Electricity prices and public ownership: Evidence from the EU15 over thirty years

This paper studies the impact of corporate ownership on residential net-of-tax electricity prices, when the ownership effect is separated from the liberalisation effect and from other drivers of change. After a discussion of a simple conceptual model, and of earlier literature, we use IEA and OECD data for the EU15 over nearly three decades. Panel econometrics suggests that, after controlling for other factors, public ownership is associated with lower residential net-of-tax electricity prices in Western Europe. The impact of liberalisation on prices is smaller and more uncertain.     

The relationship between energy and production: Evidence from Turkish manufacturing industry

This paper investigates the relationship between energy and production at the industry level in an emerging market, Turkey, in a multivariate framework. The electricity consumption and value added relation is examined in the Turkish manufacturing industry, while also accounting for labor and fixed investment. We find that labor, fixed investment, electricity consumption, and value added are related via three cointegrating vectors. The VEC results indicate uni-directional causality running from electricity consumption to value added. Generalized impulse response and variance decomposition analyses confirm these results. Thus, energy input appears to be closely related to production. Hence, energy saving technologies and increased energy efficiency may increase the growth in manufacturing value added.     

Oil industry consolidation and refined product prices: Evidence from US wholesale gasoline terminals

Our objective in this paper is to quantify the impact of petroleum industry consolidation on refined product prices, controlling for other important factors that could also impact prices. Our empirical analysis focuses on the US petroleum refining industry using data on industry consolidation and wholesale gasoline prices collected over the interval 2000–2008. We match refinery units to wholesale city-terminal gasoline markets, and then estimate pooled cross-section time-series regressions to quantify the impact of petroleum industry consolidation on wholesale gasoline prices at city-specific terminals. The results of the empirical analysis of mergers are mixed, showing that some petroleum industry mergers resulted in statistically significant increases in refined product prices; others resulted in statistically significant declines and still others had no statistical impact at all. Our analysis of the effects of measures of market concentration—one at the level of city-specific wholesale terminals and another at the level of regional spot markets—found evidence that less concentrated markets are associated with lower price levels.     

Electricity and carbon prices: Asymmetric pass-through evidence from New Zealand

This paper empirically investigates whether the response of electricity prices to changes in CO₂ prices is asymmetric in the case of the New Zealand economy. It makes use of data spanning the period January 2001 to March 2014 and a nonlinear autoregressive distributed lag (NARDL) model to test the relevant hypothesis. The empirical findings indicate that carbon prices have long-run asymmetric effects on electricity prices, with only positive changes in carbon prices signaling a complete pass-through. The results are expected to be of substantial importance for end-user prices and, thus, to enhance the information on the impact of CO₂ prices on end-user electricity prices. After all, it is this piece of information that determines how the electricity cost is actually linked to electricity prices.     

World oil prices and agricultural commodity prices: Evidence from an emerging market

Oil prices are thought to have direct effect on agricultural prices followed by an indirect effect through the exchange rate. This paper examines the short- and long-run interdependence between world oil prices, lira-dollar exchange rate, and individual agricultural commodity prices (wheat, maize, cotton, soybeans, and sunflower) in Turkey. To this end, the Toda-Yamamoto causality approach and generalized impulse-response analysis for identification of the long- and short-run interrelationships are applied to the monthly data spanning from January 1994 to March 2010. The impulse-response analysis suggests the Turkish agricultural prices do not significantly react to oil price and exchange rate shocks in the short-run. The long-run causality analysis reveals that the changes in oil prices and appreciation/depreciation of the Turkish lira are not transmitted to agricultural commodity prices in Turkey. Hence, our results support neutrality of agricultural commodity markets in Turkey to both direct and indirect effects of oil price changes.     

Electricity consumption and economic growth: Evidence from Turkey

This study investigates the causal relationship between electricity consumption and real GDP in Turkey during the period of 1950–2000. Both of the series were found to be a stationary process around a structural break by the Zivot and Andrews test. Thus, two different methodologies have been employed to test the Granger non-causality: the Dolado–Lütkepohl test using the VARs in levels, and the standard Granger causality test using the detrended data. Both tests have yielded a strong evidence for unidirectional causality running from the electricity consumption to the income. This implies that the supply of electricity is vitally important to meet the growing electricity consumption, hence to sustain the economic growth in Turkey.     

Electricity prices and cross-border trade: Volume and strategy effects

In this paper we derive equilibrium bid functions in isolated domestic electricity markets and then analyse their modifications when cross-border trade among them is managed using the implicit auction method. We show that cross-border trade can induce price convergence across countries and thereby reallocate gains and losses as a result of two concomitant effects: a “volume” effect due to the mere increase/decrease of demand and supply in each market and a “bid effect” due to the modifications of bid functions brought about by interconnection. The latter effect can either contrast or reinforce the former. We derive conditions affecting the net result.     

World oil and agricultural commodity prices: Evidence from nonlinear causality

The increasing co-movements between the world oil and agricultural commodity prices have renewed interest in determining price transmission from oil prices to those of agricultural commodities. This study extends the literature on the oil–agricultural commodity prices nexus, which particularly concentrates on nonlinear causal relationships between the world oil and three key agricultural commodity prices (corn, soybeans, and wheat). To this end, the linear causality approach of Toda–Yamamoto and the nonparametric causality method of Diks–Panchenko are applied to the weekly data spanning from 1994 to 2010. The linear causality analysis indicates that the oil prices and the agricultural commodity prices do not influence each other, which supports evidence on the neutrality hypothesis. In contrast, the nonlinear causality analysis shows that: (i) there are nonlinear feedbacks between the oil and the agricultural prices, and (ii) there is a persistent unidirectional nonlinear causality running from the oil prices to the corn and to the soybeans prices. The findings from the nonlinear causality analysis therefore provide clues for better understanding the recent dynamics of the agricultural commodity prices and some policy implications for policy makers, farmers, and global investors. This study also suggests the directions for future studies.     

Electricity prices and fuel costs: Long-run relations and short-run dynamics

The paper examines the long-run relation and short-run dynamics between electricity prices and three fossil fuel prices – coal, natural gas and crude oil – using annual data for the U.S. for 1960–2007. The results suggest (1) a stable long-run relation between real prices for electricity and coal (2) Bi-directional long-run causality between coal and electricity prices. (3) Insignificant long-run relations between electricity and crude oil and/or natural gas prices. And (4) no evidence of asymmetries in the adjustment of electricity prices to deviations from equilibrium. A number of implications are addressed.     

Investor attention and crude oil prices: Evidence from nonlinear Granger causality tests

Using the Google search volume index (GSVI) to measure investor attention, this paper investigates the relationships between investor attention and crude oil prices for the main crude oil markets worldwide. To account for possible structural breaks and nonlinearity in the relation between investor attention and oil returns, Fourier unit root test and nonlinear Granger causality tests are employed. The empirical results suggest that the bidirectional nonlinear Granger causality exists only between investor attention and WTI future crude oil return. However, WTI crude oil return Granger-causes investor attention weakly. For Dubai spot, Daqing spot, WTI spot and Brent future oil markets, unidirectional nonlinear Granger causality runs from investor attention to oil returns, which is relatively weak.     

Minimum prices and social interactions: Evidence from the German renewable energy program

Minimum prices above the competitive level can lead to allocative inefficiencies. We investigate whether this effect is more pronounced when decision makers are influenced by their social environment. Using data of minimum prices for renewable energy production in Germany, we test if individual decisions to install photovoltaic systems are affected by the investment decisions of others in the area. We implement a propensity score matching routine on municipality level and estimate that existing panels in the municipality increase the probability and number of further installations considerably, even in areas with minimal solar radiation. Thus, social interaction can add secondary inefficiencies to the known allocative problems of minimum prices. The social interaction effect is stronger in areas with more solar radiation and less unemployment. A larger number of existing systems and more concentrated installations increase the social effect further.     

The impacts of energy prices on energy intensity: Evidence from China

In this paper, we present a review of the deregulation of energy prices in China between 1985 and 2004 and assess the impacts of changes in energy prices on aggregate energy intensity and coal/oil/electricity intensity. We used time series data to provide estimates of energy price elasticities. Empirical results showed that: (1) The own-price elasticities of coal, oil, and aggregate energy were negative in periods both before and after 1995, implying that higher relative prices of different energy types lead to the decrease in coal, oil, and aggregate energy intensities. However, the positive own-price elasticity of electricity after 1995 probably indicates that the price effect was weaker than other factors such as income effect and population effect. (2) The impacts of energy prices were asymmetric over time. (3) Sectoral adjustment also drove the decrease in aggregate energy intensity. Although raising energy prices to boost efficiency of energy use seems to be an effective policy tool, other policy implications concerned with energy prices, such as energy supply security and fuel poverty, must also be considered.     

Electricity market-clearing prices and investment incentives: The role of pricing rules

Pricing rules in wholesale electricity markets are usually classified around two major groups, namely linear (aka non-discriminatory) and non-linear (aka discriminatory). As well known, the major difference lies on the way non-convexities are considered in the computation of market prices.According to the classical marginal pricing theories, the resulting market prices are supposed to serve as the key signals around which capacity expansion revolves. Thus, the implementation of one or the other pricing rule can have a different effect on the investment incentives perceived by generation technologies, affecting the long-term efficiency of the whole market scheme.The objective of this paper is to assess to what extent long-term investment incentives can be affected by the pricing rule implemented. To do so, we propose a long-term capacity expansion model where investment decisions are taken based on the market remuneration. We use the model to determine the optimal mix in a real-size thermal system with high penetration of renewable energy sources (since its intermittency enhances the relevance of non-convexities), when alternatively considering the aforementioned pricing schemes.     

Energy prices,volatility, and the stock market: Evidence from the Eurozone

This paper constitutes a first analysis on stock returns of energy corporations from the Eurozone. It focuses on the relationship between energy market developments and the pricing of European energy stocks. According to our results, oil price hikes negatively impact on stock returns of European utilities. However, they lead to an appreciation of oil and gas stocks. Interestingly, forecastable oil market volatility negatively affects European oil and gas stocks, implying profit opportunities for strategic investors. In contrast, the gas market does not play a role for the pricing of Eurozone energy stocks. Coal price developments affect the stock returns of European utilities. However, this effect is small compared to oil price impacts, although oil is barely used for electricity generation in Europe. This suggests that for the European stock market, the oil price is the main indicator for energy price developments as a whole.     

Oil prices and economic policy uncertainty: Evidence from a nonparametric panel data model

We examine the relationship between oil prices and economic policy uncertainty in G7 countries. To do so, we employ a nonparametric panel data technique that allows the trend and coefficient functions to evolve as unknown time-varying functional forms. We also estimate country-specific and common trend functions allowing them to evolve over time. Using monthly data from G7 countries over the period 1997:01–2018:06, we find that the effect of oil prices on economic policy uncertainty is time-varying. Our results show that the estimated time-varying coefficient function of the oil price was negative in years in which increases in oil prices were driven by a surge in global aggregate demand. Further, our nonparametric local linear estimates show that the country-specific and common trend functions are increasing over time. Our findings are robust to endogeneity and alternative specifications.     

Electricity prices and firms' decisions and outcomes: The case of India after a decade of the Electricity Act

This paper examines the impact of electricity tariff on electricity consumption pattern and performance of Indian firms. The question is addressed against the backdrop of the Electricity Act of 2003 which was implemented with varying degrees across different states. The paper uses the 2013–14 World Bank Enterprise Survey data for India and builds three sets of hypotheses- first, high tariffs lead to electricity consumption pattern shifting towards self-generation, a decline in total electricity used, substitution of capital with labor and eventually deterioration in the performance of firms. Second, the negative effect of tariff on the performance of firms is more pronounced in states that haven't implemented the Electricity Act effectively. Third, the effect will be stronger for firms that face relatively higher tariff as compared to other comparable consumer categories. Taking account of the endogeneity between a firm's performance outcomes and location choices, the paper uses appropriate econometric models and finds strong evidence for each of the hypotheses. High tariffs hamper the profitability and productivity of firms only in those states which have not implemented the Electricity Act effectively. Moreover, the above evidence only exists if there are high tariff differences between different consumer groups. Finally, we do not find evidence for performance impairment in large firms.     

Limits to leapfrogging in energy technologies? Evidence from the Chinese automobile industry

Limits to leapfrogging in energy technologies? One of the most attractive notions in the field of sustainable energy development is the concept of energy-technology “leapfrogging”. Leapfrogging through international technology transfer can be especially problematic because often developing countries do not have the technological capabilities to produce or integrate the advanced energy technologies themselves. Until they have acquired the capabilities to produce the advanced technologies themselves, most late-industrializing countries buy their new technologies from industrialized countries, usually through licensing or joint-venture arrangements. Empirical case studies of the three main Sino-US passenger-car joint ventures reveal that until the late 1990s, little energy or environmental leapfrogging occurred in the Chinese automobile industry as the result of the introduction of US automotive technology. An improvement in Chinese capabilities and more stringent Chinese energy and environmental policies are needed to induce energy leapfrogging in the Chinese automobile industry. Foreign firms also have a social responsibility to contribute to China's sustainable industrial development. In order to realize the promise of the leapfrogging, the limits to leapfrogging must be identified and acknowledged so that strategies can be devised to surmount the barriers to the introduction of advanced energy technologies in developing countries.     

Free cash flows and overinvestment: Further evidence from Chinese energy firms

In the recent years, Chinese energy firms have accumulated significant free cash flows due to higher energy prices and government subsidies and also have invested heavily. An important empirical question is whether the Chinese energy firms tend to misallocate resources due to growing free cash flows. In this paper, we test whether they make some sub-optimal investment decisions following the well-established free cash flow problem in the finance literature, originally identified by Jensen (1986) for the US oil sector. Using a dynamic panel model for the period 2001–2012 for the Chinese energy-related public listed firms, we find evidence supporting the free cash flow hypothesis, suggesting overinvestment problems in the Chinese energy sector. In addition, we observe that firm size and corporate governance structure are important determinants of the Chinese energy firms' investment decisions.     

Electricity prices and generator behaviour in gross pool electricity markets

Electricity market liberalisation has become common practice internationally. The justification for this process has been to enhance competition in a market traditionally characterised by statutory monopolies in an attempt to reduce costs to end-users. This paper endeavours to see whether a pool market achieves this goal of increasing competition and reducing electricity prices. Here the electricity market is set up as a sealed bid second price auction. Theory predicts that such markets should result with firms bidding their marginal cost, thereby resulting in an efficient outcome and lower costs to consumers. The Irish electricity system with a gross pool market experiences among the highest electricity prices in Europe. Thus, we analyse the Irish pool system econometrically in order to test if the high electricity prices seen there are due to participants bidding outside of market rules or out of line with theory. Overall we do not find any evidence that the interaction between generator and the pool in the Irish electricity market is not efficient. Thus, the pool element of the market structure does not explain the high electricity prices experienced in Ireland.     

Ownership and environmental regulation: Evidence from the European electricity industry

The paper investigates how ownership affects the environmental performance in developed countries where environmental regulation is introduced in the form of market-based instrument. By looking at a cross-country panel dataset of 29 power markets around Europe over the period 1990–2012, we find empirical evidence that an increase of public ownership, as measured by the OECD ETCR index, is associated with a reduction of both greenhouse gas emissions and carbon intensity. We also find that the implementation of the European Emissions Trading Scheme (ETS) had a limited impact on emissions' reduction due to lax allocation of allowances. The positive effect of public ownership on environmental performance has been significant even after the introduction of the ETS, giving additional incentives to mitigate emissions when the ETS cap was not stringent enough. This evidence suggests that government control over power companies in Europe can has created idiosyncratic incentives to improve environmental quality, complementing environmental regulation in the achievement of environmental goals when the latter was absent or sub-optimal.