World oil prices,precious metal prices and macroeconomy in Turkey

We examine the long- and short-run transmissions of information between the world oil price, Turkish interest rate, Turkish lira–US dollar exchange rate, and domestic spot gold and silver price. We find that the world oil price has no predictive power of the precious metal prices, the interest rate or the exchange rate market in Turkey. The results also show that the Turkish spot precious metals, exchange rate and bond markets do not also provide information that would help improve the forecasts of world oil prices in the long run. The findings suggest that domestic gold is also considered a safe haven in Turkey during devaluation of the Turkish lira, as it is globally. It is interesting to note that there does not seem to be any significant influence of developments in the world oil markets on Turkish markets in the short run either. However, transitory positive initial impacts of innovations in oil prices on gold and silver markets are observed. The short-run price transmissions between the world oil market and the Turkish precious metal markets have implications for policy makers in emerging markets and both local and global investors in the precious metals market and the oil market.     

Regional electric power demand elasticities of Japan's industrial and commercial sectors

In the assessment and review of regulatory reforms in the electric power market, price elasticity is one of the most important parameters that characterize the market. However, price elasticity has seldom been estimated in Japan; instead, it has been assumed to be as small as 0.1 or 0 without proper examination of the empirical validity of such a priori assumptions. We estimated the regional power demand functions for nine regions, in order to quantify the elasticity, and found the short-run price elasticity to be 0.09–0.30 and the long-run price elasticity to be 0.12–0.56. Inter-regional comparison of our estimation results suggests that price elasticity in rural regions is larger than that in urban regions. Popular assumptions of small elasticity of 0.1, for example, could be suitable for examining Japan's aggregate power demand but not power demand functions that focus on respective regions. Furthermore, assumptions about smaller elasticity values such as 0.01 and 0 could not be supported statistically by this study.     

Cost efficiency and electricity market structure: A case study of OECD countries

The OECD electricity sector has witnessed significant institutional restructuring over the past three decades. As a consequence, many power generation utilities now act as unregulated companies that technically compete to sell power on an open market. This paper analyses the performance in term of cost efficiency for electricity generation in OECD power sector while accounting for the impact of electricity market structures. We employ the short-run cost function in which capital stock is treated as a quasi-fixed factor input. Empirical models are developed for the cost function as a translog form and analysed using panel data of 25 countries during the period 1980 to 2009. We show that it is necessary to model latent country-specific heterogeneity in addition to time-varying inefficiency. The estimated economies of scale are adjusted to take account of the importance of the quasi-fixed capital input in determining cost behaviour, and long run constant returns to scale are verified for the OECD generation sector. The research findings suggest there is a significant impact of electricity market regulatory indicators on cost. In particular, public ownership and vertical integration are found to have significant and sizable increasing impacts on cost, thereby indicating policy lessons on the desirable ways to implement structural electricity generation reforms.     

Measuring competitiveness of the EPEX spot market for electricity

The issue of market concentration in electricity markets and resulting possible anti-competitive behavior of producers is a much discussed topic in many countries. We investigate the day-ahead market for electricity at the EPEX, the largest central European market for electricity. To analyze whether generating companies use their market power to influence prices, we use a conjectural variations approach as well as a direct approach to construct marginal costs of electricity production. Given the available data, we cannot reject the hypothesis that there was no systematic abuse of market power by the suppliers of electricity on the EPEX day-ahead spot market for the years 2007–2010. These results are essentially robust when restricting the sample to high load hours, which are generally considered to be the most prone to market manipulation.     

The Short-Run Value of Nonutility-Generated Electricity

The Public Utilities Regulatory Policies Act (PURPA) of 1978 and the associated rulings of the Federal Energy Regulatory Commission (FERC) obligate the electric utilities to purchase electricity generated by qualifying facilities at the utility's avoided cost of alternative energy. They include no further indication of how this cost should be calculated and leave the actual implementation to the state's regulatory authorities. In this work, a computer simulation model was developed to study the short-run value of electricity that is generated by private entities and offered for sale to the electric utilities. Using the production simulation theory, the model determines how a set of generation units at different locations can be dispatched in the most economic way to meet a certain electric demand. The model then calculates the short-run value of nonutility-generated electricity by assuming the variable operational costs of electricity production will remain unchanged for any penetration of nonutility power. Several penetration scenarios were simulated using a hypothetical utility case. The short-run value of nonutility-generated electricity was found to increase with increased penetrations up to a maximum level before it starts decreasing as a result of the displacement of intermediate and base load capacity. Moreover, neither of the utility's marginal fuel costs calculated before and after the inclusion of the nonutility resources in the utility generation mix proved to capture the short-run value of the nonutility-generated electricity.     

Climate policies in a second-best world—A case study on India

The aim of this article is to analyze the potential for synergies between climate policies and development in a case study on India focusing on the power sector sub-optimalities. To do so, we use Imaclim-R, a dynamic recursive energy–economy model that represents a second best world with market imperfections and short-run adjustments constraints along a long-term growth path. The analysis suggests (i) global carbon pricing induces prohibitive macroeconomic costs for the Indian economy, even in the case of significant financial transfers associated with a global cap-and-trade system and a ‘Contraction and Convergence in 2100’ allocation scheme and (ii) the most cost efficient climate policies are not uniform carbon pricing only. The implementation of domestic policies suited to the national context, for instance targeting sub-optimalities in the power sector for India, allows reducing significantly the macroeconomic costs induced by international mitigation policies.     

Competitiveness assessment of Iran's restructured electricity market

Iran's electricity market was restructured mostly to enhance its production efficiency. Nonetheless, the experience of liberalized electricity markets indicates that market establishment would be insufficient to produce competitive results. To determine whether the restructured market is moving toward competition, this paper assesses production efficiency in Iran's electricity market during high demand periods in 2006 as the first year of the restructured market's performance, and in 2012 as the last year with available data. We compared counterfactual benchmark outcomes to the actual dispatches to determine the production efficiency. Moreover, Iran's power market is a discriminatory, day-ahead auction; therefore, we considered the market design in the competitive benchmark. We found that the production was inefficient in both 2006 and 2012. More importantly, the production in the market is becoming increasingly inefficient over time due to exercising market power and distortion of the market's production by strategic firms. Not only were strategic firms distorting the market's production, but they were also learning to exercise more non-competitive behavior because these firms distorted the production in 2012 eight times more than they did in 2006.     

Market power in electricity supply

Restructuring of the power industry worldwide has brought the issue of market competitiveness to the forefront. While "vertical" market power has been limited by disaggregating generation and transmission, nondiscriminatory access to the transmission system by power suppliers, and the creation of the independent system operator (ISO), "horizontal" and localized market power still survives. In the last few years, the issue of a small number of generators exercising market power has received a great deal of attention, and much has been published on how to identify and mitigate such abuse by market management measures. This paper focuses on the analysis and mitigation of market power in electricity supply     

Security of supply and retail competition in the European gas market.: Some model-based insights

In this paper, we analyze the impact of uncertain disruptions in gas supply upon gas retailer contracting behavior and consequent price and welfare implications in a gas market characterized by long-term gas contracts using a static Cournot model. In order to most realistically describe the economical situation, our representation divides the market into two stages: the upstream market that links, by means of long-term contracts, producers in exporting countries (Russia, Algeria, etc.) to local retailers who bring gas to the consuming countries to satisfy local demands in the downstream market. Disruption costs are modeled using short-run demand functions. First we mathematically develop a general model and write the associated KKT conditions, then we propose some case studies, under iso-elasticity assumptions, for the long–short-run inverse-demand curves in order to predict qualitatively and quantitatively the impacts of supply disruptions on Western European gas trade. In the second part, we study in detail the German gas market of the 1980s to explain the supply choices of the German retailer, and we derive interesting conclusions and insights concerning the amounts and prices of natural gas brought to the market. The last part of the paper is dedicated to a study of the Bulgarian gas market, which is greatly dependent on the Russian gas supplies and hence very sensitive to interruption risks. Some interesting conclusions are derived concerning the necessity to economically regulate the market, by means of gas amounts control, if the disruption probability is high enough.     

Electricity consumption and economic growth nexus in Bangladesh: Revisited evidences

In this paper, an attempt is being made to examine the causal relationship between per capita electricity consumption and per capita GDP of Bangladesh using the vector error correction specified Granger causality test to search their short-run, long-run and joint causal relationships for the period of 1971–2008. Empirical findings reveal that there is a short-run unidirectional causal flow running from per capita electricity consumption to per capita GDP without feedback. The presence of a positive short-run causality explains that an increase in electricity consumption directly affects economic activity in Bangladesh. Likewise, results from joint causality exhibit the same as in short-run. By contrast, long-run results show a bi-directional causality running from electricity consumption to economic growth with feedback. These findings can provide essential policy insights to design immediate and long-term growth prospect for Bangladesh keeping in mind its present planned growth strategy and dismal power and energy sector.     

A short-run solution to the power crisis of Pakistan

Pakistan is in a deep power crisis since 2008 which the government is trying to control by adding new generation capacity. This strategy, however, will not be helpful in the short-run. The only way, the power crisis can be controlled or mitigated in the short-run, is to efficiently utilize the available resources. Government lacks such a strategy at this point. The paper provides such a strategy by setting up a power sector model with multiple modules of generation, transmission and distribution. The model provides an efficient way of utilizing the available resources and can be used to perform simulations at different stages of the supply-chain. The results of model show that, if the given resources are utilized efficiently, the power generation increases by 3222 GWh or 5 percent of the current output and the revenue increases by $945 million or 12 percent. The extra generated power decrease the cost of power production by 0.52 ¢/KWh cents and reduces the power load-shedding for 2–3 h. These outcomes can significantly relieve the sector and the people of Pakistan. The results of the model have important policy implications on working of the sector and circular debt reduction.     

Are fundamentals enough? Explaining price variations in the German day-ahead and intraday power market

European electricity market participants are encouraged to balance intraday deviations from their day-ahead schedules via trades in the intraday market. Together with the increasing production of variable renewable energy sources (RES), the intraday market is gaining importance. We investigate the explanatory power of a fundamental modeling approach explicitly accounting for must-run operations of combined heat and power plants (CHP) and intraday peculiarities such as a shortened intraday supply stack. The fundamental equilibria between every hour's supply stack and aggregated demand in 2012 and 2013 are modeled to yield hourly price estimates. The major benefits of a fundamental modeling approach are the ability to account for non-linearities in the supply stack and the ability to combine time-varying information consistently. The empirical results show that fundamental modeling explains a considerable share of spot price variance. However, differences between the fundamental and actual prices persist and are explored using regression models. The main differences can be attributed to (avoided) start up-costs, market states and trading behavior.     

When renewable portfolio standards meet cap-and-trade regulations in the electricity sector: Market interactions,profits implications,and policy redundancy

Emission trading programs (C&T) and renewable portfolio standards (RPS) are two common tools used by policymakers to control GHG emissions in the energy and other energy-intensive sectors. Little is known, however, as to the policy implications resulting from these concurrent regulations, especially given that their underlying policy goals and regulatory schemes are distinct. This paper applies both an analytical model and a computational model to examine the short-run implications of market interactions and policy redundancy. The analytical model is used to generate contestable hypotheses, while the numerical model is applied to consider more realistic market conditions. We have two central findings. First, lowering the CO₂ C&T cap might penalize renewable units, and increasing the RPS level could sometimes benefit coal and oil and make natural gas units worse off. Second, making one policy more stringent would weaken the market incentive, which the other policy relies upon to attain its intended policy target.     

Potential of trading wind power as regulation services in the California short-term electricity market

A short-term electricity market is usually composed of the energy market and ancillary service market. However, wind power is not allowed to be traded in ancillary service markets although it has been proven technically feasible to be regulation services. This paper aims to explore the market potential of trading wind power as regulation services in the California electricity market. A model for wind power trade in the day-ahead (DA) market is established considering the uncertainties of market prices and wind power. An optimal trading strategy for wind power producers is derived by using an analytical algorithm. Trading wind power as regulation is tested by using actual data and the impacts of market control on the market outcome are discussed. The results show that, based on the current framework of the California electricity market, wind power producers can earn much more money if they bid in the DA energy and regulation markets than if they only bid in the DA energy market. The results also show that the potential to enhance profit for wind power producers is larger in the regulation down market than in the regulation up market.     

Abuse of dominance and antitrust enforcement in the German electricity market

In 2008, the European Commission investigated E.ON, a large and vertically integrated electricity company, for the alleged abuse of a joint dominant position by strategically withholding generation capacity in the German wholesale electricity market. The case was settled after E.ON agreed to divest 5 GW generation capacity as well as its extra-high voltage network. We analyze the effect of these divestitures on wholesale electricity prices. Our identification strategy is based on the observation that energy suppliers have more market power during peak periods when demand is high. Therefore, a decrease in market power should lead to convergence between peak and off-peak prices, after controlling for different demand and supply conditions as well as the change in generation mix due to the expansion of renewable technologies. Using daily electricity prices for the 2006–2012 period, we find economically and statistically significant convergence effects after the settlement of the case. In a richer specification, we show that the price reductions appear to be mostly due to the divestiture of gas and coal plants, which is consistent with merit-order considerations. Additional cross-country analyses support our results.     

Forecasting oil price movements with crack spread futures

In oil markets, the crack spread refers to the crude–product price relationship. Refiners are major participants in oil markets and they are primarily exposed to the crack spread. In other words, refiner activity is substantially driven by the objective of protecting the crack spread. Moreover, oil consumers are active participants in the oil hedging market and they are frequently exposed to the crack spread. From another perspective, hedge funds are heavily using crack spread to speculate in oil markets. Based on the high volume of crack spread futures trading in oil markets, the question we want to raise is whether the crack spread futures can be a good predictor of oil price movements. We investigated first whether there is a causal relationship between the crack spread futures and the spot oil markets in a vector error correction framework. We found the causal impact of crack spread futures on spot oil market both in the long- and the short-run after April 2003 where we detected a structural break in the model. To examine the forecasting performance, we use the random walk model (RWM) as a benchmark, and we also evaluate the forecasting power of crack spread futures against the crude oil futures. The results showed that (a) both the crack spread futures and the crude oil futures outperformed the RWM; and (b) the crack spread futures are almost as good as the crude oil futures in predicting the movements in spot oil markets.     

Why (and how) to regulate power exchanges in the EU market integration context?

The European Union (EU) market integration is leading to increasingly monopolistic electricity market infrastructures, which has opened a debate on the regulation of these so-called power exchanges. In this paper, we start by stating that there are two types of power exchanges in Europe, i.e. “merchant” and “cost-of-service regulated” power exchanges. We then discuss how regulation can be used to better align their incentives with the main power exchange tasks. We conclude that adopting the cost-of-service regulated model for all power exchanges in Europe could be counterproductive in the current context, but that regulation can help ensure that the benefits of the EU market integration materialize. Promising regulatory actions include tempering the reinforced market power of power exchanges, and quality-of-service regulation for the ongoing cooperation among power exchanges to organize trade across borders.     

Advanced mechanisms for the promotion of renewable energy—Models for the future evolution of the German Renewable Energy Act

The German Renewable Energy Act (EEG) has been very successful in promoting the deployment of renewable electricity technologies in Germany. The increasing share of EEG power in the generation portfolio, increasing amounts of fluctuating power generation, and the growing European integration of power markets governed by competition calls for a re-design of the EEG. In particular, a more efficient system integration and commercial integration of the EEG power is needed to, e.g. better matching feed-in to demand and avoiding stress on electricity grids. This article describes three different options to improve the EEG by providing appropriate incentives and more flexibility to the promotion mechanism and the quantitative compensation scheme without jeopardising the fast deployment of renewable energy technologies. In the “Retailer Model”, it becomes the responsibility of the end-use retailers to adapt the EEG power to the actual demand of their respective customers. The “Market Mediator Model” establishes an independent market mediator responsible to market the renewable electricity. This model is the primary choice when new market entrants are regarded as crucial for the better integration of renewable energy and enhanced competition. The “Optional Bonus Model” relies more on functioning markets since power plant operators can alternatively choose to market the generated electricity themselves with a premium on top of the market price instead of a fixed price.     

Multi-scale dependence structure and risk contagion between oil,gold, and US exchange rate: A wavelet-based vine-copula approach

This study makes a systemic analysis of dependence and risk contagion among oil, gold, and the US dollar foreign exchange (US FX) markets, employing the wavelet method and a time-varying tri-variate vine-copula model. Compared to previous research, our empirical findings not only reveal the impact of co-variate instead of pairwise analysis, but also reveal the patterns of heterogeneity influence in different time horizons. Both dynamic average dependence and tail dependence show that the three assets are better integrated in the medium-run time scales than the short-run time scales, whereby US FX connects the three assets in the short-term, while gold does so in the medium-term. All three multi-variate scenarios show that risk contagion is temporal at different time scales. The oil market was found to be more sensitive to the upside and downside risk contagion of the gold market in the short-run time scales, and vice versa. Asymmetry also shows that both the US FX and gold market are more sensitive to upside and downside risk contagion in the medium-run time scales.     

Forecasting short-run crude oil price using high- and low-inventory variables

Since inventories have a lower bound or a minimum operating level, economic literature suggests a nonlinear relationship between inventory level and commodity prices. This was found to be the case in the short-run crude oil market. In order to explore this inventory–price relationship, two nonlinear inventory variables are defined and derived from the monthly normal level and relative level of OECD crude oil inventories from post 1991 Gulf War to October 2003: one for the low inventory state and another for the high inventory state of the crude oil market. Incorporation of low- and high-inventory variables in a single equation model to forecast short-run WTI crude oil prices enhances the model fit and forecast ability.