Energy Journal Issue

The Energy Journal
Volume 42, Number 4
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Financing Power: Impacts of Energy Policies in Changing Regulatory Environments

Nils May and Karsten Neuhoff

DOI: 10.5547/01956574.42.4.nmay

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Abstract:
Power systems with increasing shares of wind and solar power generation have higher capital costs and lower operational costs than power systems based on fossil fuels. This increases the importance of the financing costs for total system cost. We quantify how renewable energy support policies can affect the financing costs by addressing regulatory risk and facilitating hedging. We use interview data on wind power financing costs from the EU and model how long-term contracts signed between project developers and energy suppliers impact financing costs. Regression analysis of investors' financing costs and an analytical model of off-takers financing costs reveal that between the support policies, the costs of renewable energy deployment differ by around 30 percent, but can be significantly lower or higher, depending on the financial situation of energy suppliers.




The Effect of Restructuring Electricity Distribution Systems on Firms’ Persistent and Transient Efficiency: The Case of Germany

Oleg Badunenko, Astrid Cullmann, Subal C. Kumbhakar, and Maria Nieswand

DOI: 10.5547/01956574.42.4.obad

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Abstract:
We evaluate the efficiency of electricity distribution operators (DSOs) as providers of local public infrastructure. In particular, we consider two types of efficiency, i.e., short-term (transient) and long-term (persistent). We apply the recently developed four-component stochastic frontier model, which allows identifying determinants of the two types of efficiency, after controlling for firm heterogeneity and random noise, to a panel dataset of German DSOs observed during 2006�2012. Those DSOs operating in the eastern parts of Germany have undergone a profound restructuring after the reunification in 1990. We find that this was beneficial for their efficiency as they perform, on average, better in terms of persistent efficiency than DSOs in West Germany. Both eastern and western DSOs perform similarly well in terms of transient efficiency, which is expected as the sector is highly regulated. As such, we provide new insights on identifying the nature and sources of public infrastructure productive inefficiency, which is relevant for public policies.




Renewable Energy Technologies and Electricity Forward Market Risks

Derck Koolen, Derek Bunn, and Wolfgang Ketter

DOI: 10.5547/01956574.42.4.dkoo

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Abstract:
We analyse how the introduction of the same renewable energy technology at different parts of the electricity supply chain has different price formation effects on wholesale power markets. We develop a multi-stage competitive equilibrium model to evaluate the effects on short-term price formation of a technology shift from conventional to both large-scale renewable energy production (e.g. wind and solar farms) and distributed renewable energy sources (e.g. rooftop solar). We find that wind and solar technologies oppositely affect the forward risk premium, and this is related to technology-varying, risk-related hedging pressures of producers and retailers. We form a multi-factor propositional framework and empirically validate the model by analyzing data from California and Britain; two markets which recently experienced significant increases of renewable power, in terms of utility scale and distributed sources. The work is innovative in showing theoretically and empirically how different types of renewable technologies influence market price formation differently. This has implications for market participants facing wholesale price risks, as well as regulators and policy-makers.




Drivers of People’s Preferences for Spatial Proximity to Energy Infrastructure Technologies: A Cross-country Analysis

Jason Harold, Valentin Bertsch, Thomas Lawrence, and Magie Hall

DOI: 10.5547/01956574.42.4.jhar

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Abstract:
Many countries plan to decarbonise their energy systems by increasing energy efficiency and expanding the use of renewable energy sources (RES). Such actions require significant investments in new energy infrastructures. While people are generally accepting of these infrastructures, opposition sometimes arises when these developments are sited at close proximity to people's residences. Therefore, it is important to understand what actually drives people's preferences for spatial proximity to different energy infrastructure technologies. This study examines the factors influencing people's proximity preferences to a range of different energy technologies using a cross-country econometric analysis of the stated preference data from an unprecedented survey conducted on nationally representative samples of the population in Ireland, the U.S. and Germany. The survey involved more than 4,500 participants in total. This paper presents the data and selected results from a generalised ordered logit model for each energy technology surveyed. These are; wind turbines, solar power technology, biomass power plant, coal-fired power plant and natural gas power plant. The results show that, in general, German and Irish citizens are willing to accept energy infrastructures at smaller distances to their homes than their U.S. counterparts. Moreover, attitudinal factors are found to shape people's preferences more consistently than any of the socio-demographic characteristics.




Asymmetric Information on the Market for Energy Efficiency: Insights from the Credence Goods Literature

Bruno Lanz and Evert Reins

DOI: 10.5547/01956574.42.4.blan

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Abstract:
Asymmetric information is an important barrier to the adoption of energy efficient technologies. In this paper, we study supply-side implications of the associated incentive structure. We build on existing evidence that, in some settings, energy efficiency owns a credence component, whereby the supply side of the market has more information about what technology is best for consumers. The literature on credence goods markets suggests that an information advantage by expert-sellers leads to market inefficiencies, including low trade volume. We start by developing a simple framework to study supply-side incentives related to the provision of energy efficient technologies. We then document inefficiencies and potential remedies by discussing linkages between an empirical literature on credence goods and that on the market for energy efficiency. Doing so, we identify implications for the design of policies promoting the adoption of energy-efficient technologies.




Global Oil Export Destination Prediction: A Machine Learning Approach

Haiying Jia, Roar Adland, and Yuchen Wang

DOI: 10.5547/01956574.42.4.hjia

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Abstract:
We use classification methods from machine learning to predict the destination of global crude oil exports by utilising micro-level crude oil shipment data that incorporates attributes related to the contract, cargo specifications, vessel specifications and macroeconomic conditions. The results show that micro-level information about the oil shipment such as quality and cargo size dominates in the destination prediction. We contribute to the academic literature by providing the first machine learning application to oil shipment data, and by providing new knowledge on the determinants of global crude oil flows. The machine-learning models used to predict the importing country can reach an accuracy of above 71% for the major oil exporting countries based on out-of-sample tests and outperform both naïve models and discrete regression models.




Sectoral Electricity Demand and Direct Rebound Effects in New Zealand

Rabindra Nepal, Muhammad Indra al Irsyad, and Tooraj Jamasb

DOI: 10.5547/01956574.42.4.rnep

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Abstract:
This paper is one of the limited studies to investigate rebound effects in sectoral electricity consumption and the specific case of New Zealand. New Zealand, like other OECD economies, has aimed for energy efficiency improvements and reduced electricity consumption from 9.2 MWh per capita in 2010 to 8.6 MWh per capita in 2015. However, following a significant decline since 2010, electricity consumption in the main New Zealand sectors is increasing. Energy conservation could play an important role in meeting the growing demand for electricity but rebound effects can affect the effectiveness of conservation policies. We decompose the sectoral electricity prices to capture the asymmetric demand response to electricity price changes and estimate electricity demand elasticity during 1980 and 2015 to estimate the sectoral rebound effects. We find partial rebound effects of 54% and 23% in the industrial and commercial sectors respectively while we find no rebound effect at the aggregate level. The rebound effect is insignificant in the residential sector. These findings lead to policy recommendations for sector specific energy conservation measures and policies.




Urban Residential Energy Demand and Rebound Effect in China: A Stochastic Energy Demand Frontier Approach

Kerui Du, Shuai Shao, and Zheming Yan

DOI: 10.5547/01956574.42.4.kdu

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Abstract:
The energy rebound effect is a potential threat to energy-saving targets based on energy efficiency improvements. This paper employs a stochastic energy demand frontier model to analyze the energy demand and rebound effect in China's urban residential sector. Using a panel data set of 30 Chinese provincial-level regions over the period 2001–2014, for the first time, we investigate the degrees and determinants of China's urban residential energy demand and energy rebound effect. The results show that residents' income level, energy price, temperature deviation, population scale, household size, and district heating system are significant influencing factors of residential energy consumption. Regarding the energy rebound effect, we find that energy price is negatively correlated with the rebound effect, and an inverted U-shaped relationship between residents' income level and rebound-effect size exists. The magnitude of the rebound effect varies across regions, with an average of 65.4%. The main policy implication generated by this study is that it should be in urgent need of energy pricing reform to mitigate the rebound effect in China.




Market Power and Renewables: The Effects of Ownership Transfers

Olivier Bahn, Mario Samano, and Paul Sarkis

DOI: 10.5547/01956574.42.4.obah

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Adding renewable energy sources (RES) to an electricity market has an ambiguous effect on wholesale prices. The merit order effect (MoE) has a downward pressure on prices while, with market power, higher inframarginal rents will tend to increase prices. We quantify the interaction of the two effects in the Ontario electricity market. We identify the market power effect by simulating transfers of RES capacity from the fringe to larger firms: these transfers increase prices by up to 24%. We then add RES capacity and allocate it to players with varying levels of market power. Following a net expansion of RES capacity of 5% relative to total capacity, prices decrease by 30% when new capacity is assigned to the fringe, but only by 7% when assigned to the largest firm. Our findings show that the MoE is largely mitigated by market power, hence the importance of the market structure in the design of uniform incentives for RES adoption.




Impact of Energy Market Distortions on the Productivity of Energy Enterprises in China

Weijian Du, Mengjie Li, Ke Li, and Jiang Lin

DOI: 10.5547/01956574.42.4.wdu

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Abstract:
China aims to enhance its total factor productivity (TFP) to achieve sustainable development. However, the looming energy market reform and its accompanying energy distortions prevent the realization of this ambitious goal. This study first establishes a theoretical model to reveal the inhibitory effects of energy market distortions on the TFP of energy enterprises, and we examine this issue using the micro-data of Chinese energy enterprises. The empirical results indicate that relative distortions among energy enterprises and overall distortions in different regions significantly inhibit the promotion of energy enterprises TFP, but the marginal inhibitory effects are diminishing. Energy market distortions also inhibit enterprises' entry and accelerate enterprises' exit from the energy market. Thus, eliminating inappropriate interventions in micro-energy enterprises, establishing a unified national energy market, and improving the competitive environment of energy companies are of great theoretical and policy importance.




ENERGY STAR Appliance Market Shares: Do They Respond to Electricity Prices, and Does It Matter?

Peter M. Schwarz, Craig A. Depken, II, Michael W. Herron, and Benjamin J. Correll

DOI: 10.5547/01956574.42.4.psch

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Abstract:
We address an apparent paradox that the market shares of four ENERGY STAR appliances in the United States do not respond to within-state changes in electricity prices. We resolve the paradox by showing that market shares do respond to between-state variation in electricity prices. We also suggest an economic explanation for the paradox through the timing of appliance purchases. Using the estimation results, we find that the four ENERGY STAR appliances reduce carbon emissions by 1.9 million megawatt-hours per year, equivalent to removing 0.1% of all U.S. vehicles, and that the addition of a $100/ton CO2 price would increase these figures to 2.1 million megawatt-hours and 0.11%.




Book Reviews

Superpower: One man’s quest to transform American energy, by Russell Gold - Book Review by: Joel Krupa

The Economics of Renewable Energy in the Gulf, edited by Hisham Akhonbay - Book Review by: Carol A. Dahl





 

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