Search

An introduction is presented in which the editor discusses articles in the issue on topics including transition international energy market, analytical frameworks regarding the financialization of energy markets, and market segmentation at the global level.

During the last years, European intraday power markets have gained importance for balancing forecast errors due to the rising volumes of intermittent renewable generation. However, compared to day-ahead markets, the drivers for the intraday price process are still sparsely researched. In this paper, we propose a modelling strategy for the location, shape and scale parameters of the return distribution in intraday markets, based on fundamental variables. We consider wind and solar forecasts and their intraday updates, outages, price information and a novel measure for the shape of the merit-order, derived from spot auction curves as explanatory variables. We validate our modelling by simulating price paths and compare the probabilistic forecasting performance of our model to benchmark models in a forecasting study for the German market. The approach yields significant improvements in the forecasting performance, especially in the tails of the distribution. At the same time, we are able to derive the contribution of the driving variables. We find that, apart from the first lag of the price changes, none of our fundamental variables have explanatory power for the expected value of the intraday returns. This implies weak-form market efficiency as renewable forecast changes and outage information seems to be priced in by the market. We find that the volatility is driven by the merit-order regime, the time to delivery and the closure of cross-border order books. The tail of the distribution is mainly influenced by past price differences and trading activity. Our approach is directly transferable to other continuous intraday markets in Europe. [ABSTRACT FROM AUTHOR]

Theoretical papers have identified several sources of inefficiencies of flow-based market coupling (FBMC), the implicit congestion management method used to couple the Central Western European (CWE) electricity markets. These inefficiencies ultimately lead to welfare losses. In this paper, a large-scale model framework is introduced for FBMC assessments, focusing on modeling the capacity allocation and market clearing processes. The present paper completes this framework by presenting a newly developed redispatch model. Furthermore, we provide a case study assessing improved price zone configurations (PZCs) for the CWE electricity system, motivated by the debate on the currently-existing PZC. Our results show that improved PZCs--even while maintaining the number of price zones--can significantly reduce redispatch quantities and overall system costs. Moreover, making use of the insights of (Felten et al., 2021), we explain why increasing the number of price zones may not always increase welfare when using FBMC. [ABSTRACT FROM AUTHOR]

This paper studies when and under what conditions the actions undertaken by the power plants involved in China's emission trading scheme (ETS) pilot became cost effective. Based on unique plant-level panel data and the difference-in-differences strategy, we identify that an insignificant initial reduction in cost efficiency occurred at the announcement stage for power plants in the pilot provinces; however, the cost efficiency of the pilot plants increased significantly following formal policy implementation. Additionally, the by-stage treatment effects differed across the pilot provinces due to localized market and non-market variations. Localized conditions of higher marketization, stricter policy enforcement, and lower carbon dependence enhanced this positive effect. The synthetic control results confirmed this variation in the policy effects. The carbon trading pilots resulted in improved efficiency in power plants in Shanghai, Guangdong, and Tianjin during the period 2013--2017, with an associated total cost saving of approximately 29.75 million RMB. To enhance the efficacy of the ETS policy, our findings suggest that the design of the policy should consider localized external factors. [ABSTRACT FROM AUTHOR]

Proved undeveloped reserves (PUDs) are typically assigned a value of zero when the cost to produce them is greater than the prevailing forward curve. The zero valuation occurs despite the option value contained in even the most expensive PUDs. While PUDs are worthless if spot and forward prices forever remain below the cost to produce them, they have positive value if either the spot price or a contracted futures price exceeds the cost at any time. Since the probability that future prices exceed cost is positive, PUDs have positive option value despite the industry practice. Zero valuation occurs primarily because financing is unavailable when hedging is contingent on uncertain future outcomes where probabilities cannot be modeled. The failure of models to recognize contingent hedging is a limitation that leads to chronically undervalued PUDs in marginal and sub-marginal price environments. The literature is silent on contingent hedging where financing is dependent on forward curves that will not exist until some future date. This paper introduces a model that addresses these limitations. [ABSTRACT FROM AUTHOR]

The aim of this paper is to examine how a shock in the oil industry affects firms' debt funding obligations using credit default swaps in different segments of the oil industry's value chain. In particular, it focuses on two types of shocks suffered by upstream, integrated and downstream firms in the industry, namely (1) endogenous shocks resulting from oil-market shocks, and (2) exogenous shocks resulting from the recent financial crisis and the Covid-19 pandemic. Using a wide data set ranging from 2007 to 2020, this paper measures the dynamic relationships between the CDS spreads of oil-related firms, US dollar exchange rates, and crude oil prices at different sectors of the oil-industry value chain, namely, upstream, integrated and downstream. Overall results show that the upstream firms have suffered the largest impacts during the COVID-19 crisis, when experiencing shocks from USD rates or oil prices. Integrated firms have suffered the second-largest effects, however, and interestingly, no significant impacts from shocks are observed on CDS spreads for downstream firms. [ABSTRACT FROM AUTHOR]

This paper examines the effects of time-of-use (TOU) pricing on distributed renewable energy (DRE) investment for a non-power generating firm. We develop an electricity consumption cost-minimization model by considering the intermittent generation as well as the firm's electricity consumption. It has been found that implementing full retail prices compensation for the surplus renewable electricity is probably not good as it may lead to DRE over-investment. Moreover, we find that the firm's optimal investment strategy is not necessarily sensitive to the price signal of TOU pricing (i.e., the ratio of peak to off-peak price). Particularly, when the service-level difference in meeting a firm's electricity consumption between peak and off-peak periods by adopting DRE technology is above a critical threshold in relation to the peak time, a strong price signal will not promote the firm's optimal DRE capacity investment. This paper yields a policy insight that "getting the time right" may be more important than "getting the price right" in terms of enabling DRE investment for TOU pricing design. [ABSTRACT FROM AUTHOR]

This paper provides the first empirical analysis of the homeowner-renter gap for electric appliances. Using U.S. nationally representative data, the analysis shows that renters are significantly more likely than homeowners to have electric heat, electric hot water heating, an electric stove, and an electric dryer. The gap is highly statistically significant, prevalent across regions, and holds after controlling for the type, size, and age of the home, as well as for climate and household characteristics. The paper argues that this gap arises from the same split incentives that lead to the "landlord-tenant problem" and discusses the implications of the gap for an emerging set of policies aimed at reducing carbon dioxide emissions through building electrification. [ABSTRACT FROM AUTHOR]

In this paper, we consider a simultaneous modeling of good and bad outputs. We use an input distance function (IDF) with endogenous inputs as well as endogenous bad outputs, which is novel in the literature. Moreover, we model input efficiency to depend on the production of bad outputs which allows us to investigate whether emissions of pollutants (bad outputs) are related to technological performance (technical efficiency). We also model production of each bad output with a spatial structure separately, each depending on production of good outputs, inputs and other exogenous variables. These bad output production functions allow us to estimate both direct and indirect effects of good output on the production of bad outputs, which may be of special interest because they show the cost (to the society) in terms of releasing pollutants to the environment in order to increase production of good outputs. We apply the new technique to a data set on U.S. electric utilities with four bad outputs, three inputs and two good outputs. We used a Bayesian technique to estimate the model which is a system consisting of the input distance function, reduced form equations for each input, dynamics of inefficiency and bad output production technology--separately for each. Empirically, bad outputs are found to affect inefficiency positively. Percentage increases in inefficiency due to a percentage increase in each bad output are found to vary from 0.225% to 0.42%. Energy prices are found to be positively related to inefficiency. From the spatial specifications of bad outputs, we find that the spillover effects of increasing production of good outputs account for the majority of the total effect, indicating that neighborhood effects are more important than own effects. This means, the neighboring utilities played a crucial role indicating "contagion" of practices. [ABSTRACT FROM AUTHOR]

In this paper, we investigate the combined effect of carbon policies and price controls in cross-border trade of electricity on power generation investments. It has been shown that price controls in cross-border trade of electricity may negatively affect renewable energy investments. However, the assessment of the impact of the simultaneous adoption of carbon policies and energy price controls has still not been addressed. Assessing this interaction is important to find out whether carbon policies can offset the negative impact of price controls on renewable energy investments or not. Results show that carbon policies can partially offset the negative impact of price controls, and that cap-and-trade programs are more effective to prevent this negative impact than carbon taxes. On the other hand, high levels of carbon taxes combined with price control regulation may increase renewable capacity investments, but without completely offsetting the negative effect of the price controls. [ABSTRACT FROM AUTHOR]

Continuous trading is currently becoming the standard for intraday electricity markets. In this paper, we propose frequent auctions as a viable alternative. We argue that batching orders in auctions potentially leads to lower liquidity cost, more reliable, less noisy price signals, and allows for better alignment of market outcomes with the technical realities of the transmission grid. In an empirical study, we compare the German continuous intraday market with counterfactual outcomes from frequent auctions. We find that traded volumes tend to be higher for continuous trading; however, the auction market benefits from lower liquidity costs and less noisy price signals. Furthermore, we critically discuss the suitability of continuous trading in the presence of network constraints and technical restrictions of conventional units. Taken together these findings suggest that in sparsely traded intraday markets, pooling orders in frequent auctions may be beneficial. [ABSTRACT FROM AUTHOR]

Human consumption of scarce ecological resources is at the heart of the climate change crisis. Mitigating climate change will require changes in consumer behavior. Further, to respond effectively, policymakers need information on the environmental impact of individuals' behaviors. In this paper, we study the effect of socio-demographic characteristics and personality traits on individuals' environmental impact measured by their ecological footprint. We also investigate consumers' willingness to pay for "green" goods. Using survey data from the Netherlands, first, we construct individuals' ecological footprint. The survey also uses a 50-item personality scale developed by Goldberg (1992) to construct five personality traits. We find that individuals with higher personal income, less than a high school education, males, the employed, and people living in rural areas are associated with a higher EF. We also find that consumers' WTP and demand are responsive to price increases in high-emitting goods and personality traits. We contribute to our understanding of the influence of socio-demographic and personality characteristics on the actual ecological footprint at the individual level. Further, we contribute to the economic literature on consumers' WTP for "green" products as well as the ongoing discussion on using market-based solutions to tackle climate change. [ABSTRACT FROM AUTHOR]

This paper is the first to investigate the relationship between the energy efficiency of dwellings, measured by the energy performance certificate (EPC), and utility cost inclusion in rental prices. First, we investigate potential drivers behind the decision to include utility costs in rents. We find that labeled dwellings are more likely to include utility costs and that this likelihood is higher among energy-effi- cient dwellings than among inefficient dwellings. Next, we surprisingly find that utility costs seem to be under-capitalized in energy-inefficient dwellings. These results are confirmed with the counterfactual decomposition approach. Overall, the findings indicate that the EPC labeling policy may be important for both landlord and tenant decision-making and may enhance market efficiency. [ABSTRACT FROM AUTHOR]

This paper examines the determinants of inequality in the distribution of CO2 emissions across U.S. regions. We implement a factorial decomposition of CO2 per capita based on extended Kaya factors, that is, carbon intensity of fossil fuel consumption, energy mix, energy intensity of GDP, economic growth in terms of labor productivity and employment rate. Results reveal that U.S. states display marked differences in most factors. We identify energy intensity as the main source of emissions inequality. Based on the within and between group inequality components we also explore the effect of geographical, geological, climatic and human development partitions of U.S. states' groups. Findings indicate that the within-group inequality had been the main contributor to the whole inequality. Finally, some economic policy implications are also discussed; explaining the unequal distribution of emissions is vital to establish differentiated targets and work towards successful mitigation proposals. [ABSTRACT FROM AUTHOR]

Auctions are increasingly used to support renewable energy sources (RES). The choice of the remuneration scheme is one of the major design challenges policymakers face. This paper analyzes the effects of remuneration schemes on RES auctions' success in markets with imperfect competition. I develop a game-theoretical auction/operation framework to model the feedback effects between the spot market's strategic behavior and the auction stage's bidding behavior. The analysis indicates that policymakers concerned about true-cost bidding, allocative efficiency, spot price, total payments to RES, and non-realization risk may prefer feed-in-tariff (FIT) remuneration. However, feed-in-premium (FIP) remunerations may outperform FIT ones from a social welfare perspective, particularly in markets with dirty technologies at the margin. A machine-learning-based simulation strategy is also presented, indicating that, for an auction for 14 GW of onshore wind in France, FIP auction with a winning incumbent leads to 1.40% higher prices than FIT ones. [ABSTRACT FROM AUTHOR]

Technological innovation is the key to develop wind power and photovoltaic power industries. The feed-in tariff (FIT) policy, as a demand-pull policy, is important to support renewable energy technological innovation. Using the "difference-in-differences" method, this paper investigates the impact of FIT policy of wind power and the impact of the FIT policy designed according to differences in the distribution of resources on wind power technological innovation. The findings show that the FIT policy can drive patenting in wind power technologies during the implementation period, but may play a relatively weak promoting role in technological innovation in the latter term, and the FIT policy designed according to differences in the distribution of resources also stimulates more patent counts. Finally, based on the fixed effect negative binomial regression model, this paper finds that the higher feed-in tariffs can increase the patent counts in photovoltaic power technologies. [ABSTRACT FROM AUTHOR]

This paper examines the determinants of residential CO2 emissions, which are not covered by the European Union Emissions Trading System (EU ETS), in 19 European countries between 2000-2017. Using both static and dynamic panel models, we found strong relationships between CO2 emissions per capita, GDP per capita, energy prices and heating needs. We then assessed the impact of European carbon taxation and show that a €20/tonne CO2 tax lowers emissions by 1% on average. We found that this tax affects countries differently in terms of tax revenue-to-GDP ratio. Poland and the Czech Republic would have to pay the highest contribution, and Portugal and Denmark the lowest. Finally, we propose a scenario that equalizes countries' tax burdens. We show that, were Europe to redistribute all tax revenues, the main beneficiaries would be Poland and Belgium, while Denmark and Luxembourg would have to pay a surtax. [ABSTRACT FROM AUTHOR]

This paper investigates the impact of women's intra-household bargaining power on household cooking fuel choice. It further analyzes the determinants of household energy spending after the decision to use a given fuel has been made. The results reinforce the important role women play in the household cooking fuel choice and energy transition from traditional to modern fuel. In addition, income and education are found to be crucial factors that influence both household cooking fuel choice and energy expenditure. These findings imply that energy transition policies need to consider gender dimension and women's intra-household bargaining power. [ABSTRACT FROM AUTHOR]

In this paper, we have investigated the implications of the threshold effect of changes in FDI inflows for the nexus between energy consumption and economic growth in eight under-researched sub-Saharan African countries for the period 1971--2016. The countries are Benin, Congo, Kenya, Nigeria, Senegal, South Africa, Sudan, and Zambia. Using the lag-augmented VAR (LAVAR) model (corrected for cross-sectional dependence), we develop an empirical framework tightly linked to the endogenous growth model that allows for a threshold effect of changes (strength and weakness) in FDI inflows on the nexus. Our findings show that the FDI inflows matter for the causal link between energy consumption and economic growth in some countries, although, for the cross-section as a whole, our bootstrap simulation supports the neutrality hypothesis. The overall results suggest that an energy demand policy, such as an energy conservation policy, should not cause any significant adverse side-effects to economic growth in those sub-Saharan African countries. Policy implications of the threshold effect for the nexus for individual sub-Saharan African countries are also provided. [ABSTRACT FROM AUTHOR]

This paper comprehensively analyzes the overall status of the green bond market in Latin America and the Caribbean (LAC) for the renewable energy sector. Our results show that, in most cases, issuers are non-financial corporations. Also, despite LAC's low perception of transparency, 78% of the volume issued has been externally reviewed. In general terms, the barriers imposed on issuance by local governments, mainly municipal debt ceiling, low credit rating and solvency, limited capabilities to prepare bankable projects, and lack of communication channels between the financial sector and local governments, constrain the green bond market in LAC. Furthermore, although the presence of development institutions that promote the issuance of green bonds in the renewable sector has improved in recent years, it is mandatory to continue making progress in this area. For that purpose, closer cooperation and alliances are essential to share responsibilities and knowledge in LAC. [ABSTRACT FROM AUTHOR]

For over two decades, current account imbalances have been an essential issue in the global policy debate as they threaten the world economy's stability. More recently, the government debt crisis of the European Union shows that internal current account imbalances of a currency union may also add to these risks. Moreover, oil price fluctuations and a contracting monetary policy that reacts to oil prices, previously discussed to affect the current account, may threaten the currency union by increasing internal imbalances. Therefore, this paper analyzes the oil price shock's impact on current account imbalances of a currency union with asymmetric labor market institutions. In this context, we show that oil price shocks can have a long-lasting effect on internal balances that the common monetary policy authority can reduce by choosing a core inflation target. Targeting core inflation, however, comes at the cost of lower production and higher unemployment. We show that these costs can be significantly reduced by increasing labor market flexibility. [ABSTRACT FROM AUTHOR]

This paper evaluates investment incentives for wind power under two market designs: uniform and nodal pricing. An electricity system model is developed, that allows for investments in wind power capacities while carefully accounting for static transmission grid constraints. Wind power capacities are assumed to reach the same expansion target by 2030 under both market designs. The results show that the introduction of nodal prices leads to investments in wind power plants shifting to locations with lower wind yield. The amount of electricity fed into the grid from wind power plants, however, is higher under nodal pricing as curtailment is reduced by two-thirds. Furthermore, grid-optimal wind locations are shown to require higher direct subsidy payments but decrease yearly variable supply costs by 1.5% in 2030. Yet distributional effects present an obstacle to the introduction of a nodal pricing regime, with about 75% of German demand facing an increase in electricity costs of about 5%. To mitigate the distorted investment signals arising from uniform pricing regimes, restricting investments within grid expansion areas proves to be more promising than including latitude-dependent generator-component in the grid tariff design. [ABSTRACT FROM AUTHOR]

This paper uses data on heating bills to study the distribution of energy efficiency outcomes in the German multi-apartment residential building stock. To uncover the underlying energy efficiency of buildings, we estimate the causal response of heat energy demand to variability in heating degree days. We examine the heterogeneity in temperature response using both fixed effects regressions and causal forests, and pay close attention to the regional socioeconomic distribution. Our results suggest that the distribution of energy efficiency is not equitable in the West of Germany. We show that although the newer and more energy-efficient buildings are located in the South of Germany, the older building stock in less prosperous East regions of Germany are surprisingly energy efficient, likely as a result of large investments in renovations post-reunification. Finally, we show that the regional distribution of energy efficiency reflects, in part, differences in heating needs - thus, the poorer energy standards of buildings in the North-West should be weighed against the warmer climatic zone. [ABSTRACT FROM AUTHOR]

The aim of this paper is to investigate bi-directional spillovers into residential and industrial sectors induced by energy efficiency improvement (EEI) in both the short- and long-term, and the impact of nesting structure as well as the size of elasticities of substitution of production and utility functions on the magnitude and the transitional dynamic of rebound effect. Developing a dynamic general equilibrium model, we demonstrate that residential EEIs spillover into the industrial sector through the labor supply channel and industrial EEIs spillover into the residential sector through the conventional income channel. Numerical simulations calibrated on the U.S. suggest that not taking into account these spillover effects could lead to misestimating the rebound effect notably of residential sector EEIs. We also demonstrate how the size and the duration of the rebound effect depend on the elasticities of substitution’s values. Numerical simulations suggest that alternative sets of value for the elasticities of substitution may give different sizable patterns of rebound effects in both the short- and long-term. In policy terms, our results support the idea that energy efficiency policies should be implemented simultaneously with rebound effect offsetting policies by considering short- and long-term economy feedbacks. As a consequence, they require considering debates about what type of policy pathways are more effective in mitigating the rebound effect. [ABSTRACT FROM AUTHOR]

Economic models assume public utility commissions reform utility business models with revenue decoupling mechanisms primarily to remove the disincentive for demand-side management investment, which is expected to enhance social welfare. This paper tests that widespread assumption. We find some but limited support for commission responsiveness to avoided environmental costs. Instead, we find commission responsiveness to avoided political costs resulting from high prices of residential electricity compared to the regional average and high levels of partisan competition in the state legislature. Beyond questioning the primacy of the public interest rationale for regulation, our results give reason to reevaluate economic models of utility business model reform that do not explicitly consider commission interests in minimizing political risks. [ABSTRACT FROM AUTHOR]

This paper contributes to the debate surrounding the impact of adaptation to climate change on the incentives to abate greenhouse gases emissions. Using data from the World Development Indicators and various adaptation funds under the UNFCCC framework, this paper provides an empirical analysis of the relation between adaptation and emissions. We specifically test whether adaptation measures to climate change affect emissions of greenhouse gases in a world where adaptation funds are available. Using a staggered difference-in-differences approach and an event study analysis, we find that receiving adaptation funding significantly and negatively affects several CO2 emissions measures, providing preliminary evidence of the presence of a halo effect of adaptation funding. We do not find evidence of a significant change in the emissions of methane, nitrous dioxide and other greenhouse gases. [ABSTRACT FROM AUTHOR]

Global climate change has caused governments worldwide to take actions to improve their energy efficiency. This paper investigates how China's Top-1000 program, a command-and-control type of energy-saving mandate, has affected the operational choices of firms, and in turn, their profitability. We apply the propensity score matching method to find "identical twins" for the participants in the Top- 1000 program, then conduct a difference-in-differences analysis on the matched sample. Our findings suggest that the profitability of the enterprises targeted for energy savings decreased by one-third, mainly due to increased production costs. The targeted enterprises tended to increase their fixed assets per capita, which was associated with improvements in energy efficiency. Furthermore, compared to similar untargeted enterprises, there was a significant slowdown in the production growths of the targeted enterprises, raising concerns about carbon leakage due to increased production by less efficient producers. [ABSTRACT FROM AUTHOR]

Expanding the supplies of new energy can not only reduce CO2 emissions, but also alleviate energy shortage. This paper applies the quantile regression to investigate the new energy industry in China. The results show that economic growth exerts the greatest effect on the new energy industry in the lower 10th quantile province. This is because these provinces have the developed economies, demand for a higher ecological environment and new energy resources. Foreign energy dependence has a minimal impact on the new energy industry in the 25th-50th quantile province, due to their minimal oil importation. The contribution of technological progress to the upper 90th quantile province is the lowest, because their R&D capabilities are the weakest. The impact of energy consumption structure decreases in steps from the lower 10th quantile provinces to the upper 90th quantile provinces. The agricultural sector promotes the new energy industry in most provinces. [ABSTRACT FROM AUTHOR]

In this paper, we introduce a new model to estimate efficiency by generalizing the state-of-the-art panel stochastic frontier model, the salient feature of which is decomposition of inefficiency into a persistent and a transient component. The proposed model introduces an autoregressive process to allow for temporal dependence in transient inefficiency. Both firm heterogeneity and persistent inefficiency components are allowed to be correlated with some exogenous and endogenous covariates in the model. Our model solves the endogeneity problem and it also introduces determinants of both persistent and transient inefficiency. Since the transient component is autoregressive, the likelihood function is not available in closed form. To address this problem we use the Maximum Simulated Likelihood and (Simulated or Bayes) Generalized Method of Moments method to estimate the parameters and several other quantities of interest, including transient and persistent inefficiency. Since the model is dynamic and accommodates determinants of inefficiency, it is useful to production managers who wish to identify how much of their present inefficiency is affected by past inefficiency, as well as how and in what ways efficiency can be improved. We use Norwegian electricity distribution data to showcase an application of our model. [ABSTRACT FROM AUTHOR]

The study of the financial repercussions of low-carbon policy has focused mainly on stocks, leaving bonds out of the picture. The objective of this paper is to assess the impact of low-carbon policy upon European bond returns. This is done by extending the Fama and French two factor model for bonds with an EU-ETS participation factor: GMC (Green minus Carbon). This paper makes four contributions. Firstly, it provides a statistically highly significant measure of the sensitivity of bond portfolio returns to the GMC factor. Secondly, it shows the presence of a green premium in the European bond market in between 2008 and 2018. Thirdly, evidence is found that the addition of an environmental factor improves the performance of the original model. Fourthly, the carbon stress test put forward is able to indicate the effects of a plausible but more severe average EU-ETS carbon price on bond returns. [ABSTRACT FROM AUTHOR]

This paper focuses on seasonal demand swings in the European natural gas market. We quantify and compare the role of different flexibility options (domestic production, gas storage, and pipeline and LNG imports) to assess European demand fluctuations in monthly resolution. We contribute to the existing literature on seasonal flexibility by addressing the problem with a mathematical gas market optimization model. Our paper provides valuable empirical insights into the decline of gas production in northwestern Europe. Furthermore, we focus on how specific flexibility features differ between pipeline supplies and LNG supplies and between gas imports and storage dispatch. In terms of methodology, we construct a bottom-up market optimization model and publish the complete source code (which is uncommon for gas market models). Furthermore, we propose a new metric--the scaled coefficient of variation--to quantify the importance of supply sources for seasonal flexibility provision. [ABSTRACT FROM AUTHOR]

To avoid unnecessary distribution network investments, distribution tariffs are expected to become more cost-reflective, and DSOs are expected to procure flexibility. This will provide an implicit and an explicit incentive to provide demand-side flexibility. In this paper, we develop a long-term bi-level equilibrium model. In the upper level, the DSO optimizes social welfare by deciding the level of investment in the distribution network and/or curtailing consumers. The regulated DSO also sets a network tariff to recover the network and flexibility costs. In the lower level, the consumers, active and passive, maximize their own welfare. We find that implicit and explicit incentives for demand-side flexibility are complementary regulatory tools, but there are limits. If network tariffs are too imperfect, the resulting consumption profiles can become too expensive to fix with curtailment. We also find that it is difficult to set an appropriate level of compensation because of the reaction by prosumers. [ABSTRACT FROM AUTHOR]

There is a vast literature on household solar-panel uptake but there are mixed results for many explanatory variables such as income, education, age, and race. This creates a major challenge for policymakers, who devise solar-panel policies that relate to variables such as income. This study uses logit, probit, and linear probability models, along with the matching method of entropy balancing. We use household data from the 2019 American Housing Survey. Results using entropy balancing suggest that high housing values and older respondent age are key factors promoting solar-panel uptake. Income has some positive impacts, although detailed analysis tends to show insignificance. Education and race variables have insignificant coefficients when controlling for key variables. This paper could provide a basis for future policy approaches, such as means testing based on asset thresholds rather than income thresholds. [ABSTRACT FROM AUTHOR]

GARCH-type models have been widely used for forecasting crude oil price volatility, but often ignore the structural changes of time series, which may lead to spurious volatility persistence. Therefore, this paper focuses on the smooth and sharp structural changes in crude oil price volatility, i.e., smooth shift and regime switching, respectively, and investigates which structural change based GARCH models have better performance for forecasting crude oil price volatility. The empirical results indicate that, first, the flexible Fourier form (FFF) GARCH-type models considering smooth shift can accurately model structural changes and yield superior fitting and forecasting performance to traditional GARCH-type models. Second, the Markov regime switching (MRS) GARCH model incorporating regime switching exhibits superior fitting performance compared to the single-regime GARCH-type models, but it does not necessarily beat the counterparts for forecasting. Finally, the FFF-GARCH-type models outperform MRS-GARCH for forecasting crude oil price volatility and portfolio performance. [ABSTRACT FROM AUTHOR]

This paper presents an extensive comparison between public and private natural gas-fired units in managing the unit commitment problem in the context of the Greek electricity market. Using a unique hourly dataset from 2015-2019, our approach utilizes risk-weighted performance metrics--Cash Flows at Risk (CFaR) and Risk Weighted Return (RWR)--to analyze performance across the public and private units. Empirical findings indicate that publicly owned natural gas-fired units outperform privately owned natural gas-fired units in terms of operational efficiency, however the efficiency of privately owned natural gas-fired units is growing at a faster pace and is expected to surpass the efficiency of public units within 2 or 3 years. [ABSTRACT FROM AUTHOR]

This paper sheds light on the negative pricing of the May 2020 WTI futures contract (CLK20) on April 20, 2020. The super contango of early 2020, triggered by COVID-19 lockdowns and geopolitical tensions, incentivized cash and carry (C&C) traders to be long CLK20 and short distant contracts, while simultaneously booking storage at Cushing. Our investigation reveals that C&C arbitrage largely contributed to the lack of storage capacity at Cushing in April 2020 and the price crash relates to the reversing trades of many long CLK20 traders without pre-booked storage. Additional aggravating factors included a liquidity crush, staggering margin calls and potential price distortions due to the trade-at-settlement mechanism. The analysis suggests that claims from experts that hold index trackers responsible for the crash are unwarranted: Index trackers did not trigger the negative pricing, nor widen the futures-spot spread by rolling their positions to more distant contracts ahead of maturity. [ABSTRACT FROM AUTHOR]

Following the European Union's implementation of Energy Performance Certificates (EPCs) for buildings, the capitalization of energy efficiency in transaction prices and rents has been subject to much research. This paper uses different identification strategies for the Norwegian residential sales (N = 750,000) and rental (N = 670,000) markets to highlight the endogeneity and methodological limitations associated with assessing the price effects of energy efficiency and the signaling effect of label adoption. We find that the valuation of energy efficiency is subject to unobserved location and quality bias, that labeling has immediate, short-run, and long-run price effects and that different effects are observed in different submarkets. We provide evidence that sample selection issues related to location and time, with methodological and data limitations, are essential factors that must be considered when assessing the effects of the EPC implementation. [ABSTRACT FROM AUTHOR]

In this paper, we revisit the empirical observation that prices rise like rockets when input costs increase but fall like feathers when input costs decrease. The analysis draws on a novel data set that includes daily retail prices of gasoline from 12,804 stations in Germany from January 1, 2014 to December 31, 2018. Our findings based on pooled-panel asymmetric error correction models indicate that the pat)tern of rockets and feathers is the norm rather than the exception. Our results further show that temporal aggregation of station-level price data leads to inaccurate inferences and could account for the inconclusive findings in the literature. [ABSTRACT FROM AUTHOR]

Existing studies have focused on the negative impact of inefficient resource allocation on energy performance in China, but neglected to explore the underlying reason for this phenomenon from the perspective of market segmentation. To fill this research gap, the epsilon-based measure model is used to estimate energy efficiency, and the measurement method of market segmentation is improved in this paper. On the basis of a theoretical hypothesis, we use fractional regression models to conduct empirical research. The results show that market segmentation has a significant negative effect on China’s energy efficiency. Additionally, this inhibitory effect is robust but heterogeneous. The impact mechanism test indicates that energy price distortion, enterprise technology innovation, and industrial ag)glomeration are three intermediate influence channels. Based on these analyses, we suggest that China should accelerate market-oriented reform and eliminate market segmentation in pursuit of energy-saving and emission-abating goals. [ABSTRACT FROM AUTHOR]

Based on input-oriented Malmquist productivity index and parametric decomposition approach, this paper measures China’s green total factor productivity (TFP) index and its growth sources using a panel dataset of 30 provinces of China main-land from 1997 to 2014, and assesses the effect of CO2 intensity regulation on the green TFP growth in China. The results show that the green TFP has been growing at a yearly averaged rate of –1.51% during this period. The results also indicate that the policy of CO2 intensity regulation does not generate significant effect on the green total factor productivity of China’s provinces when using the two stage least squares (2SLS) estimator to control for the potential endogeneity biases. On the other hand, there exists significant heterogeneity in the effect of the CO2 intensity regulation on the green TFP of China’s provinces. Specifically, the CO2 intensity regulation promotes the green development performance of provinces in the eastern area, while it does not generate obvious impacts on the green TFP of provinces in both central and western areas. [ABSTRACT FROM AUTHOR]

This paper examines the pricing behavior of sellers in a market undergoing a significant restructuring, using data from the ongoing introduction of self-service technology in the Korean gasoline market in the 2000s. I provide evidence that full-service premium increased during the market transition. I further show that a monopolistic competition model is not enough to explain the increasing premium. The pricing behavior of sellers differs by product position: self-service sellers compete for price-sensitive consumers, whereas full-service sellers differentiate their product by offering a variety of bundled products and services, such as coffee, carwash or even nail salons, to compete for less-price-sensitive consumers. Taken together, the strategic choices of sellers evolve in different ways when the market structure changes, with each type of seller using its unique position, resulting in an increase in full-service premium during the market transition from full-service to self-service. [ABSTRACT FROM AUTHOR]

This paper uses data from the 2015 Residential Energy Consumption Survey to explore the extent to which renters' electricity use in the United States exceeds that of otherwise similar non-renters. Renting households are found to use approximately 9% more electricity than non-renters when controlling for location, socioeconomic, and many appliance-quantity controls. There are multiple factors that explain this extra electricity use, including inferior energy efficiency of appliances, behavioral factors, differences in bill payment responsibilities, and additional reliance by renters on electric space and water heaters. The paper finds that none of these factors are dominant. The phenomenon of renters' (conditionally) higher electricity use is thus best understood as one that emerges from multiple sources. [ABSTRACT FROM AUTHOR]

In this paper we analyze a uniform price day-ahead electricity spot market that is followed by redispatch in the case of network congestion. We assume that the transmission system operator is incentivized to minimize redispatch cost and compare cost-based redispatch (CBR ) to market-based redispatch (MBR) mechanisms. For networks with at least three nodes we show that in contrast to CBR, in the case of MBR incentives to minimize redispatch cost are in general not efficient in the context of our short-run analysis. This obtains both for pay-as-bid as well as locational marginal prices used for MBR compensation. As we demonstrate, moreover, in case of MBR the possibility of the transmission system operator to inefficiently reduce redispatch cost at the expense of decreased overall welfare can be driven both by the electricity supply side and the electricity demand side. Our results highlight a novel and important aspect regarding the design and the desirability of congestion management regimes in liberalized electricity markets. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to investigate, for the first time, whether the next day's consumption of natural gas can be accurately forecast using a simple model that solely incorporates the information contained in day-ahead market data. Hence, unlike standard models that use a number of meteorological variables, we only consider two predictors: the price of natural gas and the spark ratio measuring the relative price of electricity to gas. We develop a suitable modeling approach that captures the essential features of daily gas consumption and, in particular, the nonlinearities resulting from power dispatching and apply it to the case of France. Our results document the existence of a long-run relation between demand and spot prices and provide estimates of the marginal impacts that these price variables have on observed demand levels. We also provide evidence of the pivotal role of the spark ratio in the short run which is found to have an asymmetric and highly nonlinear impact on demand variations. Lastly, we show that our simple model is sufficient to generate predictions that are considerably more accurate than the forecasts published by infrastructure operators. [ABSTRACT FROM AUTHOR]

This paper investigates to which extent the Dutch feed-in premium scheme for on-shore wind projects has resulted in windfall profits during 2003-2018, a period in which the design of the scheme changed several times. Using Monte Carlo simulations, for 2003, 2009 and 2018, years that represent distinct scheme designs, we estimate the distributions of the required subsidy across virtually all potential on-shore wind projects, and compare them to the granted subsidies. We find that the average windfall profits of randomly drawn projects from the pool of potential investments have decreased over time, largely as a result of differentiating in the subsidy level among projects on the basis of the wind speed at the turbine's location. Despite these improvements, actual investments still experience substantial windfall profits, implying that investors successfully seek out projects that yield the highest windfall profits. Overall, the results imply that accounting for heterogeneity by differentiating in the subsidy level contributes to mitigating windfall profits. [ABSTRACT FROM AUTHOR]

The large-scale integration of renewable energy sources requires flexibility from power markets in the sense that the latter should quickly counterbalance the renewable supply variation driven by weather conditions. Most power markets cannot (yet) provide this flexibility effectively as they suffer from inelastic demand and insufficient flexible storage capacity or flexible conventional suppliers. Research accordingly shows that the volume of renewable energy in the supply system affects the mean and volatility of power prices. We extend this view and show that the level of wind and solar energy supply affects the tails of the electricity price distributions as well and that it does so asymmetrically. The higher the supply from wind and solar energy sources, the fatter the left tail of the price distribution and the thinner the right tail. This implies that one cannot rely on symmetric price distributions for risk management and for valuation of (flexible) power assets. The evidence in this paper suggests that we have to rethink the methods of subsidizing variable renewable supply such that they take into consideration also the flexibility needs of power markets. [ABSTRACT FROM AUTHOR]

Existing tariff schemes often fail to achieve basic economic objectives. They set prices per unit that either exceed or fall short the social marginal cost and produce unfair distributional outcomes. In many cases, electricity rates also contribute to unsustainable fiscal deficits due to the (almost) generalized electricity subsidies. Moreover, inefficient residential tariffs do not favor the adoption of green technologies and the investment in energy efficiency improvements. We argue that the efficient deployment of green technologies, and more generally, the clean energy transition, will require electricity tariff reforms. In this paper, we use household level data and hourly industry data from Mexico to show how more efficient pricing mechanisms (such as a two-part tariff scheme in the context of efficient nodal pricing), combined with well-design environmental regulations (e.g., net-metering schemes) and correctly targeted transfer programs (e.g., means testing mechanisms) can improve economic, social, and environmental outcomes significantly, all at once. [ABSTRACT FROM AUTHOR]

This paper provides global evidence that oil price shocks have significant impacts on bank risk. Specifically, all three oil shocks, including oil supply shocks, aggregate demand shocks, and oil specific demand shocks, have positive impacts on bank risk. In particular, oil specific demand shocks have different impacts on bank risk in oil-importing versus oil-exporting countries and in normal times versus the financial crisis period. Moreover, we find that interest rate spread could signifi- cantly explain the impacts of oil shocks on bank risk for oil-exporting countries during normal times. Our main results remain valid in various robustness tests. This study provides important practical implications for policy makers, banks, and investors around the world. [ABSTRACT FROM AUTHOR]

Financialization has brought new challenges to the international energy markets, making energy systemic risk a more complicated issue. One of the important features is the development of cryptocurrency, which has become a critical part of the global financial markets. As a consequence, the rise and fall of cryptocurrency can have nonnegligible impacts on the systemic risks in the international energy sector. This paper empirically tests this hypothesis using the equity data of the top 100 energy companies from 2014 to 2021. Specifically, we explore the extreme shocks of cryptocurrency using multiple bubble tests, and then we test to what extent bubbles in cryptocurrency markets can affect systemic risk in the energy sector. Our empirical results show that the formation of cryptocurrency bubbles, especially when the bubbles burst, significantly increases systemic risks in the energy sector. This effect retains the same in the recent COVID-19 pandemic period. In addition, oil and gas companies play an essential channel in the risk spillover from cryptocurrency markets to the international energy markets. [ABSTRACT FROM AUTHOR]

This paper introduces the ex-ante estimation of the variance risk premium. The novel methodology proposed is applied to forecast variance risk premium in energy markets, capturing the future degree of aversion of investors towards energy variance risks. We analyze the ex-ante variance risk premium of two energy indices, XLE and USO, during the period that spans from 2011 to 2022, and compare them to that of the SPX, the benchmark for the equity market. In the computation of the ex-ante variance risk premium, simple GARCH and Markov-switching GARCH models are exploited to forecast the realized variance, while variance swap rates are retrieved from the volatility indices VXXLE, OVX, and VIX of the three market indices. We find that the ex-ante variance risk premium succeeds to forecast the imminent periods of financial distress empirically detected in the abrupt surges and plunges of the ex-post variance risk premium. In particular, USO shows higher magnitudes of the variance risk premium than XLE and SPX, predicting that investors require on average higher premiums to bear oil variance risks. [ABSTRACT FROM AUTHOR]