The Energy Journal

We investigate the strategic behavior of wind producers in the presence of uncertain wind resource availability, where wind availability is correlated across firms. We study how the level of correlation between different firms’ wind resources impacts strategy and market outcomes. The main insight of our analysis is that increasing heterogeneity in resource availability improves social welfare, as a function of its effects both on improving diversification and on reducing withholding by firms. We show that this insight is robust for common assumptions regarding electricity demand. The model is also used to analyze the effect of wind resource heterogeneity on firm profits and opportunities for collusion. Finally, we analyze the impacts of improving public information and weather forecasting; enhanced public forecasting increases welfare, but it is not always in the best interests of strategic producers.

We study the relationship between energy poverty and subjective well-being by combining objective and subjective indicators in a multidimensional energy poverty index (MEPI). Using the Italian release of the European Survey on Income and Living Conditions, we first assess the identification power of this index vis-a-vis standard ’affordability’ indicators. Subsequently, we use the MEPI in a simultaneous bivariate ordered probit model accounting for the endogeneity between subjective well-being and energy poverty arising from considering subjective indicators. We find a clear additional role by the subjective indicator in the identification of the energy-poor and a relatively low overlapping degree between MEPI and affordability measures. Likewise, econometric estimations detect sizeable and statistically significant negative effects on life satisfaction as the severity level of the MEPI rises. In contrast, virtually no effects are found with affordability indicators. The impact is substantially smaller when the MEPI only considers the subset of objective indicators.

Should oil-rich members of OPEC invest in the oil refinery industry? This is a crucial energy policy question for such economies. We extend theoretical models for a vertical integration strategy within an oil-producing economy, based on a risk-hedging view. The first model highlights the trade-off between return and risk-reduction features of upstream/downstream sectors. The dynamic model demonstrates the volatility of the total budgetary revenue of each sector. Our theory-guided empirical analysis shows that though the average markup in the refining sector is significantly smaller than the profits in the upstream, downstream investment can provide some hedging value. In particular, the more stable and mean-reverting refining margins provide a partial revenue cushion when crude oil prices are low. We discuss the risk-hedging feature of the refinery industry when the crude oil market faces supply versus demand shocks.

The assessment of industrial-level energy efficiency’s (EE) development is a critical research topic that has entrenched in the global battle against climate change. Under the Energy Efficiency Directives 2012/27/EU and 2018/2002/EU, European Commission sets specific industrial energy efficiency targets, rules and obligations for the 2020-2030 period aiming, among others, at specific energy intensity reduction and energy efficiency improvements. In this paper we use a balanced panel of fourteen European industries from twenty-seven countries for the period 1995-2011 under a metatechnology framework. The aim of this study is to evaluate, at a first stage, the industrial total factor energy efficiency (TFEE) at a national and European level by incorporating technological heterogeneity through a nonparametric approach. Reflecting the divergent views on the importance of desirable and undesirable outcomes in the pursuit of TFEE, we additionally estimate industrial performance by prioritizing either economic or environmental aspects. At the second stage of our analysis, econometric models are applied to investigate the main factors of industrial TFEE using sector specific and country characteristics while we further proceed with a ft and ^-convergence analysis for our TFEE measures. The results of this study reveal that small-scale economies exhibit persistent high TFEE scores. At the same time, TFEE determinants suggest that path dependence phenomena have a strong presence, climatic characteristics occur while energy mix displays both linear and non-linear relationship. Either considering one desirable output or consolidating the undesirable output in the production function our results indicate a strong evidence of conditional and unconditional convergence in TFEE scores.

Many economists and psychologists have studied the impact of nudges on households’ pro-environmental behaviors. Interestingly, “private nudges” can be imagined for companies. Yet, studies focusing on nudging employees’ energy use are rare. The objective of our paper is to explore this issue with the help of a field experiment conducted at 47 French companies’ sites. Using a difference-in-differ-ence methodology, the effects of three nudges on employees’ energy conservation are tested. The first nudge, “moral appeal”, stresses the responsible use of energy. The second one, “social comparison”, informs employees on the energy consumption of other firms participating in the experiment. Finally, the third nudge, “stickers”, alerts employees about good energy conservation practices. Our results stress the complementarity of these nudges. When implemented alone, the three nudges have no significant effects on energy consumption. However, when the moral appeal and social comparison nudges are combined with the stickers nudge, they become effective.

This paper examines the potential for vertically integrated firms that own assets in both the natural gas and electricity markets to manipulate natural gas and electricity prices through the withholding of natural gas pipeline capacity. An integrated firm theoretically could increase the price it receives in the electricity market by withholding pipeline capacity to the wholesale natural gas market, thereby reducing wholesale supply of natural gas and potentially increasing generation costs for electricity through higher natural gas prices. A key criteria in assessing whether an integrated firm’s allocation of pipeline capacity between the wholesale and retail markets constitutes manipulation relates to whether the allocation is profit maximizing on a stand-alone basis, i.e., the allocation maximizes the firm’s profits in the natural gas market without considering its profits in the electricity market. I develop a theoretical model that examines the incentives to allocate pipeline capacity to the wholesale natural gas market, which supplies the power generation sector, and the retail natural gas market. I find that an integrated firm may choose to allocate more pipeline capacity to the retail market than the wholesale market in order to reduce the probability of paying fines from failing to adequately meet retail demand, to increase its profits in the wholesale natural gas market, or to increase its profits in the electricity market. In order to prove a manipulation has occurred, it must be shown that the last case is true and the first two cases had little effect on the allocation decision.

This paper presents an econometric analysis of curtailment costs of renewable energy sources (RES) in Germany. The study aims at explaining and quantifying the regional variability of RES curtailment, which is a measure to relieve grid overstress by temporarily disconnecting RES from the electricity grid. We apply a Heckit sample selection model, which corrects bias from non-randomly selected samples. The selection equation estimates the probability of occurrence of RES curtailment in a region. The outcome equation corrects for cross-sectional dependence and quantifies the effect of RES on curtailment costs. The results show that wind energy systems connected to the distribution grid increase RES curtailment costs by 0.7% per MW (or 0.2% per GWh) in subregions that have experienced RES curtailment over the period 2015-2017. The implication of this finding is that policymakers should set price signals for renewables that consider the regional grid overstress, in order to mitigate the cost burden on consumers due to excess generation from RES.

This study investigates the divestiture of transmission control from vertically-integrated power producers, aimed to maintain non-discriminatory access of the transmission network. I ask whether the vertical separation is sufficient to enhance how efficiently production is allocated among generators (i.e., regional production efficiency). Using a difference-in-difference strategy, I compare the treated region, Southwest Power Pool (SPP), with a control region, where no restructuring activities were implemented. Based on robust empirical results, I fail to find significant market wide evidence of improvement in regional production efficiency associated with the vertical separation of transmission control. However, looking into subgroups of generators, I find mixed evidence of cost savings via reallocation of production resources: (1) coal units are dispatched more efficiently after the restructuring; (2) this is not true for two types of gas units with different combustion technologies and cost efficiency.

Electricity markets are increasingly influenced by variable renewable energy such as wind and solar power, characterized by a pronounced weather-induced variability and imperfect predictability. As a result, the evaluation of the capacity value of variable renewable energy, i.e., its contribution to security of supply, gains importance. This paper develops a new methodology to endogenously determine the capacity value in large-scale investment and dispatch models for electricity markets. The framework allows balancing effects to be accounted for that arise due to the spatial distribution of generation capacities and interconnectors. The practical applicability of the methodology is shown with an application for wind power in Europe. We find that wind power can substantially contribute to security of supply in a decarbonized European electricity system in 2050, with regional capacity values ranging from 1-40%. Analyses that do not account for the temporal and spatial heterogeneity of the contribution of wind power to security of supply therefore lead to inefficient levels of dispatchable back-up capacity. Applying a wind power capacity value of 5% results in an overestimation of firm capacity requirements in Europe by 66 GW in 2050. This translates to additional firm capacity provision costs of 3.8 bn EUR per year in 2050, which represents an increase of 7%.

The main purpose of this paper is to estimate lost consumer values due to various restrictions on household electricity use involving behavior adaptation. To do this, we conduct a choice experiment where households choose between hypothetical electricity contracts including various restrictions on the use of high-power household appliances. In addition, we use a contingent valuation question related to complete blackouts to study a restriction on other types of electricity usage (heating, lighting, TV, etc.). The results indicate a significant difference between the value lost due to the soft control, and the blackouts. Furthermore, policies aiming at stimulating behavioral changes are costly and it is far from obvious that demand response requiring behavioral adaptation is more cost effective than supply response (i.e., increased production of electricity).