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Electricity market prices across organized wholesale electricity markets in the United States have declined significantly in recent years, prompting several nuclear power stations to consider early retirement before the end of their licensed operation or useful lifespans. This paper explores three possible explanations for observed declines in day-ahead electricity prices received by 19 nuclear generators in the PJM electricity market region: (1) the impact of declining natural gas prices; (2) the growth of wind generation in the American Midwest; and (3) stagnant or declining demand for electricity. I employ time series linear regression with time fixed effects to empirically estimate the effect of each explanatory variable on the average day-ahead locational marginal price (LMP) earned by 19 nuclear generating stations (with 33 individual reactors) located in PJM (encompassing roughly one-third of the U.S. nuclear fleet) as well as weighted average PJM day-ahead market prices. The paper uses daily average observations from January 1, 2008 to December 31, 2016 (n = 3,288). I employ a variety of alternative specifications to further explore geographic heterogeneity in causal effects on different generators across the PJM region and interrogate the impact of using price time series from different natural gas trading hubs. I find that natural gas price declines are the dominant driver of reduced electricity prices at the 19 nuclear power stations over this period. The growth of wind energy has an order of magnitude smaller cumulative effect and is only statistically significant for nuclear generators located in the western portion of the PJM region (in proximity to vast majority of installed wind capacity in the region). Finally, declining demand also has a relatively small but statistically significant effect on prices across all generators.
Keywords: Wind energy, natural gas, nuclear power, merit-order effect, electricity markets, electricity prices, econometrics, time-series regression, fixed effects, energy economics
The profitability of many agricultural decisions depends on farmers' abilities to predict the weather. Since climate change implies (possibly unknown) changes in the weather distribution, understanding how farmers form predictions is essential to estimating adaptation to climate change. I study how farmers learn about a weather-dependent decision, the optimal planting time, using rainfall signals. To capture the potential uncertainty caused by climate change, I develop an empirical framework that estimates, and finds support for, a general robust learning model in which farmers believe that the rainfall signals are drawn from a member of a set of rainfall distributions. The belief that the rainfall signals are drawn from a set of rainfall distributions rather than a single distribution are especially pronounced in villages that have experienced recent changes in rainfall distributions. This indicates that farmers respond to greater (Knightian) uncertainty in their environment by modifying their predictions to be robust to such uncertainty.
The Russian budget relies heavily on exports of fossil fuels, which are the major source of greenhouse gas (GHG) emissions. Climate-related policies that target a reduction in GHG emissions substantially affect the Russian economy. We apply the MIT Economic Projection and Policy Analysis (EPPA) model to assess the impacts of the Paris Agreement on the Russian economy and find that climate-related actions outside of Russia lower Russia’s GDP growth rate by about a half of a percentage point. In addition, Russia faces the risks of market barriers for its exports of energy-intensive goods as well as risks of falling behind in development of new energy technologies that become standard in most of the world. In order to address these risks, the country needs a new comprehensive development strategy taking into account the Post-Paris global energy landscape. We offer suggestions for key elements of such a strategy, including diversification of economy, moving to low-carbon energy, and investing in human capital development. We simulate three simple diversification scenarios showing that redistribution of incomes from energy sector to the development of human capital would help avoid the worst possible outcomes.
The Paris Agreement has achieved one of two key necessary conditions for ultimate success – a broad base of participation among the countries of the world. But another key necessary condition has yet to be achieved – adequate collective ambition of the individual nationally determined contributions. How can the climate negotiators provide a structure that will include incentives to increase ambition over time? An important part of the answer can be international linkage of regional, national, and sub-national policies, that is, formal recognition of emission reductions undertaken in another jurisdiction for the purpose of meeting a Party’s own mitigation objectives. A central challenge is how to facilitate such linkage in the context of the very great heterogeneity that characterizes climate policies along five dimensions – type of policy instrument; level of government jurisdiction; status of that jurisdiction under the Paris Agreement; nature of the policy instrument’s target; and the nature along several dimensions of each Party’s Nationally Determined Contribution. We consider such heterogeneity among policies, and identify which linkages of various combinations of characteristics are feasible; of these, which are most promising; and what accounting mechanisms would make the operation of respective linkages consistent with the Paris Agreement.
Key words: Linking; Climate Policy; Paris Agreement; Article 6
JEL classification: Q54
We examine the pass-through of wholesale prices to retail prices in the market for E85, which contains 51% – 83% ethanol, and in the much larger market for E10 (regular unleaded gasoline), which contains 10% ethanol. We use a panel data set consisting of monthly observations from 2007-March 2015 on wholesale and retail prices for 274 Minnesota gas stations that sell both E10 and E85. The E10 market is dense and highly competitive, and we estimate a cumulative pass-through coefficient for E10 of 1.00 after one month. In contrast, the E85 market is sparse, and although the pass-through rate increased over time, we estimate it to be only 0.53 statewide from January 2012 to March 2015. Pass-through is higher at stations with more local E85 competitors. In the Twin Cities, which has a high density of E85 stations, pass-through is nearly complete, but outside the Twin Cities slightly less than half the wholesale discount of E85, relative to E10, is passed on to the consumer. Statewide, of the RIN subsidy to E85 under the Renewable Fuel Standard that is present in the wholesale price paid by the retailer, roughly half is passed on to the consumer and half is retained at the station level.
JEL codes: Q42, C32
Key words: fuels markets, energy prices, E85, E10, retail fuel spreads
Measurement of the full costs and benefits of energy-saving technologies is often difficult, confounding adoption decisions. We study consequences of the adoption of energy-efficient LED lighting in garment factories around Bangalore, India. We combine daily production line-level data with weather data and estimate a negative, nonlinear productivity-temperature gradient. We find that LED lighting, which emits less heat than conventional bulbs, decreases the temperature on factory floors, and thus raises productivity, particularly on hot days. Using the firm’s costing data, we estimate the pay-back period for LED adoption is one-sixth the length after accounting for productivity co-benefits.
Keywords: climate change mitigation, co-benefits, temperature, energy-saving technology, firm productivity
JEL Codes: O14, Q56, J24
Local air pollution problems have led authorities in many cities around the world to impose limits on car use, increasingly through driving restrictions or license-plate bans. With few exceptions, these restrictions tend to be poorly designed, creating incentives for drivers to buy additional, more polluting cars. We study vintage-specific designs that place heavy restrictions on older, polluting vehicles and none on newer, clean ones. A novel model of the car market and evidence from Santiago’s 1992 program, the earliest attempt to use vintage-specific restrictions, are used to show that these restrictions can be welfare enhancing by accelerating fleet turnover towards cleaner cars. These policies can be particularly effective in fighting local air pollution when alternative instruments such as scrappage subsidies and pollution-based taxes are not available.
With respect to electrical grids and power systems there is a trend towards a greater penetration and subsequent utilization of distributed energy resources (“DERs”). DERs can provide services to both Distribution System Operators (“DSOs”) and Transmission System Operators (“TSOs”). Distributed energy resources are typically installed and interconnected to electricity networks that may or may not be completely controlled, monitored or analyzed by the power system operators themselves. If and when DERs are operated to provide system services and/or market actions, this may lead to system benefits and efficiency improvements, but can come with technical, economic, and jurisdictional challenges. Aggregators, DSOs, and TSOs, must be able to coordinate, monitor and dispatch resources as well as study and share information in a timely manner. Examples and recommendations for future coordination and interactions between the TSO, DSO, DER owners, and aggregators are presented and examined, in operation and market-based contexts, relevant to European and US electricity networks.
Keywords: Distribution system operator, utility, transmission system operator, distributed energy resources, wholesale markets, distribution-level markets, transmission-distribution coordination functions, electricity services.
Nico Keyaerts, Michelle Hallack, Jean-Michel Glachant and William D'haeseleer, September 2010
This paper analyses the value and cost of line-pack flexibility in liberalized gas markets through the examination of the techno-economic characteristics of gas transport pipelines and the trade-offs between the different ways to use the infrastructure: transport and flexibility. Line-pack flexibility is becoming increasingly important as a tool to balance gas supply and demand over different periods. In the European liberalized market context, a monopolist unbundled network operator offers regulated transport services and flexibility (balancing) services according to the network code and the balancing rules. Therefore, gas policy makers should understand the role and consequences of line-pack regulation. The analysis shows that the line-pack flexibility service has an important economic value for the shippers and the TSO. Furthermore, the analysis identifies distorting effects in the gas market due to inadequate regulation of line-pack flexibility: by disregarding the fixed cost of the flexibility in the balancing rules, the overall efficiency of the gas system is decreased. Because a full market based approach to line-pack pricing is unlikely, a framework is presented to calculate a cost reflective price for pipeline flexibility based on the trade-offs and opportunity costs between the right to use the line-pack flexibility and the provision of transport services.