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Energy Journal Issue

The Energy Journal
Volume 41, Number 4



Prepress Content: The following article is a preprint of a scientific paper that has completed the peer-review process and been accepted for publication within The Energy Journal.

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European Industrial Energy Intensity: Innovation, Environmental Regulation, and Price Effects

Victor Ajayi and David Reiner

DOI: 10.5547/01956574.41.4.vaja
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Abstract:
We investigate the direct role of technological innovation and other factors influencing industrial energy intensity across 17 EU countries over 1995�2009. We develop an innovative industry-level patent dataset and find compelling evidence that patent stock negatively influences industrial energy intensity. In particular, we find a much stronger effect of patent stock on energy-intensive industries with an estimated coefficient of �0.138 which almost double that of less energy-intensive industries (estimated at �0.085). While our results show that energy price remains the major determinant of energy intensity, the chemicals industry, which is not covered by the EU Emissions Trading Scheme (ETS) during the sample period, appears more susceptible to energy prices relative to other energy-intensive industries that are covered by the EU ETS. Exploring regional differences in carbon taxation, we find a significant decline in energy intensity in Northern Europe owing to the carbon tax policy implemented in the early 1990s across the Nordic countries.




Imperfect Competition in Electricity Markets with Renewable Generation: The Role of Renewable Compensation Policies

David P. Brown and Andrew Eckert

DOI: 10.5547/01956574.41.4.dbro
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Abstract:
We analyze the effects of commonly employed renewable compensation policies on firm behavior in an imperfectly competitive market. We consider a model where firms compete for renewable capacity in an auction prior to choosing their forward positions and competing in wholesale markets. We focus on fixed and premium-priced feed-in tariff (FIT) compensation policies. We demonstrate that compensation policies impact both the types of resources that win the auction and subsequent competition. While firms have stronger incentives to exercise market power under a premium-priced FIT, they also have increased incentives to sign pro-competitive forward contracts. In net firms have stronger incentives to exercise market power under the premium-priced policy. We find conditions under which renewable resources that are more correlated with market demand are procured under a premium-priced design, while the opposite occurs under a fixed-priced policy. If the cost efficiencies associated with the �more valuable� renewable resources are sufficiently large, then welfare is higher under the premium-priced policy despite the stronger market power incentives in the wholesale market.




On the CO2 Emissions Determinants During the EU ETS Phases I and II: A Plant-level Analysis Merging the EUTL and Platts Power Data

Benoît Chèze, Julien Chevallier, Nicolas Berghmans, and Emilie Alberola

DOI: 10.5547/01956574.41.4.bche
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Abstract:
This article studies ex-post the CO2 emissions determinants during 2005�2012 by resorting to an original database merging the European Union Transaction Log (EUTL) with the World Electric Power Plants (WEPP) database maintained by Platts. We estimate the main drivers of CO2 emissions for the 1,453 power plants included in the EU ETS using plant-level panel data. During phases I and II, there has been a debate about whether the economic crisis was ultimately the only factor behind the fall in CO2 emissions. We find that the EU ETS kept some degree of effectiveness but only during phase I (2005�07). During phase II (2008�12), its impact has been largely impeded by the deep economic recession in 2008�2009 which became the leading cause of the emissions reduction. We disentangle the analysis not only by periods but also for each type of power plants. We conclude that the EU Commission�s flagship climate policy could and should be enhanced by better coordination of overlapping climate policies.




Rebound Effects for Household Energy Services in the UK

Mona Chitnis, Roger Fouquet, and Steve Sorrell

DOI: 10.5547/01956574.41.4.mchi
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Abstract:
This study estimates the combined direct and indirect rebound effects from energy efficiency improvements in the delivery of six energy services to UK households, namely: heating; lighting; cooking; refrigeration and clothes washing; entertainment and computing; and private vehicle travel. We use a unique database on the price and quantity demanded of these energy services over the past half century. We estimate a two-stage almost ideal demand system for household expenditure, using these energy services as expenditure categories. We estimate rebound effects in terms of carbon emissions and only include the �direct� emissions associated with energy consumption. Our results suggest direct rebound effects of 70% for heating, 54% for private vehicle travel and ~90% for the other energy services. However, these effects are offset by negative indirect rebound effects�that is, indirect rebounds contribute additional emission savings. As a result, our estimates of combined rebound effects are generally smaller, namely 54% for lighting, 55% for heating, 41% for refrigeration and clothes washing, �12% for entertainment and computing, 44% for cooking and 69% for vehicle travel. We also find some evidence that rebound effects have declined over time. We provide some important caveats to these results, and indicate priorities for future research.




Policy and Theoretical Implications of the Zero-subsidy Bids in the German Offshore Wind Tenders

Thomas Greve and Marta Rocha

DOI: 10.5547/01956574.41.4.tgre
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Abstract:
The German offshore wind tender, launched in April 2017, resulted in three out of the four winning projects being delivered with zero subsidies, relying only on the wholesale price. This result has been regarded as a turning point for the industry. This paper analyses the 2017/18 German offshore wind tenders and the bidding strategies of the winning developers. We then propose a re-design of the tenders with the aim of achieving optimality/zero-subsidies and efficiency - two key properties in mechanism design. The paper contributes to the discussion on how to design offshore wind tenders with both a policy and theoretical perspective. This is of particular relevance given the rapid expansion of this type of investment in Europe and the use of auctions to select developers.




Utility Customer Supply of Demand Response Capacity

James I. Stewart

DOI: 10.5547/01956574.41.4.jste
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Abstract:
This research investigates utility customer supply of demand response capacity to electric utilities. Using panel data on annual utility demand response capacity and capacity payments between 2010 and 2016, I estimate the long-run price elasticity of supply of demand response capacity from residential, commercial, and industrial customers. The supply of demand response capacity was price-inelastic, with elasticities of 0.5 for residential customers, 0.6 for commercial customers, and 0.4 for industrial customers. These estimates are long-run supply elasticities because utility customers could enter or exit demand response markets. Also, residential customer supply of demand response capacity was heterogeneous, affected by characteristics such as customer education, urban residency, and home space heating fuel. These findings will be of interest to regulators, utility resource planners, and program administrators who want to increase demand response capacity.




Herding Cats: Firm Non-Compliance in China’s Industrial Energy Efficiency Program

Valerie J. Karplus, Xingyao Shen, and Da Zhang

DOI: 10.5547/01956574.41.4.vkar
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Abstract:
We study firm responses to a large-scale energy efficiency program in China, focusing on the quality of reporting and compliance outcomes. Using statistical methods to detect data manipulation in compliance reports, we find evidence that firms deliberately exaggerated performance during the first phase of the program (2006-2010), suggesting the high compliance rate was overstated. In its second phase (2011-2015), the number of firms in the program expanded by an order of magnitude, and the compliance rate decreased. We develop a simple model to show how the observed increase in non-compliance is consistent with reduced misreporting. Statistical tests find no evidence of manipulation in the second phase. Larger firms, especially those not controlled by the state, and firms in cities with relatively low growth were more likely to report non-compliance, which suggests a role for state control and local protectionism in shaping compliance decisions. Based on our findings, we offer several lessons for future program design.




Electric Heating and the Effects of Temperature on Household Electricity Consumption in South Africa

Susanna B. Berkouwer

DOI: 10.5547/01956574.41.4.sber

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Abstract:
How does temperature affect household energy demand in low-income countries? This paper uses 132,375,282 hourly electricity consumption observations from 5,975 households in South Africa to estimate the causal effects of short-term temperature changes on household electricity consumption. The estimates flexibly identify a constant log-linear temperature response-for every 1°C increase in temperature, electricity consumption decreases by 4.1% among temperatures below the heating threshold but increases by 8.1% among temperatures above the cooling threshold. This relationship is driven more strongly by seasonal than hourly temperature changes. Holding all else constant, a 3.25°C increase in temperatures would reduce electricity consumption by 1,093.4 kWh (6.2%) per year per household. Widespread use of electric heating due to limited residential gas heating infrastructure likely drives this. These results point to important regional heterogeneity in how temperature increases may affect household energy demand in the coming decades.




Size Matters: Estimation Sample Length and Electricity Price Forecasting Accuracy

Carlo Fezzi and Luca Mosetti

DOI: 10.5547/01956574.41.4.cfez

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Abstract:
Short-term electricity price forecasting models are typically estimated via rolling windows, i.e. by using only the most recent observations. Nonetheless, the literature does not provide guidelines on how to select the optimal size of such windows. This paper shows that determining the appropriate window prior to estimation dramatically improves forecasting performances. In addition, it proposes a simple two-step approach to choose the best performing models and window sizes. The value of this methodology is illustrated by analyzing hourly datasets from two large power markets (Nord Pool and IPEX) with a selection of eleven different forecasting models. Incidentally, our empirical application reveals that simple models, such as a simple linear regression (SLR) with only two parameters, can perform unexpectedly well if estimated on extremely short samples. Surprisingly, in the Nord Pool, such SLR is the best performing model in 13 out 24 trading periods.




Information Searching in the Residential Solar PV Market

Jacquelyn Pless, Harrison Fell, and Ben Sigrin

DOI: 10.5547/01956574.41.4.jple

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Abstract:
This paper examines the consumer information search behavior of households in San Diego County with solar photovoltaic (PV) systems. We focus on whether solar PV households financing the technology through third-party ownership (TPO) versus host-ownership (HO), which is equivalent to leasing or buying goods in other markets, have heterogeneous preferences as reflected by information search. Conditional on adoption, we find that TPO households tend to seek more information on home modifications required for solar installation whereas HO households seek more information on the financial returns of solar investments. These preferences may be correlated with the consumption of other goods and services, and thus, if used to inform marketing strategies, our results could help reduce solar PV customer acquisition costs and accelerate technology diffusion. They also have indirect implications for marketing goods and services in other contexts where consumers exhibit similar preferences.