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Energy Journal Issue

The Energy Journal
Volume 34, Number 1

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Market Restructuring, Competition and the Efficiency of Electricity Generation: Plant-level Evidence from the United States 1996 to 2006

J. Dean Craig and Scott J. Savage

DOI: 10.5547/01956574.34.1.1View Abstract

This paper examines the effects of market restructuring initiatives that introduced competition into the United States electricity industry on the thermal efficiency of electricity generation. An empirical model is estimated on annual data for over 950 plants from 1996 to 2006. Model estimates show that access to wholesale electricity markets and retail choice together increased the efficiency of investor-owned plants by about nine percent and that these gains stem from organizational and technological changes within the plant. Although not directly targeted by restructuring initiatives, similar efficiency gains are also found for municipality-owned plants. This result suggests that the potential benefits from competition have spilled over to public electricity generation.

Jump Processes in the Market for Crude Oil

Neil A. Wilmot and Charles F. Mason

DOI: 10.5547/01956574.34.1.2View Abstract

In many commodity markets, the arrival of new information leads to unexpectedly rapid changes--or jumps--in commodity prices. Such arrivals suggest the assumption that log-return relatives are normally distributed may not hold. Combined with time-varying volatility, the possibility of jumps offers a potential explanation for fat tails in oil price returns. This article investigates the potential presence of jumps and time-varying volatility in the spot price of crude oil and in futures prices. The investigation is carried out over three data frequencies (Monthly, Weekly, Daily), which allows for an investigation of temporal properties. Employing likelihood ratio tests to compare among four stochastic data-generating processes, we find that that allowing for both jumps and time-varying volatility improves the model's ability to explain spot prices at each level of temporal aggregation; this combination also provides a statistically compelling improvement in model fit for futures prices at the Daily and Weekly level. At the monthly level, allowing for jumps does not provide a statistically significant increase in model fit after incorporating time-varying volatility into the model.

Energy Efficiency Investments in the Home: Swiss Homeowners and Expectations about Future Energy Prices

Anna Alberini, Silvia Banfi, and Celine Ramseier

DOI: 10.5547/01956574.34.1.3View Abstract

Using conjoint choice experiments, we surveyed 473 Swiss homeowners about their preferences for energy efficiency home renovations. We find that homeowners are responsive to the upfront costs of the renovation projects, government-offered rebates, savings in energy expenses, time horizon over which such savings would be realized, and thermal comfort improvement. The implicit discount rate is low, ranging from 1.5 to 3%, depending on model specification. This is consistent with Hassett and Metcalf (1993) and Metcalf and Rosenthal (1995), and with the fact that our scenarios contain no uncertainty. Respondents who feel completely uncertain about future energy prices are more likely to select the status quo (no renovations) in any given choice task and weight the costs of the investments more heavily than the financial gains (subsidies and savings on the energy bills). Renovations are more likely when respondents believe that climate change considerations are important determinants of home renovations.

Real-time Feedback and Electricity Consumption: A Field Experiment Assessing the Potential for Savings and Persistence

Sebastien Houde, Annika Todd, Anant Sudarshan, June A. Flora , and K. Carrie Armel

DOI: 10.5547/01956574.34.1.4View Abstract

Real-time information feedback delivered via technology has been reported to produce up to 20 percent declines in residential energy consumption. There are however large differences in estimates of the effect of real-time feedback technologies on energy use. In this study, we conduct a field experiment to obtain an estimate of the impact of a real-time feedback technology. Access to feedback leads to an average reduction in household electricity consumption of 5.7 percent. Significant declines persist for up to four weeks. In examining time of day reduction effects, we find that the largest reductions were observed initially at all times of the day but as time passes, morning and evening intervals show larger reductions. We find no convincing evidence that household characteristics explain heterogeneity in our treatment effects; we examine demographics, housing characteristics and psychological variables.

Dead Battery? Wind Power, the Spot Market, and Hydropower Interaction in the Nordic Electricity Market

Johannes Mauritzen

DOI: 10.5547/01956574.34.1.5View Abstract

It is well established within both the economics and power system engineering literature that hydropower can act as a complement to large amounts of intermittent energy. In particular hydropower can act as a "battery" where large amounts of wind power are installed. In this paper I use simple distributed lag models with data from Denmark and Norway. I find that increased wind power in Denmark causes increased marginal exports to Norway and that this effect is larger during periods of net exports when it is difficult to displace local production. Increased wind power can also be shown to slightly reduce prices in southern Norway in the short-run. Finally, I estimate that as much as 40 percent of wind power produced in Denmark is stored in Norwegian hydropower magazines.

How Competitive is Cross-border Trade of Electricity? Theory and Evidence from European Electricity Markets

Georg Gebhardt and Felix Hoffler

DOI: 10.5547/01956574.34.1.6View Abstract

Integrating national markets is a major policy target in the European energy market. Yet, wholesale prices for electricity still differ significantly. Whether these price differences are caused only by limited interconnector capacities or also by lack of cross-border competition is an open question. To address this question, we develop a new approach to determine to which extent price differences stem from limited participation in cross-border trade. We derive a theoretical integration benchmark, using Grossman's (1976) notion of a rational expectations equilibrium. We compare the benchmark to data from European electricity markets. The data reject the integration hypothesis and indicate that well informed traders do not engage in cross-border trade.

Emissions Savings from Wind Power Generation in Texas

Daniel T. Kaffine, Brannin J. McBee, and Jozef Lieskovsky

DOI: 10.5547/01956574.34.1.7View Abstract

Wind power has the potential to reduce emissions associated with conventional electricity generation. Using detailed, systemic hourly data of wind generation and emissions from plants in ERCOT (Texas), we empirically estimate the SO2,NOx and CO2 emissions offset by wind generation. Our estimation strategy implicitly captures both the marginal unit of generation displaced by wind on the electrical grid, and the marginal emissions reduction from that displaced unit. Our results also reveal substantial variation in emissions reductions, which appear to be strongly driven by differences in the generation mix. The environmental benefits from emissions reductions in ERCOT fail to cover government subsidies for wind generation.

Technology Diffusion and Environmental Regulation: The Adoption of Scrubbers by Coal-Fired Power Plants

Elaine F. Frey

DOI: 10.5547/01956574.34.1.8View Abstract

Title IV of the 1990 Clean Air Act Amendments implemented a pollution permit system for sulfur dioxide (SO2) emissions that departs from state commandand-control regulations that were in place prior to and during its implementation. This paper develops a technology diffusion model, relying on rank effects or firm heterogeneity, to explain the adoption of scrubbers, a SO2 abatement technology. Using survival analysis, empirical results show that generating units regulated under Phase I of Title IV, units facing more stringent state regulations, and units with low expected installation costs are much more likely to install a scrubber. In addition, there is evidence of positive scale effects of adoption, meaning larger units are more likely to adopt because expected installation costs are lower. Tradable permit systems should give firms more flexibility in choosing abatement technologies, but results show that when command-and-control regulations overlap with a market-based system, the technology choice is restricted.

Oil Price Volatility and Bilateral Trade

Shiu-Sheng Chen and Kai-Wei Hsu

DOI: 10.5547/01956574.34.1.9View Abstract

This paper examines whether oil price volatility affects bilateral trade between two countries around the world. Using the gravity econometric model with 1,995 country-pairs covering 117 countries from 1984 to 2009, the empirical results suggest that oil price fluctuations significantly decrease bilateral trade volumes. The negative impact is more prominent the greater the distance between the two trading countries. As geographical distance is one of the measures of transport cost, our results also suggest that a potential channel through which oil price volatility hurts trade volumes is the uncertainty in transport cost.