2008 16:18:04 CET http://www.erasmusenergy.com/articles/156/1/Alternative-Auction-Institutions-for-Purchasing-Electric-Power-An-Experimental-Examination/Page1.html <![CDATA[Financial Methods in Competitive Electricity Markets]]> http://www.erasmusenergy.com/articles/143/1/Financial-Methods-in-Competitive-Electricity-Markets/Page1.html Published in:
Publication year: 1999

The restructuring of electric power industry has become a global trend. As reforms to the electricity supply industry spread rapidly across countries and states, many political and economical issues arise as a result of people debating over which approach to adopt in restructuring the vertically integrated electricity industry. This dissertation addresses issues of transmission pricing, electricity spot price modeling, as well as risk management and asset valuation in a competitive electricity industry.
A major concern in the restructuring of the electricity industries is the design of a transmission pricing scheme that will ensure open-access to the transmission networks. I propose a priority-pricing scheme for zonal access to the electric power grid that is uniform across all buses in each zone. The Independent System Operator (ISO) charges bulk power traders a per unit ex ante transmission access fee based on the expected option value of the generated power with respect to the random zonal spot prices. The zonal access fee depends on the injection zone and a self-selected strike price determining the scheduling priority of the transaction. Inter zonal transactions are charged (or cred-ited) with an additional ex post congestion fee that equals the zonal spot price di erence. The unit access fee entitles a bulk power trader to either physical injection of one unit of energy or a compensation payment that equals to the difference between the realized zonal spot price and the selected strike price. The ISO manages congestion so as to minimize net compensation payments and thus, curtailment probabilities corresponding to a particular strike price may vary by bus. I calculate the rational expectation equilibria for several numerical examples and demonstrate that the eciency losses of the proposed second best scheme relative to the effcient dispatch solutions are modest.
The rest of the dissertation deals with the issues of modeling electricity spot prices, pricing electricity financial instruments and the corresponding risk management applications. The aforementioned global trend of restructuring opens the electricity wholesale markets worldwide. Modeling the spot prices of electricity is important for the market participants who need to understand the risk factors in pricing electricity financial instruments such as electricity forwards, options and cross-commodity derivatives. It is also essential for the analysis of nancial risk management, asset valuation, and project financing.
In the setting of di usion processes with multiple types of jumps, I examine three mean-reversion models for modeling the electricity spot prices. I impose some structure on the coeffcients of the di usion processes, which allows me to easily compute the prices of contingent claims (or, financial instruments) on electricity by Fourier methods. The jump-diffusion models which I propose have the features of mean-reversion, stochastic volatility, and regime switching. I derive the pricing formulas for various electricity derivatives and examine how the prices vary with di erent modeling assumptions.
I demonstrate a couple of risk management applications of the electricity financial instruments. I also construct a real options approach to value electric power generation and transmission assets both with and without accounting for the operating characteristics of the assets such as start-up cost, ramp-up time and variable heat rate. The implications of the mean-reversion jump-di usion models on financial risk management and real asset valuation in competitive electricity markets are illustrated. With a discrete trinomial lattice modeling the underlying commodity prices, I estimate the effects of operational characteristics on the asset valuation by means of numerical examples that incorporate these aspects using stochastic dynamic programming.]]> no@spam.com (Shijie Deng) Mon, 07 Jan 2008 12:12:11 CET http://www.erasmusenergy.com/articles/143/1/Financial-Methods-in-Competitive-Electricity-Markets/Page1.html <![CDATA[The interaction between the EU emissions trading scheme and energy policy instruments in the Netherlands]]> http://www.erasmusenergy.com/articles/137/1/The-interaction-between-the-EU-emissions-trading-scheme-and-energy-policy-instruments-in-the-Netherlands/Page1.html Keywords:
Published in:
Publication year:
Co-author 1: A.W.N. van Dril

The present study analyses the potential interactions between the EU Emissions Trading Scheme (EU ETS) and some selected energy and climate policy instruments in the Netherlands.
These instruments include:
• The Benchmarking Covenant (BC): a negotiated agreement with energy-intensive industries
in order to improve their energy efficiency.
• The Regulatory Energy Tax (REB): an ecotax on the consumption of gas and electricity, including
the partial exemption of this ecotax on renewable electricity.
• The Environmental Quality of Electricity Production (MEP): a feed-in subsidy system for
producers of renewable electricity.
• The system of Tradable Green Certificates (TGCs): a system of guarantees of origin to
promote renewable electricity based on the partial exemption of the REB.

A general finding of the present report is that once the EU ETS becomes operational, the effectiveness of all other policies to reduce CO2 emissions of the participating sectors becomes zero. The report explores the specific implications of this general finding for the coexistence of the EU ETS and the selected policy instruments in the Netherlands. It concludes that this coexistence will have a significant impact on the performance of both the EU ETS and the selected instruments in the Netherlands.

]]> no@spam.com (JPM Sijm) Sat, 29 Dec 2007 14:45:53 CET http://www.erasmusenergy.com/articles/137/1/The-interaction-between-the-EU-emissions-trading-scheme-and-energy-policy-instruments-in-the-Netherlands/Page1.html <![CDATA[China's Energy Security and the Taiwan Factor]]> http://www.erasmusenergy.com/articles/102/1/China039s-Energy-Security-and-the-Taiwan-Factor/Page1.html Published in:
Publication year:

China, the second largest energy importing country in the world is expected to exceed 100 million tones of oil import, i.e. about 35 percent of its domestic consumption by the end of the year 2004. Looking at this from a strategic platform, presents a frightening image about the rise of oil demand in Asia, with the major oil consumers in the region drawing notable quantity of the world oil production. Increase in demand for oil shows, other than the “economic growth”, a danger that has been haunting the import dependent countries in the post-Gulf War, post-Saddam period, i.e. a possible energy supply interruption due to the political volatility in the Middle East. While the major energy importers in the Asian region have been busy in diversification of the energy resources and making other attempts to secure energy supply, many political and economic interests of these countries have become less important. This shows how ‘energy security’ has become the prime concern in the national interest of any given import dependent country.]]> no@spam.com (J Nandakumar) Mon, 03 Dec 2007 17:28:09 CET http://www.erasmusenergy.com/articles/102/1/China039s-Energy-Security-and-the-Taiwan-Factor/Page1.html