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Scale Economies and Reliability in the Electric Power Industry

H. S. Burners, R. G. Cummings, and Verne W. Loose

Year: 1985
Volume: Volume 6
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No1-13
View Abstract

Abstract:
Studies concerning scale economies in the electric power industry have focused on a wide range of variables relevant to possible ways of increasing the nation's electricity generating capacity. In terms of scale economies per se, results from economic studies have supported current trends toward the construction of increasingly large generating units (Abdulkarim and Lucas 1977; Lomas 1952; and Ling 1964). Economies of scale for generating units and generating plants are attributed to such factors as nonproportionalities between plant capacity and site costs, lesser leakages and power losses obtained in larger generating units, operating and maintenance costs that increase less than proportionally with unit size, scale economies in coal-handling facilities, and economies in transmission (see particularly Lomas 1952; Ling 1964; Cicchetti, Gillen, and Smolansky 1977)) Ramifications of scale economies have been expanded to include such things as technological change (Barzel 1974, Dhrymes and Kurz 1964), interfuel substitutions (Atkinson and Halvorsen 1976) and regulatory aspects (Averch and Johnson 1962; Joskow 1974).



Incentive Effects of Environmental Adders in Electric Power Auctions

James B. Bushnell and Shmuel S. Oren

Year: 1994
Volume: Volume15
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No3-4
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Abstract:
We make a systematic examination of the options for incorporating environmental adders into auctions for non-utility generation. To date, adders have been a popular tool of some regulators for the planning process, but have not been embraced as a tool for operations. We argue that any rational implementation of adders into a competitive acquisition process will have at least an indirect effect on the operations of the resulting electric system. If adders are to be employed, regulators must therefore be comfortable enough with them to use them explicitly in both the operation and selection of generation resources.



Regulation of an Electric Power Transmission Company

Thomas-Olivier Leautier

Year: 2000
Volume: Volume21
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No4-3
View Abstract

Abstract:
Designing regulatory contracts for the operators of power transmission networks has become a critical policy issue in the United States. In this paper, a regulatory contract is proposed that induces network operators to optimally expand the grid, which is crucial for the emergence of efficient wholesale power markets, while also satisfying the other traditional regulatory objectives. The proposed mechanism is readily implementable, since it builds on a contract currently in place in England and Wales.



Multi-Period VaR-Constrained Portfolio Optimization with Applications to the Electric Power Sector

Paul R. Kleindorfer and Lide Li

Year: 2005
Volume: Volume 26
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No1-1
View Abstract

Abstract:
This paper considers the optimization of portfolios of real and contractual assets, including derivative instruments, subject to a Value-at-Risk (VaR) constraint, with special emphasis on applications in electric power. The focus is on translating VaR definitions for a longer period of time, say a year, to decisions on shorter periods of time, say a week or a month. Thus, if a VaR constraint is imposed on annual cash flows from a portfolio, translating this annual VaR constraint into appropriate risk management/VaR constraints for daily, weekly or monthly trades within the year must be accomplished. The paper first characterizes the multi-period VaR-constrained portfolio problem in the form Max {E � kV} subject to a set of separable constraints over the decision variables (the level of assets of different instruments contained in the portfolio), where E and V are, respectively, the expected value and variance of multi-period cashflows from operations covered by the portfolio. Then, assuming the distribution of multi-period cashflows satisfies a certain regularity condition (which is a generalization of the standard Gaussian assumption underlying VaR), we derive computationally efficient methods for solving this problem that take the form of the standard quadratic programming formulations well-known in financial portfolio analysis.



The More Cooperation, The More Competition? A Cournot Analysis of the Benefits of Electric Market Coupling

Benjamin F. Hobbs, Fieke A.M. Rijkers, Maroeska G. Boots

Year: 2005
Volume: Volume 26
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No4-5
View Abstract

Abstract:
If barriers between two power markets are eliminated, what might happen to competition and prices? And who benefits? In the case of the Belgian and Dutch markets, market coupling would permit more efficient use of transmission by improving access to the Belgian market, by counting only net flows against interface limits, and by eliminating mismatches in timing of interface auctions and energy spot markets. We estimate the benefits associated with the first two of these impacts using a transmission-constrained Cournot model. Social surplus improvements on the order of 108 �/year are projected, unless market coupling encourages the largest producer in the region to switch from price-taking in Belgium to a Cournot strategy due to a perceived diminished threat of regulatory intervention. Whether Dutch consumers would benefit also depends on that company�s behavior. The results illustrate how large-scale oligopoly models can be used to assess changes in market designs.



Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany

Wolf-Peter Schill and Claudia Kemfert

Year: 2011
Volume: Volume 32
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No3-3
View Abstract

Abstract:
We study the strategic utilization of storage in imperfect electricity markets. We apply a game-theoretic Cournot model to the German power market and analyze different counterfactual and realistic cases of pumped hydro storage. Our main finding is that both storage utilization and storage-related welfare effects depend on storage ownership and the operator's involvement in conventional generation. Strategic operators generally under-utilize owned storage capacity. Strategic storage operation may also lead to welfare losses, in particular if the total storage capacity is controlled by an oligopolistic generator that also owns conventional generation capacity. Yet in the current German situation, pumped hydro storage is not a relevant source of market power.



Is Mandating "Smart Meters" Smart?

Thomas-Olivier Leautier

Year: 2014
Volume: Volume 35
Number: Number 4
DOI: 10.5547/01956574.35.4.6
View Abstract

Abstract:
The advent of "smart meters" will make possible Real Time Pricing (RTP) of electricity: customers will face and react to wholesale spot prices, thus consumption of electric power will be aligned with its opportunity cost. This article determines the marginal value of a fraction of demand (or a consumer) switching to RTP, conditional on smart meters installation. First, it establishes sufficient conditions for the marginal value of RTP to be decreasing as the fraction of customers on RTP increases. Second, it derives this marginal value for a simple yet realistic specification of demand. Finally, using data from the French power market, it estimates that, for the vast majority of residential customers whose peak demand is lower than 6 kVA, the net surplus from switching to RTP is lower than 1 €/year for low demand elasticity, 4 €/year for high demand elasticity. This finding casts a doubt on the economic value of rolling out smart meters to all residential customers, for both policy makers and power suppliers.





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