Recent Issues

The Energy Journal
Volume 41, Number 5




Oil Price Declines Could Hurt U.S. Financial Markets: The Role of Oil Price Level

Ha Nguyen, Huong Nguyen, and Anh Pham

DOI: 10.5547/01956574.41.5.hngu
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Abstract:
This paper investigates the causal effects of oil price fluctuations on United States� financial markets using daily oil price and financial market data from 2011 to 2016. To address endogeneity, we follow the heteroscedasticity-based identification strategy by Rigobon (2003) and instrument for changes in oil prices with exogenous shocks on current and future oil supply. We find that a decline in oil price negatively affected markets after 2014 when oil price was very low, but not before 2014 when the price was relatively high. These novel findings suggest oil price level could affect the impact of a decrease in oil prices on financial markets.




Intermittency and CO2 Reductions from Wind Energy

Daniel T. Kaffine, Brannin J. McBee, and Sean J. Ericson

DOI: 10.5547/01956574.41.5.dkaf
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Abstract:
Using detailed 5-minute electricity generation data, we examine the impact of wind intermittency on carbon dioxide (CO2) emissions savings from wind energy in the Southwest Power Pool from 2012�2014. Parametric and semi-parametric analysis confirms concerns that intra-hour wind intermittency reduces CO2 emissions savings from wind�in the top decile of wind intermittency, emission savings are reduced by nearly 10 percent. However, the average wind intermittency effect on emission savings is modest, on the order of 6.5 percent when accounting for dynamic effects. Evidence suggests the intermittency effect is likely to remain modest in the near-term.




Stretching the Duck: How Rising Temperatures will Change the Level and Shape of Future Electricity Consumption

Nicholas Rivers and Blake Shaffer

DOI: 10.5547/01956574.41.5.nriv
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Abstract:
This paper examines how rising temperatures due to climate change will affect electricity consumption patterns through mid- and end-century. We extend recent literature in two important ways. First, we directly incorporate adaptation in the form of increased air conditioner penetration, resulting in heightened responsiveness to hot temperatures. Second, we go beyond average effects to consider how higher temperatures will change the intraday and seasonal shape of consumption. This is found to be of greater importance in colder countries, where the average effect is dampened by reductions in heating demand from warmer winters. Seasonal peaks are projected to shift from winter to summer and the diurnal range of hourly consumption expands, exacerbating an increasing need for flexibility coming from the supply side due to a growing share of renewable energy.




Direct and Indirect Energy Rebound Effects in German Households: A Linearized Almost Ideal Demand System Approach

Hendrik Schmitz and Reinhard Madlener

DOI: 10.5547/01956574.41.5.hsch
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Abstract:
We estimate direct and indirect energy rebound effects for a wide variety of goods and services in Germany. To this end, we employ a linearized approximation of the popular Almost Ideal Demand System (AIDS) approach suggested by Deaton and Muellbauer (1980). Excluding measures of energy efficiency when estimating rebound can lead to biased results. We compensate for this shortcoming of previous research by explicitly accounting for energy efficiency in our estimations. Using data for Germany from 1970 to 2017, we find moderate direct and significant indirect rebound effects for different energy carriers across four model specifications. The size of the rebound effect proves to be sensitive to the expenditure shares used for the calculations, which in some cases leads to negative overall rebound estimates.




Least-cost Distribution Network Tariff Design in Theory and Practice

Tim Schittekatte and Leonardo Meeus

DOI: 10.5547/01956574.41.5.tsch
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Abstract:
In this paper a game-theoretical model with self-interest pursuing consumers is introduced in order to assess how to design a least-cost distribution tariff under two constraints that regulators typically face. The first constraint is related to difficulties regarding the implementation of cost-reflective tariffs. In practice, so-called cost-reflective tariffs are only a proxy for the actual cost driver(s) in distribution grids. The second constraint has to do with fairness. There is a fear that active consumers investing in distributed energy resources (DER) might benefit at the expense of passive consumers. We find that both constraints have a significant impact on the least-cost network tariff design, and the results depend on the state of the grid. If most of the grid investments still have to be made, passive and active consumers can both benefit from cost-reflective tariffs, while this is not the case for passive consumers if the costs are mostly sunk.




Consumer Preferences for Solar Energy: A Choice Experiment Study

Jamal Mamkhezri, Jennifer A. Thacher, and Janie M. Chermak

DOI: 10.5547/01956574.41.5.jmam
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Abstract:
Electricity generation in the United States is rapidly moving towards integrating more renewables into the system due to several factors, including cost competitiveness, consumer preferences, and state and federal policies, such as production and income tax incentives, renewable portfolio standards (RPSs), and state level subsidies for solar energy. While these policies have been researched comprehensively, in this paper we investigate consumer preference and willingness to pay toward renewable energy. Consumer preferences may impact the type of renewable energy utilized, as well as state-determined RPS requirements. We implement a choice experiment survey to gain understanding of consumer preferences and their preference heterogeneity. We conduct the survey in New Mexico, a state with RPS and great potential for renewables, particularly in solar where it ranks third in the U.S. for that potential. Focusing on the consumers of the state�s major utility, our choice experiment considers an increase in renewable energy and preference for different types of solar energy (rooftop solar and solar farm). We control for location heterogeneity (i.e., rural vs. urban), as well as exposure to solar installations. Utilizing multinomial logit and random parameter logit our results suggest respondents support an increased RPS solar requirement and they have a positive marginal willingness to pay (MWTP) for rooftop solar and smart meter installation. These values are impacted by several factors, including location and exposure to solar. We also observe a distance decay effect on respondents� MWTP for different solar plans. For regulators considering additional RPS levels, or utilities considering solar installations, the results provide improved information on consumer preferences, heterogeneity of response, and MWTP for solar energy.




Do Localities Benefit from Natural Resource Extraction?

Dakshina G. De Silva, Robert P. McComb, and Anita R. Schiller

DOI: 10.5547/01956574.41.5.ddes
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Abstract:
There is a strand of the economics literature that considers the regionalized economic effects of natural resource endowments. The so-called Natural Resource Curse suggests that natural resource endowments are associated with lower long-term growth rates in the areas in which the resources are located. Lower growth arises because these areas tend to specialize in the development and exploitation of the natural resources at the expense of other dynamic economic activities that offer higher long-term growth potential. Empirical evidence has, however, not reached consistent conclusions. In this paper, we take advantage of the rapid growth in oil and gas development and production in Texas over the course of a decade to consider the localized effects on inter-industry county-level employment at the NAICS-2, county-level mean and median income, and key public finance measures at both the county and school district levels. Considering the effects within a single, large and economically diverse state enables us to control for important state-level variables that influence local public finances. We find little evidence of short term effects necessary to generate the circumstance of a resource curse over the longer term.




Natural Gas Storage Forecasts: Is the Crowd Wiser?

Adrian Fernandez-Perez, Alexandre Garel, and Ivan Indriawan

DOI: 10.5547/01956574.41.5.afer
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Abstract:
This paper examines the usefulness of crowdsourced relative to professional forecasts for natural gas storage changes. We find that crowdsourced forecasts are less accurate than professional forecasts on average. We investigate possible reasons for this inferior performance and find evidence of a greater divergence of opinions and a lower incorporation of publicly available information among crowd analysts. We further show that crowdsourced consensus forecast does not influence the market�s expectation of gas storage changes beyond what is already contained in professional consensus forecast, suggesting that crowdsourced forecasts provide little new information. Overall, our results indicate that the incremental usefulness of crowdsourced forecasts for gas market stakeholders is very limited.




Strategic Cost shifting in the Swedish District Heating and Electricity Markets

Magnus Söderberg

DOI: 10.5547/01956574.41.5.msod
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Abstract:
Firms that operate combined heat and power (CHP) plants in Sweden face strong incentives to let their district heating (DH) customers subsidize the sales of electricity. This study investigates whether firms exploit the variation in competitive intensity across the two markets and 1) shift costs from electricity to DH, and 2) pass on any cost increase to consumers. A major empirical challenge is that firms endogenously decide whether to operate a CHP plant or not. Two different matching procedures are used to circumvent this problem. The results show that 1) compared with a similar non-CHP firm, the average CHP firm reports a DH cost that is 20�25% higher, 2) the extra cost that CHP firms report is fully passed on to consumers and 3) with reported costs, the price-cost margin is 8% for both groups and with imputed costs the margin increases to 30�35% for the CHP firms. The results are consistent with the presence of strategic cost shifting, which can be tackled through either stricter accounting rules or DH price regulation.




The Dynamic Time-frequency Relationship between International Oil Prices and Investor Sentiment in China: A Wavelet Coherence Analysis

Zhengke Ye, Chunyan Hu, Linjie He, Guangda Ouyang, and Fenghua Wen

DOI: 10.5547/01956574.41.5.fwen
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Abstract:
We take a fresh look at the interaction between crude oil prices and investor sentiment from the novel perspective of both the time and the frequency domains. By using principal component analysis, we first construct an investor sentiment indicator. Then, crude oil prices are decomposed into three oil price shocks through an SVAR model. Lastly, the dynamic relationship between investor sentiment and oil price shocks is comprehensively studied from both the time and the frequency domains via wavelet coherence analysis. Our results show the leading position of crude oil prices in the co-movement relationship with investor sentiment. Further, we distinguish the different effects of oil price shocks on investor sentiment at different times and frequencies. We also find that the patterns of the co-movement between oil prices (oil price shocks) and investor sentiment change not only with time but also with frequency.




Utilities Included: Split Incentives in Commercial Electricity Contracts

Katrina Jessoe, Maya Papineau, and David Rapson

DOI: 10.5547/01956574.41.5.kjes
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Abstract:
This paper quantifies a tenant-side �split incentives� problem that exists when the largest commercial sector customers are on electricity-included property lease contracts, causing them to face a marginal electricity price of zero. We use exogenous variation in weather shocks to show that the largest firms on tenant-paid contracts use up to 14 percent less electricity in response to summer temperature fluctuations. The result is retrieved under weaker identifying assumptions than previous split incentives papers, and is robust when exposed to several opportunities to fail. The electricity reduction in response to temperature increases is likely to be a lower bound when generalized nationwide and suggests that policymakers should consider a sub-metering policy to expose the largest commercial tenants to the prevailing retail electricity price.




Book Reviews

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