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Energy Journal Issue

The Energy Journal
Volume 32, Number 2

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Increasing the Value of Wind with Energy Storage

Ramteen Sioshansi

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-1
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One economic disincentive to investing in wind generation is that the average market value of wind energy can be lower than that of other generation technologies. This is driven by the exercise of market power by other generators and the fact that the ability of these generators to exercise market power is inversely related to real-time wind availability. We examine the use of energy storage to mitigate this price suppression by shifting wind generation from periods with low prices to periods with higher prices. We show that storage can significantly increase the value of wind generation but the currently high capital cost of storage technologies cannot be justified on the basis of this use. Moreover, we demonstrate that this use of storage can reduce consumer surplus, the profits of other non-wind generators, and social welfare. We also examine the sensitivity of these effects to a number of parameters including storage size, storage efficiency, ownership structure, and market competitiveness--showing that a more-competitive market can make storage significantly more valuable to a wind generator.

Swapping Generators' Assets: Market Salvation or Wishful Thinking?

Anthony Downward, David Young, and Golbon Zakeri

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-2
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The idea of rearranging generation assets amongst firms to improve competition has once again surfaced in a recent report on improvements to the New Zealand Electricity Market. We present counterexamples to show that rearranging assets, either with asset divestiture to a new firm, or asset swaps between existing firms, may actually reduce competition in electricity markets. Our examples emphasize features that are particular to electricity, such as seasonality and transmission constraints. These results warn that applying economic rules of thumb to electricity markets may lead to erroneous conclusions.

Energy Demand and Energy Efficiency in the OECD Countries: A Stochastic Demand Frontier Approach

Massimo Filippini and Lester C. Hunt

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-3
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This paper attempts to estimate a panel "frontier" whole economy aggregate energy demand function for 29 countries over the period 1978 to 2006 using parametric stochastic frontier analysis (SFA). Consequently, unlike standard energy demand econometric estimation, the energy efficiency of each country is also modeled and it is argued that this represents a measure of the underlying efficiency for each country over time, as well as the relative efficiency across the 29 OECD countries. This shows that energy intensity is not necessarily a good indicator of energy efficiency, whereas by controlling for a range of economic and other factors, the measure of energy efficiency obtained via this approach is. This is, as far as is known, the first attempt to econometrically model OECD energy demand and efficiency in this way and it is arguably particularly relevant in a world dominated by environmental concerns with the subsequent need to conserve energy and/or use it as efficiently as possible. Moreover, the results show that although for a number of countries the change in energy intensity over time might give a reasonable indication of efficiency improvements; this is not always the case. Therefore, unless this analysis is undertaken, it is not possible to know whether the energy intensity of a country is a good proxy for energy efficiency or not. Hence, it is argued that this analysis should be undertaken to avoid potentially misleading advice to policy makers.

Econometric Estimation of Spatial Patterns in Electricity Prices

Stratford M. Douglas and Julia N. Popova

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-4
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Information about the spatial structure of the transmission grid is relevant to understanding and predicting electricity prices, but this information has not been incorporated into empirical models of electricity prices in the literature. We propose the use of spatial econometric panel methods, discuss their formal characteristics in the context of electricity price data, and provide an application to a panel of PJM price data. Our econometric model includes a simple representation of the transmission system, and provides information about the effect of system constraints on the extent of electricity market integration. Empirical results confirm the existence of spatial patterns in electricity prices and illustrate their impact on estimation, forecasting, and interpolation.

Energy Consumption and Real Income: A Panel Cointegration Multi-country Study

Roselyne Joyeux and Ronald D. Ripple

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-5
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The direction of the causality between energy consumption and income is an important issue in the fields of energy economics, economic growth, and policies toward energy use. The seminal work on the relations between energy consumption and aggregate income is Kraft and Kraft (1978). An extensive literature has followed, but the array of findings provide anything but consensus on either the existence of relations or direction of causality between the variables. The work in this paper extends this research by analysing the cointegrating and causal relations between income and three energy consumption series based on panel data and the latest panel methodologies. These relations are analysed for the 30 OECD countries and 26 non-OECD countries. The results support a finding of causality flowing from income to energy consumption for developed and developing economies, alike.

A Meta-Analysis of the Economic Impacts of Climate Change Policy in the United States

Adam Rose and Noah Dormady

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-6
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This paper provides a meta-analysis of a broad set of recent studies of the economic impacts of climate change mitigation policies. It evaluates the influences of the impacts of causal factors, key economic assumptions and macroeconomic linkages on the outcome of these studies. A quantile regression analysis is also performed on the meta sample, to evaluate the robustness of those key factors throughout the full range of macro findings. Results of these analyses suggest that study results are strongly driven by data inputs, economic assumptions and modeling approaches. However, they are sometimes affected in counterintuitive ways.

Do Speculators Drive Crude Oil Futures Prices?

Bahattin Buyuksahin and Jeffrey H. Harris

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-7
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The coincident rise in crude oil prices and increased number of financial participants in the crude oil futures market from 2000-2008 has led to allegations that "speculators" drive crude oil prices. As crude oil futures peaked at $147/ bbl in July 2008, the role of speculators came under heated debate. In this paper, we employ unique data from the U.S. Commodity Futures Trading Commission (CFTC) to test the relation between crude oil prices and the trading positions of various types of traders in the crude oil futures market. We employ Granger Causality tests to analyze lead and lag relations between price and position data at daily and multiple day intervals. We find little evidence that hedge funds and other non-commercial (speculator) position changes Granger-cause price changes; the results instead suggest that price changes precede their position changes.

Understanding Middle East Gas Exporting Behavior

Axel M. Wietfeld

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-8
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The Middle East is a fascinating region with an immense GDP growth and an excellent business environment. Thanks to its huge hydrocarbon reserves, the region already exports a lot of oil and gas and has realistic plans to increase this further. Although the global gas market is currently saturated and will be so for the next years, the hunger for additional supplies is likely to reappear in the second half of the new decade. Consequently, the gas exporting nations in the Middle East, such as Qatar, the UAE, Oman and Iran have to prepare themselves for developing additional projects. The question discussed in this article is whether they are able to do so, given challenges such as high indigenous demand, energy inefficiency, reserve structures and the sometimes unstable political environment, which is making it difficult to attract the required capital. This review begins with a brief overview of each country's reserve structure and natural gas history. It then proceeds to analyze the current and future supply/demand balance, taking into account the relevant pipeline and LNG export projects, and draws conclusions for future export projects. The results suggest that Qatar, the UAE, Iran and Oman could contribute to global LNG and pipeline gas supplies with additional volumes of 55 to 90 bcm/a in the period 2015 to 2020.