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Competition in the Dutch Electricity Market: An Empirical Analysis over 2006-2011

Machiel Mulder

Year: 2015
Volume: Volume 36
Number: Number 2
DOI: 10.5547/01956574.36.2.1
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Abstract:
We assess the development of competition in the Dutch electricity wholesale market over 2006-2011. In this period domestic generation capacity, both centralized and decentralized, as well as the cross-border transmission capacity increased. Using hourly plant-level data of centralized units and engineering-costs estimates, we estimate the weighted average Lerner index. During super peak hours, the annual average value of this index decreased from 0.23 in 2006 to 0.03 in 2011, indicating more competition. We find indications that the increase in competition can be attributed to the extension of cross-border connections, a higher price elasticity of net demand and more Bertrand-like competition. Enhancing the role of decentralized generation as well as fostering integration of markets seem to be effective measures to promote competition.



Carbon Intensity and the Cost of Equity Capital

Arjan Trinks, Gbenga Ibikunle, Machiel Mulder, and Bert Scholtens

Year: 2022
Volume: Volume 43
Number: Number 2
DOI: 10.5547/01956574.43.2.atri
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Abstract:
The transition from high- to lower-carbon production systems increasingly creates regulatory and market risks for high-emitting firms. We test to what extent equity market investors demand a premium to compensate for such risks and thus might raise firms' cost of equity capital (CoE). Using data for 1,897 firms spanning 50 countries over the years 2008–2016, we find a distinct and robust positive impact of carbon intensity (carbon emissions per unit of output) on CoE: On average, a standard deviation higher (sector-adjusted) carbon intensity is associated with a CoE premium of 6 (9) basis points or 1.7% (2.6%). This effect is primarily explained by systematic risk factors: high-emitting assets are significantly more sensitive to economy-wide fluctuations than low-emitting ones. The CoE impact of carbon intensity is more pronounced in high-emitting sectors, EU countries, and firms subject to carbon pricing regulation. Our results suggest that carbon emission reduction might serve as a valuable risk mitigation strategy.



Design of Renewable Support Schemes and Windfall Profits: A Monte Carlo Analysis for the Netherlands

Daan Hulshof and Machiel Mulder

Year: 2022
Volume: Volume 43
Number: Number 5
DOI: 10.5547/01956574.43.5.dhul
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Abstract:
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.





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