Pub Date : 2020-06-01DOI: 10.5547/2160-5890.9.1.chit
Claudia Hitaj, I. Xiarchos, R. Coupal, T. Kelsey, R. Krannich
Hydraulic fracturing and horizontal drilling technology became commercially viable in the early 2000s, leading to a veritable boom in the development of natural gas and oil from shale plays. In 2018, about 63 percent of natural gas and 61 percent of crude oil production in the US was from shale resources. The effects of this rapid expansion of shale oil and natural gas extraction may include lease and royalty payments to land and mineral rights owners; increased demand for labor, land, housing, and infrastructure; increased truck traffic, air pollution, surface-level ecological disturbances; and the risk of soil or water contamination. Development is also associated with new sources of tax revenue for States and local governments, as well as strains on government resources to improve and maintain public infrastructure and services.
{"title":"Shale Gas and Oil Development: A Review of the Local Environmental, Fiscal, and Social Impacts","authors":"Claudia Hitaj, I. Xiarchos, R. Coupal, T. Kelsey, R. Krannich","doi":"10.5547/2160-5890.9.1.chit","DOIUrl":"https://doi.org/10.5547/2160-5890.9.1.chit","url":null,"abstract":"Hydraulic fracturing and horizontal drilling technology became commercially viable in the early 2000s, leading to a veritable boom in the development of natural gas and oil from shale plays. In 2018, about 63 percent of natural gas and 61 percent of crude oil production in the US was from shale resources. The effects of this rapid expansion of shale oil and natural gas extraction may include lease and royalty payments to land and mineral rights owners; increased demand for labor, land, housing, and infrastructure; increased truck traffic, air pollution, surface-level ecological disturbances; and the risk of soil or water contamination. Development is also associated with new sources of tax revenue for States and local governments, as well as strains on government resources to improve and maintain public infrastructure and services.","PeriodicalId":385400,"journal":{"name":"Economics of Energy and Environmental Policy","volume":"46 10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114306151","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-04-01DOI: 10.5547/2160-5890.9.2.rkau
R. Kaufmann
Over the last several years, I have published papers that show arbitrage opportunities largely unify the world oil market and that they can account for much of the price differences among crude oils. Exceptions include crude oils that are especially heavy or originate in nations with poor governance. But my confidence in these results was limited by the sudden appearance of a large spread in the prices for Brent and WTI, which are two of the world’s most important benchmark crude oils. As stated by the Morpheus character in the film The Matrix, “You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad.” My splinter, I had to understand why to crude oils from nations with relatively transparent governments and similar physical characteristics (both light and sweet), suddenly seemed to be priced by regionalized markets. This sudden separation in price also perplexed other researchers. They posited several possible explanations; the shale oil boom, imports from Canada, building inventories, the lifting of the US ban on crude oil exports, changes in transportation infrastructure, declining production of crude oils that make-up Brent, the collapse of Libyan production, and even exchange rates. But these efforts did not satisfy my curiosity. Often, authors examined only a subset of possible explanations, which raised the specter of omitted variable bias. In others, authors ignored the nonstationary nature of the data, which raised the possibility that the statistical results were spurious. Finally, many analyses implicitly assumed that the spread was caused by a sudden change in an explanatory variable and so looked for a change-point in the price spread, rather than focusing on the factors that influenced the price of Brent and WTI.
{"title":"A Regionalized or Unified Oil Market: The Price Spread Between Brent and WTI","authors":"R. Kaufmann","doi":"10.5547/2160-5890.9.2.rkau","DOIUrl":"https://doi.org/10.5547/2160-5890.9.2.rkau","url":null,"abstract":"Over the last several years, I have published papers that show arbitrage opportunities largely unify the world oil market and that they can account for much of the price differences among crude oils. Exceptions include crude oils that are especially heavy or originate in nations with poor governance. But my confidence in these results was limited by the sudden appearance of a large spread in the prices for Brent and WTI, which are two of the world’s most important benchmark crude oils. As stated by the Morpheus character in the film The Matrix, “You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad.” My splinter, I had to understand why to crude oils from nations with relatively transparent governments and similar physical characteristics (both light and sweet), suddenly seemed to be priced by regionalized markets. This sudden separation in price also perplexed other researchers. They posited several possible explanations; the shale oil boom, imports from Canada, building inventories, the lifting of the US ban on crude oil exports, changes in transportation infrastructure, declining production of crude oils that make-up Brent, the collapse of Libyan production, and even exchange rates. But these efforts did not satisfy my curiosity. Often, authors examined only a subset of possible explanations, which raised the specter of omitted variable bias. In others, authors ignored the nonstationary nature of the data, which raised the possibility that the statistical results were spurious. Finally, many analyses implicitly assumed that the spread was caused by a sudden change in an explanatory variable and so looked for a change-point in the price spread, rather than focusing on the factors that influenced the price of Brent and WTI.","PeriodicalId":385400,"journal":{"name":"Economics of Energy and Environmental Policy","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128992033","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-10-01DOI: 10.5547/2160-5890.8.2.hbar
H. Bartelet, M. Mulder
The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas competition on a European scale with closely related natural gas prices in the various markets. More recently, the European Union aims to become a resilient energy union which may call for additional policy measures. In this paper we discuss the need for such additional measures on top of the existing measures to liberalize and integrate markets. We test the hypothesis that the European natural gas market is resilient to adequately deal with external shocks by analyzing the five most dramatic supply disturbances in the European natural gas markets over the past decade. We find that the natural gas markets were able to trigger responses by market parties which prevented forced supply of gas to consumers in almost all cases. In one case, infrastructure bottlenecks prevented market players to adequately respond to a shock. Hence, we conclude that the best policy to create a resilient energy union is to further integrate European markets and to further remove barriers for market participants.
{"title":"Natural Gas markets in the European Union: Testing Resilience","authors":"H. Bartelet, M. Mulder","doi":"10.5547/2160-5890.8.2.hbar","DOIUrl":"https://doi.org/10.5547/2160-5890.8.2.hbar","url":null,"abstract":"The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas competition on a European scale with closely related natural gas prices in the various markets. More recently, the European Union aims to become a resilient energy union which may call for additional policy measures. In this paper we discuss the need for such additional measures on top of the existing measures to liberalize and integrate markets. We test the hypothesis that the European natural gas market is resilient to adequately deal with external shocks by analyzing the five most dramatic supply disturbances in the European natural gas markets over the past decade. We find that the natural gas markets were able to trigger responses by market parties which prevented forced supply of gas to consumers in almost all cases. In one case, infrastructure bottlenecks prevented market players to adequately respond to a shock. Hence, we conclude that the best policy to create a resilient energy union is to further integrate European markets and to further remove barriers for market participants.","PeriodicalId":385400,"journal":{"name":"Economics of Energy and Environmental Policy","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128277156","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-06-01DOI: 10.5547/2160-5890.7.2.MWEL
M. Welisch
This paper assesses the multi-technology auctions for Contracts for Difference (CfDs) in the UK, with a special focus on how pre-qualifications and penalties affect bidders' behaviour, risk aversion and bidding strategies and thus the auction outcomes in terms of prices and project implementation probability. The auctions are modelled to closely represent the auction design foreseen by the implementing agency, the Department for Business, Energy and Industrial Strategy (BEIS). Two alternative designs are presented: In the first one, bidders bid their true costs as a drop-out after being awarded would be penalised. The second one does not include a penalty. In that case, bidders are modelled with a cost function that includes a higher level of uncertainty. The model results show that low pre-qualifications and low or no penalties lead to an increased drop-out of agents after being awarded. For the policy-maker this implies a lower realisation rate for the auctions. Furthermore, the non-penalty case does not yield lower prices compared to a case with a stricter penalty/pre-qualification system in place
{"title":"The Importance of Penalties and Pre-qualifications: A Model-based Assessment of the UK Renewables Auction Scheme","authors":"M. Welisch","doi":"10.5547/2160-5890.7.2.MWEL","DOIUrl":"https://doi.org/10.5547/2160-5890.7.2.MWEL","url":null,"abstract":"This paper assesses the multi-technology auctions for Contracts for Difference (CfDs) in the UK, with a special focus on how pre-qualifications and penalties affect bidders' behaviour, risk aversion and bidding strategies and thus the auction outcomes in terms of prices and project implementation probability. The auctions are modelled to closely represent the auction design foreseen by the implementing agency, the Department for Business, Energy and Industrial Strategy (BEIS). Two alternative designs are presented: In the first one, bidders bid their true costs as a drop-out after being awarded would be penalised. The second one does not include a penalty. In that case, bidders are modelled with a cost function that includes a higher level of uncertainty. The model results show that low pre-qualifications and low or no penalties lead to an increased drop-out of agents after being awarded. For the policy-maker this implies a lower realisation rate for the auctions. Furthermore, the non-penalty case does not yield lower prices compared to a case with a stricter penalty/pre-qualification system in place","PeriodicalId":385400,"journal":{"name":"Economics of Energy and Environmental Policy","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129158155","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-06-01DOI: 10.5547/2160-5890.7.1.JROS.TXT
Juan Rosellón
There may exist various factors that could potentially hinder the efficient development of electricity markets, such as poorly defined property rights, incomplete markets, increasing trade of electricity among different control areas, inefficient operation, and maintenance, as well as bottlenecks in transmission capacity due to lack of investment for grid expansion. Regarding the latter, different authors have broadened and deepened the analysis recently, designing a range of mechanisms for optimal electricity transmission enhancement.1 The aim has been to understand the different determinants of optimal network pricing—along with the corresponding allocation of costs and benefits among different types of consumers—and the adequate regulation of transmission grids to foster expansion. These analyses have gained relevance, both in theory and practice, due to liberalization processes in various electricity systems that prioritize unbundling of electricity generation and transmission, and that eventually also rely on independent system operators (ISOs).
{"title":"Electricity (and Natural Gas) Transmission under Transformation - An Introduction","authors":"Juan Rosellón","doi":"10.5547/2160-5890.7.1.JROS.TXT","DOIUrl":"https://doi.org/10.5547/2160-5890.7.1.JROS.TXT","url":null,"abstract":"There may exist various factors that could potentially hinder the efficient development of electricity markets, such as poorly defined property rights, incomplete markets, increasing trade of electricity among different control areas, inefficient operation, and maintenance, as well as bottlenecks in transmission capacity due to lack of investment for grid expansion. Regarding the latter, different authors have broadened and deepened the analysis recently, designing a range of mechanisms for optimal electricity transmission enhancement.1 The aim has been to understand the different determinants of optimal network pricing—along with the corresponding allocation of costs and benefits among different types of consumers—and the adequate regulation of transmission grids to foster expansion. These analyses have gained relevance, both in theory and practice, due to liberalization processes in various electricity systems that prioritize unbundling of electricity generation and transmission, and that eventually also rely on independent system operators (ISOs).","PeriodicalId":385400,"journal":{"name":"Economics of Energy and Environmental Policy","volume":"468 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133431957","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-06-01DOI: 10.5547/2160-5890.7.1.AGRI
A. Grigoryeva, M. Hesamzadeh, Thomas P. Tangerås
The energy system in the Nordic countries faces changes driven by increasing integration with the rest of Europe and changes to the generation mix. These developments pose challenges with respect to future network development and operation. We focus on three major aspects: market integration; generation and network adequacy; the need for more flexibility and frequency control. We describe factors behind these problems and present possible solutions within the Nordic context. One conclusion is that supranational cooperation should be further improved.
{"title":"Energy System Transition in the Nordic Market: Challenges for Transmission Regulation and Governance","authors":"A. Grigoryeva, M. Hesamzadeh, Thomas P. Tangerås","doi":"10.5547/2160-5890.7.1.AGRI","DOIUrl":"https://doi.org/10.5547/2160-5890.7.1.AGRI","url":null,"abstract":"The energy system in the Nordic countries faces changes driven by increasing integration with the rest of Europe and changes to the generation mix. These developments pose challenges with respect to future network development and operation. We focus on three major aspects: market integration; generation and network adequacy; the need for more flexibility and frequency control. We describe factors behind these problems and present possible solutions within the Nordic context. One conclusion is that supranational cooperation should be further improved.","PeriodicalId":385400,"journal":{"name":"Economics of Energy and Environmental Policy","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126696048","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-06-01DOI: 10.5547/2160-5890.7.2.MELG
Mahmoud A. El-Gamal, A. Jaffe
We analyze the coupled cycles of Middle-East geopolitical violence and oil prices. Building on earlier work that shows that low oil prices are regularly followed by geopolitical strife, and that the latter is usually followed by higher oil prices, due to actual or feared disruption in oil supply, we focus in this paper on one particular factor: Which geopolitical events are most likely to lead to sustained supply disruptions? Using discrete wavelet analysis of oil production at the country level, we find that military conflicts that destroy production installations or disrupt oil transportation networks are the most significant antecedents of sustained, long term, disruptions in oil supply; whereas nonviolent regime change, internal political strife, and low level geopolitical tensions have more limited sustained impact. We discuss a framework to analyze whether conflict-related disruptions to oil supply could be endogenous to the oil cycle and offer some policy considerations for ameliorating that cycle's impacts.
{"title":"The Coupled Cycles of Geopolitics and Oil Prices","authors":"Mahmoud A. El-Gamal, A. Jaffe","doi":"10.5547/2160-5890.7.2.MELG","DOIUrl":"https://doi.org/10.5547/2160-5890.7.2.MELG","url":null,"abstract":"We analyze the coupled cycles of Middle-East geopolitical violence and oil prices. Building on earlier work that shows that low oil prices are regularly followed by geopolitical strife, and that the latter is usually followed by higher oil prices, due to actual or feared disruption in oil supply, we focus in this paper on one particular factor: Which geopolitical events are most likely to lead to sustained supply disruptions? Using discrete wavelet analysis of oil production at the country level, we find that military conflicts that destroy production installations or disrupt oil transportation networks are the most significant antecedents of sustained, long term, disruptions in oil supply; whereas nonviolent regime change, internal political strife, and low level geopolitical tensions have more limited sustained impact. We discuss a framework to analyze whether conflict-related disruptions to oil supply could be endogenous to the oil cycle and offer some policy considerations for ameliorating that cycle's impacts.","PeriodicalId":385400,"journal":{"name":"Economics of Energy and Environmental Policy","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134321225","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-06-01DOI: 10.5547/2160-5890.7.1.IVOG
I. Vogelsang
While simple regulatory mechanisms in the form of price caps have been implemented with success in the telecommunications sectors of many countries, they are much less used in the electricity sector and if so not as a tool to guide transmission investment. This paper takes one particular mechanism from a very abstract concept to an approach that deserves serious consideration as the regulatory approach for electricity transmission investment. For this purpose, some adjustments of the original mechanism have to be made to take care of the rent extraction issue and to provide fairness among user groups. To the extent that reliability can be assessed and measured in monetary terms, it can also become part of the reward structure of the Transco. Most of the environmental issues associated with transmission investment can best be addressed by environmental rather than electricity regulators. A comparison of the adjusted mechanism with a central planning approach and a stakeholder bargaining approach to transmission investment brings out tradeoffs between the approaches but leads to a favorable assessment of the mechanism for practical applications.
{"title":"Can Simple Regulatory Mechanisms Realistically be used for Electricity Transmission Investment? The Case of H-R-G-V","authors":"I. Vogelsang","doi":"10.5547/2160-5890.7.1.IVOG","DOIUrl":"https://doi.org/10.5547/2160-5890.7.1.IVOG","url":null,"abstract":"While simple regulatory mechanisms in the form of price caps have been implemented with success in the telecommunications sectors of many countries, they are much less used in the electricity sector and if so not as a tool to guide transmission investment. This paper takes one particular mechanism from a very abstract concept to an approach that deserves serious consideration as the regulatory approach for electricity transmission investment. For this purpose, some adjustments of the original mechanism have to be made to take care of the rent extraction issue and to provide fairness among user groups. To the extent that reliability can be assessed and measured in monetary terms, it can also become part of the reward structure of the Transco. Most of the environmental issues associated with transmission investment can best be addressed by environmental rather than electricity regulators. A comparison of the adjusted mechanism with a central planning approach and a stakeholder bargaining approach to transmission investment brings out tradeoffs between the approaches but leads to a favorable assessment of the mechanism for practical applications.","PeriodicalId":385400,"journal":{"name":"Economics of Energy and Environmental Policy","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116216769","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-06-01DOI: 10.5547/2160-5890.7.2.JLIN
Joshua Linn, V. McConnell, Benjamin Leard
In their initial benefit-cost analysis of the 2012-2016 passenger vehicle fuel economy standards, the U.S. regulatory agencies estimated that the benefits of the standards would be three times greater than the costs. However, their analysis was based on the high gasoline prices forecasted at the time; after their analysis, expected gasoline prices fell by 25 percent. We augment the agencies' benefit-cost framework and use recent evidence on behavioral responses to gasoline prices to estimate the effects of low gasoline prices on benefits and costs. Accounting for consumer changes in miles traveled and vehicle choice, we find that the 25 percent reduction in future gasoline prices reduces the value of fuel savings by 22 percent. Because of consumer changes in vehicle choice, lower gasoline prices raise compliance costs by about $0.5 billion per year, or about 9 percent of the total net benefits of the program. Accounting for these responses does not overturn the agencies' initial conclusions that benefits exceed costs.
{"title":"How Do Low Gas Prices Affect Costs and Benefits of US New Vehicle FuelEconomy Standards","authors":"Joshua Linn, V. McConnell, Benjamin Leard","doi":"10.5547/2160-5890.7.2.JLIN","DOIUrl":"https://doi.org/10.5547/2160-5890.7.2.JLIN","url":null,"abstract":"In their initial benefit-cost analysis of the 2012-2016 passenger vehicle fuel economy standards, the U.S. regulatory agencies estimated that the benefits of the standards would be three times greater than the costs. However, their analysis was based on the high gasoline prices forecasted at the time; after their analysis, expected gasoline prices fell by 25 percent. We augment the agencies' benefit-cost framework and use recent evidence on behavioral responses to gasoline prices to estimate the effects of low gasoline prices on benefits and costs. Accounting for consumer changes in miles traveled and vehicle choice, we find that the 25 percent reduction in future gasoline prices reduces the value of fuel savings by 22 percent. Because of consumer changes in vehicle choice, lower gasoline prices raise compliance costs by about $0.5 billion per year, or about 9 percent of the total net benefits of the program. Accounting for these responses does not overturn the agencies' initial conclusions that benefits exceed costs.","PeriodicalId":385400,"journal":{"name":"Economics of Energy and Environmental Policy","volume":"161 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114815275","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-04-01DOI: 10.5547/2160-5890.7.2.LDEV
L. D. Vries, R. Verzijlbergh
We present a systematic review of the challenges to the regulation of electricity markets that are posed by the integration of variable renewable energy sources. System integration is the key to developing the required flexibility, because flexibility options exist at all system levels and within the competitive as well as in the regulated (network) domains. The fluctuating nature of variable renewable energy changes the dynamics of investment decisions. We develop a framework for analysing relations between aspects of the regulation of the power sector that need to be coordinated in order to achieve (or at least improve) economic efficiency. We base the framework on the technical functionalities of the electricity infrastructure, which we group along three dimensions: system level (from retail/distribution to transmission/wholesale), geographic scope (the connection between electricity systems) and time scales (from real-time operations and balancing markets to the investment time scale). The framework helps identify regulatory challenges - potential inefficiencies due to a lack of coordination - and to place them into context. The picture that emerges from this approach is that the institutional fragmentation of the European electricity sector will become increasingly burdensome as the development variable renewable energy requires ever closer coordination between countries, between the different levels of the electricity system and between markets that serve different time scales. Interactions between elements of market design and regulation such as congestion management, renewable energy policy and system adequacy policy affect each other and are an additional reason for a system integration approach to regulation. Keywords: Electricity market design, renewable energy, flexibility, system integration
{"title":"How Renewable Energy is Reshaping Europe’s Electricity Market Design","authors":"L. D. Vries, R. Verzijlbergh","doi":"10.5547/2160-5890.7.2.LDEV","DOIUrl":"https://doi.org/10.5547/2160-5890.7.2.LDEV","url":null,"abstract":"We present a systematic review of the challenges to the regulation of electricity markets that are posed by the integration of variable renewable energy sources. System integration is the key to developing the required flexibility, because flexibility options exist at all system levels and within the competitive as well as in the regulated (network) domains. The fluctuating nature of variable renewable energy changes the dynamics of investment decisions. We develop a framework for analysing relations between aspects of the regulation of the power sector that need to be coordinated in order to achieve (or at least improve) economic efficiency. We base the framework on the technical functionalities of the electricity infrastructure, which we group along three dimensions: system level (from retail/distribution to transmission/wholesale), geographic scope (the connection between electricity systems) and time scales (from real-time operations and balancing markets to the investment time scale). The framework helps identify regulatory challenges - potential inefficiencies due to a lack of coordination - and to place them into context. The picture that emerges from this approach is that the institutional fragmentation of the European electricity sector will become increasingly burdensome as the development variable renewable energy requires ever closer coordination between countries, between the different levels of the electricity system and between markets that serve different time scales. Interactions between elements of market design and regulation such as congestion management, renewable energy policy and system adequacy policy affect each other and are an additional reason for a system integration approach to regulation. Keywords: Electricity market design, renewable energy, flexibility, system integration","PeriodicalId":385400,"journal":{"name":"Economics of Energy and Environmental Policy","volume":"51 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127206047","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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