Energy Journal Issue

The Energy Journal
Volume 42, Number 5
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Factors Affecting Renters' Electricity Use: More Than Split Incentives

Rohan Best, Paul J. Burke, Shuhei Nishitateno

DOI: 10.5547/01956574.42.5.rbes

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Abstract:
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.




Statistical Arbitrage and Information Flow in an Electricity Balancing Market

Derek W. Bunn and Stefan O.E. Kermer

DOI: 10.5547/01956574.42.5.dbun

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Abstract:
Motivated by the events following a natural experiment in 2015, when the market rules for electricity spot trading were changed in Britain, we analyse the operational effects of market participants responding to price incentives for spillage and shortage positions in a single price, real-time market. We develop an analytical model for optimal real-time decisions by generators and speculators based upon forecasts of the conditional distribution of the total system imbalance between instantaneous supply and demand. From this, we examine the effects of time delays in information transparency for the consequent statistical arbitrage positions. We backtested this model empirically to the Austrian system imbalance settlements process within the German/Austrian integrated market. Results suggest that permitting additional intraday flexibility from a physical generator or a non-physical trader can be beneficial for the agents themselves, the system operator and market efficiency.




Emission Pathways Towards a Low-Carbon Energy System for Europe: A Model-Based Analysis of Decarbonization Scenarios

Karlo Hainsch, Thorsten Burandt, Konstantin Löffler, Claudia Kemfert, Pao-Yu Oei, and Christian von Hirschhausen

DOI: 10.5547/01956574.42.5.khai

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The aim of this paper is to showcase different decarbonization pathways for Europe with varying Carbon dioxide (CO2) constraints until 2050. The Global Energy System Model (GENeSYS-MOD) framework, a linear mathematical optimization model, is used to compute low-carbon scenarios for 17 European countries or regions. The sectors power, low- and high- temperature heating, and passenger and freight transportation are included, with the model endogenously constructing capacities in each period. Emission constraints differ between different scenarios and are either optimized endogenously by the model, or distributed on a per-capita basis, GDP-dependent, or based on current emissions. The results show a rapid phase-in of renewable energies, if a carbon budget in line with established international climate targets is chosen. It can be shown that the achievement of the 2° target can be met with low additional costs compared to the business as usual case, while reducing total emissions by more than 30%.




Financial Stress and Basis in Energy Markets

Niaz Bashiri Behmiri, Maryam Ahmadi, Juha-Pekka Junttila, and Matteo Manera

DOI: 10.5547/01956574.42.5.nbeh

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Abstract:
We investigate the relationship between energy commodities bases, inventory and financial stress from 1994 to 2018. We find that, from the 1998 Asian crisis the effect of financial stress on energy commodities bases gradually increased and from the 2008 crisis became positive, while the effect of inventory showed a gradual decline over time. The reactions of bases to changes in financial stress is nonlinear, as they are higher in the high financial stress periods. This is more profound in crude oil market than heating oil and natural gas. Moreover, the reactions of bases to the changes in inventory is nonlinear, as the reactions are lower when the inventory level is high confirming the theory of storage. We suggest that, in energy market, changes of inventory do not fully explain the variation of energy commodities bases, as the connection between commodity and financial markets increased during the recent years.




National Climate Policies and Corporate Internal Carbon Pricing

Nuno Bento, Gianfranco Gianfrate, and Joseph E. Aldy

DOI: 10.5547/01956574.42.5.nben

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Abstract:
While national governments pledged to reduce their greenhouse gas emissions under the Paris Agreement, delivering on these aims will require significant changes in the activities of major sources of emissions such as companies. To drive such changes, companies will need to consider carbon emissions as a cost of production and many companies have begun doing so through internal carbon pricing. By employing data from the Carbon Disclosure Project, we evaluate how national carbon pricing policies influence firm-level internal carbon pricing and corporate emission targets. We find that firm-level internal carbon prices are significantly higher in countries explicitly pricing carbon through tax and/or cap-and-trade programs. These findings shed light on how companies are factoring climate change in their decision-making and on the drivers that can contribute to the generalization of climate pricing in the economy.




Navigating the Oil Bubble: A Non-linear Heterogeneous-agent Dynamic Model of Futures Oil Pricing

Giulio Cifarelli and Paolo Paesani

DOI: 10.5547/01956574.42.5.gcif

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We investigate short-term futures oil pricing over the 2003–2019 time-period in order to analyze the bubble-like dynamics, which characterizes the 2007–2009 years according to a large body of recent literature. Our research, based on the LPPL methodology and a flexible three-agent model (hedgers, fundamentalist speculators and chartists), confirms the presence of a bubble price pattern, which we attribute to the strong destabilizing behavior of speculators. In our view, this can be related to incorrect interpretation of market signals (or to the inability of trading against the market), especially by fundamentalists, combined with imitation across different categories of agents. This sets off positive feedback reactions along with self-reinforced herding of the kind best detected by the LPPL methodology.




Effects of Carbon Mitigation on Co-pollutants at Industrial Facilities in Europe

Klara Zwickl, Simon Sturn, James K. Boyce

DOI: 10.5547/01956574.42.5.kzwi

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In addition to global climate benefits, carbon mitigation improves local air quality by reducing emissions of hazardous co-pollutants. Using data on large industrial point sources in Europe, we estimate how changes in carbon dioxide emissions affect emissions of the three co-pollutants SOX, NOX, and PM10 for samples of 630 to 2,400 facilities for the years 2007 to 2015. We find substantial and statistically significant co-pollutant elasticities of about 1.0 for SOX, 0.9 for NOX, and 0.7 for PM10. These elasticities vary by economic activity, and are substantially higher for the production of energy. For climate policy-induced CO2 emission reductions we find elasticities in the energy sector of 1.2 to 1.8 for SOX, 1.1 to 1.5 for NOX, and 0.8 for PM10. Using these estimates to calculate monetary air quality co-benefits suggests that conventional European Environmental Agency estimates of carbon damages that omit co-benefits significantly underestimate the benefits of carbon mitigation.




The Impact of Electric Vehicle Density on Local Grid Costs: Empirical Evidence from Norway

Paal Brevik Wangsness and Askill Harkjerr Halse

DOI: 10.5547/01956574.42.5.pwan

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Abstract:
While a rapid shift towards electric vehicles (EVs) will contribute to reducing carbon emissions from the transport sector, there are concerns that uncoordinated charging of EVs might impose challenges for the local electricity grid. Our study is the first to investigate this empirically in a country-wide analysis, using data from the country with the highest market share of EVs, namely Norway. We present the regulatory framework in which Norwegian grid companies operate and discuss the possible impact of EV charging. Using panel data on 107 grid companies over the period 2008–2017, we then estimate the effect of local growth in EVs on local grid costs. We find that increases in EV stock are associated with increases in costs which are both statistically and economically significant. However, there is a lot of heterogeneity in these results, where the effect on grid costs are higher for small grid companies in rural areas.




Towards Use of Cleaner Fuels in Urban and Rural Households in Colombia: Empirical Evidence from 2010 to 2016

Jhon Pérez, Efraín Bernal, and Patricia Rodríguez-Sánchez

DOI: 10.5547/01956574.42.5.jper

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Natural Gas (NG) and Liquefied Petroleum Gas (LPG) are considered as modern fuels particularly in the urban and rural areas in developing countries. In Colombia, approximately 6.5 million people, around 13% of the population in Colombia use traditional solid fuels for cooking. Using the Colombia Living Standard Survey (CLSS) data for 2010 to 2016 in this study is investigated the mainly socioeconomic factors that influence the choice of cooking fuel in households. A Multinomial Logit Regression (MLR) model is used for empirical analysis. Results reveal several important socioeconomic variables that determine the use of fuels such as type of household, education level and household income. Moreover, results allow to show the successful implementation of the Colombian substitution energy policy, from solid to cleaner fuels such as LPG and NG along national territory. Additionally, we provide several maps to show the evolution of cooking fuel usage in rural and urban areas of Colombia from 2010 to 2016.




Market Design Considerations for Scarcity Pricing: A Stochastic Equilibrium Framework

Anthony Papavasiliou, Yves Smeers, and Gauthier de Maere d'Aertrycke

DOI: 10.5547/01956574.42.5.apap

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Scarcity pricing is a mechanism for improving the valuation of reserve capacity in real-time electricity markets. The goal of scarcity pricing is to mitigate the missing money problem and enhance investment in flexible resources. The implementation of scarcity pricing is underway in a number of U.S. markets, including Texas and PJM. The implementation is also currently under consideration in Belgium. As the mechanism was originally conceived in the context of a U.S.-style two-settlement system, its implementation in a European setting poses a number of interesting market design dilemmas which can affect the back-propagation of scarcity prices to forward day-ahead markets for energy and reserve capacity. We propose a modeling framework for analyzing these market design choices based on stochastic equilibrium, and use this modeling framework in order to represent and analyze a wide range of market design proposals. We report results on a case study of the Belgian electricity market.




The Profitability of Energy Storage in European Electricity Markets

Petr Spodniak, Valentin Bertsch, and Mel Devine

DOI: 10.5547/01956574.42.5.pspo

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In this work, we study the profitability of energy storage operated in the Nordic, German, and UK electricity day-ahead markets during 2006–2016. During this time period, variable renewable energy sources (vRES) have been rapidly penetrating the markets and increasing the volatility of the residual load, which is often assumed to be associated with improving financial viability of energy storages. However, storage operator profits are not publicly available, in particular not at plant level. We therefore develop a linear optimisation model which maximises profits from arbitraging hourly prices and use the model output of profits and storage operating hours in further econometric analyses. This is a novel approach merging two strands of literature (optimisation and econometrics) in a single energy storage study. Specifically, we quantify and disentangle the effects of electricity demand, solar and wind generation, the spread between gas and coal prices, carbon emission prices and structural breaks on profits and operation of 1–13MWh/MW energy storages. Among others we find that solar generation is associated with lower profits but higher operating frequency of energy storages in Germany. Wind power generation is associated with positive effects on profits in the UK and Germany. vRES does not affect profits or operation of new Nordic energy storages.




Transmission Integration and the Market for Congestion Revenue Rights

Gaurav Doshi and Xiaodong Du

DOI: 10.5547/01956574.42.5.gdos

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Texas electricity market saw a recent integration of electricity transmission as a part of Competitive Renewable Energy Zones (CREZ). Exploiting the commissioning date of CREZ based transmission integration as an exogenous shock, we analyze the effect of transmission expansion on market clearing prices of Congestion Revenue Rights (CRR). Reduced form estimates suggest that excess transmission led to a lowering of CRR prices for contracts at all Times of Use. We find strong evidence of spatial, distributional, and firm specific heterogeneity. The paper shows that transmission expansion enhanced efficiency of the CRR market in terms of a spatial convergence in prices and a decrease in aggregate auction expenditure of approximately $260 million over a period of 4.5 years post CREZ.




Book Reviews

The Law of Petroleum Unitization: Legislating for Effective Regulatory Governance, by Paul F. Worthington - Book Review by: Timothy Fitzgerald

Merchants of Doubt: How A Handful of Scientists Obscured The Truth On Issues From Tobacco Smoke To Global Warming, by Naomi Oreskes and Erik M. Conway - Book Review by: K. Xerxes Steirer





 

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