Energy Journal Issue

The Energy Journal
Volume 45, Number 3



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Electricity Retail Rate Design in a Decarbonizing Economy: An Analysis of Time-of-use and Critical Peak Pricing

Tim Schittekatte, Dharik Mallapragada, Paul L. Joskow, and Richard Schmalensee

DOI: 10.5547/01956574.45.3.tsch

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Abstract:
Currently, the main component of most U.S. consumers' electricity bills is based on a constant price per kWh consumed. As intermittent renewable resources and flexible loads that can be shifted within days (such as electric vehicle charging) gain prominence in the electricity system, the efficiency gains to be realized from basing bills instead on wholesale spot prices increase. There is little political support for this change, however. We focus on second-best alternatives: time-of-use (TOU) rates and critical peak pricing (CPP). We introduce alternative assessment criteria that focus on intra-day load shifting. Using historical data, we find that TOU rates can reasonably replicate the intra-day load-shifting incentives provided under spot pricing. Thus, TOU rates, especially when complemented with CPP involving load control during infrequent scarcity price events, can be considerably more socially valuable than previously estimated.




Understanding Intraday Oil Price Dynamics during the COVID-19 Pandemic: New Evidence from Oil and Stock Investor Sentiments

Mohamed Arbi Madani and Zied Ftiti

DOI: 10.5547/01956574.45.3.mmad

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Abstract:
This study employed intraday stock market and oil investor sentiment data related to news and social media (i.e., the Thomson Reuters MarketPsych Indices [TRMI] sentiment index) to gauge investors' interest in the West Texas Intermediate (WTI) crude oil futures market during the recent health crisis. We proposed an original nonlinear empirical framework by considering oil price dynamics' complexity and its potential interaction with investor sentiment. The analysis revealed three noteworthy findings. First, we observed evidence of nonlinearity in the relationship between excess returns on WTI crude oil futures and investor sentiment data. Second, the causality direction moved only from oil and stock market investor sentiment to oil returns. Third, the impacts of oil and stock market sentiment data on crude oil returns (i.e., volatility) were always negative. Furthermore, sentiment data related to social media showed a more pronounced cross-correlation than that of news.




The Effects of The Multi-Target Policy on Green Productivity: Evidence from China’s Fossil Fuel Power Plants

Yu Zhao, Yunning Ma, Yongrok Choi, and Ning Zhang

DOI: 10.5547/01956574.45.3.yzha

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Abstract:
We propose the non-radial meta-frontier global Luenberger productivity index, which addresses the issues of technology heterogeneity, slack variable, and linear programming infeasibility, and decompose it based on the technology perspective and factor perspective. With the dataset of China's power plants from 2005 to 2015, we identify the effects of the multi-targets, including energy-saving targets and SO2 reduction targets, in the 12th Five-Year Plan on green productivity encompassing all channels of effects. A 1% increase in the average energy-saving target cumulatively increases green productivity by 0.50%, while a 1% increase in the average SO2 reduction target cumulatively decreases that by 0.03%. In all channels, the technology leadership effect and generation efficiency exhibit sensitivity. Differential effects of the multi-targets on state-owned versus non-state-owned plants imply significant differences in observed production technology.




Simulation-based Forecasting for Intraday Power Markets: Modelling Fundamental Drivers for Location, Shape and Scale of the Price Distribution

Simon Hirsch and Florian Ziel

DOI: 10.5547/01956574.45.3.shir

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Abstract:
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.




Unlocking Flexible Electric Vehicle Charging via New Rate Design

Icaro Silvestre Freitas Gomes, Adam F. Abdin, Jakob Puchinger, and Yannick Perez

DOI: 10.5547/01956574.45.3.igom

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Abstract:
A high penetration of electric vehicles (EVs) will deeply impact the management of electric power systems. The risk of not providing adapted EV pricing signals can lead to inefficient investments in grid infrastructure. To avoid costly grid reinforcements and to ensure proper guidance for EV charging, a solution allowing customers to access EV-only rates without installing a separate meter, which we refer to as submetering, is an attractive option for EV owners and grid operators. We develop a game-theoretical model expressed and treated as a mathematical program with equilibrium constraints (MPEC) to capture the interaction between a national regulatory authority (NRA) designing these tariffs and heterogeneous agents. This framework represents a stylized regulatory setup applicable to several European countries. First, we analyse the conditions in which EV-only tariffs can be applied for domestic charging by comparing different energy profiles. Second, we study the impact of EV charging on different tariff structures to identify the most efficient way of recovering network costs. We found that the adoption of submetering under a pure volumetric tariff can bring yearly gains varying from $64 to $125 to consumers with EV. Finally, we derive policy implications from the results.




What Are the Benefits of Government Assistance with Household Energy Bills? Evidence from Ukraine

Anna Alberini and Nithin Umapathi

DOI: 10.5547/01956574.45.3.aalb

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Abstract:
On February 24, 2022, Russian Federation troops invaded Ukraine. Ukraine was previously at war with Russia in 2014, and in April 2015, the government abruptly raised the natural gas tariffs to residential customers. It also scaled up its energy assistance program, the HUS. We examine the welfare effects of the HUS. Using Ukraine's Household Budget Survey, we find that after the tariff hike, the average household that did not receive the HUS spends 11% of its income on electricity, gas, and fuels, meeting the definition of "fuel poor." The average share among households that do receive the subsidy is 6–8%. The HUS cuts the rate of fuel poverty in half and brings considerable consumer surplus gains (6% of income), at a price tag of 1–2.5% of GDP. Meaningful savings would be achieved with only a moderate loss of consumer surplus if the HUS was cut in half. Social tariffs or replacing the HUS with a one-time energy efficiency subsidy would be sustainable and entail modest or no welfare losses.




Resource Adequacy through Operating Reserve Demand Curves: Design Options and their Impact on the Market Equilibrium

Georg Thomassen and Prof. Dr. Thomas Bruckner

DOI: 10.5547/01956574.45.3.gtho

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Abstract:
Operating reserve demand curves (ORDCs) have become part of the electricity market design in several power systems. They improve the security of supply through enhanced peak prices that occur already when the system is running low on operating reserves, before an actual shortfall occurs. Previous research, however, suggests that the ORDC's impact on resource adequacy would be thwarted by the merit order effect.Hence, we propose a methodology to model the investment in markets with ORDC, which specifically captures the interaction with renewable deployment. A stylized power system setting is used to determine the market equilibrium at different stages of decarbonization, and compared to a conventional energy-only market. Classical ORDCs consistently increase reliability by attracting additional investments. This effect can be amplified by "shifting" the ORDC, increasing the willingness to pay for balancing reserves. Our results suggest that perfect reliability can be achieved with only moderate cost increases.




Book Reviews

Monetizing Natural Gas in the New "New Deal" Economy, edited by Michelle Michot Foss, Anna Mikulska, and Gürcan Gülen - Book Review by: Sam Van Vactor

The Economics of Oil and Gas, by Xiaoyi Mu - Book Review by: Jamal Mamkhezri





 

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