Electricity regulation and electricity market reforms in China

The electricity industry of China has been in a process of reforms since the 1980s. This paper gives a review on the three main stages of reforms in China so as to trace out key features of various reform measures including those for power investment financing, the separation between government and power enterprises, and the division between power generation firms and power grids. The findings suggest that further regulatory change in China's electricity market reform is necessary when integration of the electricity markets and increased competition are paving the way ahead for a market-oriented structure. Prospective electricity regulation in the form of a strong legal system and effective institutions that protect market competition and promote appropriate incentives for efficiency are suggested in the paper.     

Baselines for carbon emissions in the Indian and Chinese power sectors: Implications for international carbon trading

The study examines the dynamics of carbon emissions baselines of electricity generation in Indian states and Chinese provinces in the backdrop of ongoing electricity sector reforms in these countries. Two Indian states—Gujarat and Andhra Pradesh, and three Chinese provinces–Guangdong, Liaoning and Hubei have been chosen for detailed analysis to bring out regional variations that are not captured in aggregate country studies. The study finds that fuel mix is the main driver behind the trends exhibited by the carbon baselines in these five cases. The cases confirm that opportunities exist in the Indian and Chinese electricity sectors to lower carbon intensity mainly in the substitution of other fuels for coal and, to a lesser extent, adoption of more efficient and advanced coal-fired generation technology. Overall, the findings suggest that the electricity sectors in India and China are becoming friendlier to the global environment. Disaggregated analysis, detailed and careful industry analysis is essential to establishing a power sector carbon emissions baseline as a reference for CDM crediting. However, considering all the difficulties associated with the baseline issue, our case studies demonstrate that there is merit in examining alternate approaches that rely on more aggregated baselines.     

The case for a new capacity mechanism in the UK electricity market—Lessons from Australia and New Zealand

The UK Government plans a capacity mechanism to ensure sufficient reserves as the share of intermittent generation increases. This article reviews the use of last resort capacity mechanisms in two other energy-only markets, Australia and New Zealand.     

The electricity market potential of geothermal energy: A regionally aggregative analysis

This research presents estimates of potential regional electric market shares for geothermally produced electricity in the Rocky Mountain Basin and Range Region of the western United States. A model is described which simulates the exploration for and the discovery and harnessing of electric grade geothermal energy resources during the period 1986–1995. Concurrently, electricity demand forecasts are prepared for the same period using a set of estimated electricity demand models. The two forecasts are then integrated to calculate regional electric market shares for a set of alternate electricity price futures.     

Market power in a coal-based power generation sector: The case of Poland

The paper presents an analysis of market power in the Polish power sector. The study is carried out for the structure that was established by the last consolidation undertaken by the government in 2007, using a game theoretic model of the power generation market (the PolMark model). The model is run under five scenarios and eight cases. The scenarios distinguish between assumptions on strategic behaviour, whereas the cases distinguish assumptions on coal prices. The following measures are discussed in this study: electricity prices, production volumes, consumer and producer surpluses, dead weight welfare loss, CO₂, SO₂, NO_x emissions and fuel supplies to power producers. The results confirm that the potential to exert market power in the Polish power generation sector may influence significantly electricity prices and production volumes. The analysis indicates that under the competitive scenario the average wholesale electricity price would be approximately 14.7% lower and the production would be 6.7% higher when compared to the reference scenario. Furthermore, apart from surplus transfer between producers and consumers, the dead weight loss was estimated at the level of 123.6 M€. This value reflects the net social loss resulting from uncompetitive market equilibrium.     

Integration of multiple national markets for electricity: The case of Norway and Sweden

During the second part of the 1990s the Nordic (Denmark, Finland, Norway and Sweden) countries have created a unique multinational market for electricity. This paper aims to analyse the degree of integration of the different national markets that constitute the Nordic electricity market. In particular the Norwegian and Swedish wholesale and retail electricity markets are analysed. The results suggest that the wholesale markets are well integrated. Thus prices differ significantly only during periods with unusually high or low supply of hydropower. However, the retail markets are not integrated to the same degree. Thus retail prices and trade margins differ significantly. Differences in the national electricity market legislation seem to be a key factor behind these differences.     

Regulatory reforms and productivity: An empirical analysis of the Japanese electricity industry

The Japanese electricity industry has experienced regulatory reforms since the mid-1990s. This article measures productivity in Japan's steam power-generation sector and examines the effect of reforms on the productivity of this industry over the period 1978–2003. We estimate the Luenberger productivity indicator, which is a generalization of the commonly used Malmquist productivity index, using a data envelopment analysis approach. Factors associated with productivity change are investigated through dynamic generalized method of moments (GMM) estimation of panel data. Our empirical analysis shows that the regulatory reforms have contributed to productivity growth in the steam power-generation sector in Japan.     

Market power in the European electricity market—The impacts of dry weather and additional transmission capacity

This paper uses a static computational game theoretic model of a fully opened European electricity market and can take strategic interaction among electricity-producing firms into account. The model is run for a number of scenarios: first, in the baseline under perfect competition, the prices differ due to the presence of various generation technologies and a limited ability to exchange electricity among countries. In addition, when large firms exercise market power, the model runs indicate that prices are the highest in countries where the number of firms is low. Second, dry weather would increase the prices in the hydro-rich Nordic countries followed by the Alpine countries. The price response would be about 20% higher with market power. Third, more transmission capacity would lower the prices in countries with high prices and it also reduces the impact of market power. Hence, more transmission capacity can improve market competitiveness.     

Red light for Green Paper: The EU policy on energy efficiency

The EU Green Paper on energy efficiency calls for action to decrease energy use and thus achieve increased competitiveness, fulfil the environmental targets and increase security of supply. In this comment, we examine the role the EU Commission suggest that energy efficiency, and policies supporting energy efficiency, takes. The policies and the suggestions are qualitatively elaborated upon in the light of the goal of a common European electricity market. We suggest that the rationales for the energy efficiency measures are weak, and that the suggested goals of increased competitiveness, environmental targets, and security of supply are best reached with the direct measures especially designed for each goal. Some of the energy efficiency measures may counter-act other direct policies. Further, The Green Paper measures may prove detrimental to the European Electricity market insofar as the policies suggested could lead to a policy fatigue among the electricity consumers.     

The potential for segmentation of the retail market for electricity in Ireland

We estimate the gross margin that is earned from the supply of electricity to households in Ireland. Using half hourly electricity demand data, the system marginal price (also called the wholesale price) and the retail price of electricity, we analyse how the gross margin varies across customers with different characteristics. The wholesale price varies throughout the day, thus, the time at which electricity is used affects the gross margin. The main factor in determining gross margin, however, is the level of demand.The highest gross margins are earned from supplying customers that have the following characteristics: being aged between 46 and 55, having a household income of at least €75,000 per annum, being self-employed, having a third-level education, having a professional or managerial occupation, living in a household with seven or more people, living in a detached house, having at least five bedrooms or being a mortgage holder.An OLS regression shows that gross margin is partly explained by the energy conservation measures which are present in a household; the number of household members; the number of bedrooms; age; occupation; and accommodation-type.     

Conceptualizing and evaluating best practices in electricity and water regulatory governance

This article presents a preliminary conceptual framework that scholars and analysts can use to evaluate regulatory systems in the provision of water and electricity services. We propose an integrative evaluative framework combining regulatory governance and regulatory substance metrics to assess regulatory effectiveness in relation to performance based outcomes in water and energy services provision. We identify eight structural based elements as necessary for effective governance in addition to two output attributes. We then identify twelve components that comprise regulatory substance for the energy and water sectors. We lastly suggest quantitative and qualitative metrics for assessing specific sector outcomes. While we recognize that issues associated with outcomes are ubiquitous to both the water and energy sectors, the metrics necessary to evaluate performance and outcomes are sectorally specific. The novelty of our study is that it does not exempt issues of sustainability and equity from notions of effective regulation. Our framework simultaneously looks at regulatory outcomes and governance at micro (industry), meso (provincial/state) and macro (national) levels. Lastly, it highlights the importance of a mixed methods approach that combines quantitative and qualitative metrics.     

Analysis of competition and market power in the wholesale electricity market in India

The electricity reforms were initiated in India with the objective of promoting competition in the electricity market. In order to promote competition, the Electricity Act 2003 was enacted and various policy initiatives were taken by the Government of India. Central Electricity Regulatory Commission (CERC) also facilitated competition through the regulatory framework of availability based tariff, Indian Electricity Grid Code, open access in inter-state transmission, inter-state trading and power exchanges. Despite these initiatives, electricity prices increased in the Wholesale Electricity Market in India (WEMI). This paper analyses the market structure and competitiveness in the WEMI. There are, of course, various potential reasons for the rise in the electricity price. This paper seeks to investigate, if market power was one of the reasons for increase in market prices. Concentration ratio, Herfindahl–Hirschman index, Supply Margin Assessment, and Residual Supply Index have been used to measure market power. This paper also uses the price–cost mark-up to examine, if exercise of market power led to higher margins. The analysis suggests that market power of firms may be part of the reason for the increase in electricity prices in WEMI. The study suggests various measures to increase competition in the WEMI.     

Price formation and market power in the German wholesale electricity market in 2006

From 2002 to 2006, German wholesale electricity prices more than doubled. The purpose of this paper is to estimate the price components in 2006 in order to identify the factors responsible for the increase. We develop a competitive benchmark model, taking into account power plant characteristics, fuel and CO₂-allowance prices, wind generation, cross-border flows, unit commitment, and startup conditions, to estimate the difference between generation costs and observed market prices for every hour in 2006. We find that prices at the German wholesale market (European Energy Exchange—EEX) are above competitive levels for a large fraction of the observations. We verify the robustness of the results by carrying out sensitivity analyses. We also address the issue of revenue adequacy.     

Implications of private sector participation in power generation—a case study from India

India suffers from widespread shortages of electricity supply. These shortages, among others, are detrimental to the economic growth. The prospects for the next decade do not seem to be much brighter. Efforts in expanding generation capacity by the state-owned electric utilities are hampered by severe resource constraints. Against this backdrop, to mobilize additional resources to help bridge the gap in demand and supply, the Government of India formulated a policy in 1991 with the objective to encourage greater investment by private enterprises in the electricity sector. To study the implications of such an initiative on various stakeholders, viz., public utilities, consumers and private sector, the present paper tries to analyse issues like planned rationing, guarantees to private sector, backing down of existing capacity. Using the state of Karnataka (in Southern India) as a case study, the paper develops multiple scenarios using an integrated mixed integer-programming model. The results show the advantage of marginal non-supply (rationing) of electricity in terms of achieving overall effective supply demand matching as well as providing economic benefits to the state that could be generated through cost savings. The results also show the negative impacts of high guarantees offered to the private sector in terms of the opportunity costs of reduced utilization of both the existing and the new public capacity. The estimated generation losses and the associated economic impacts of backing down of existing and new public capacity on account of guarantees are found to be significantly high. For 2011–12, depending on the type of scenarios, the estimated generation and economic losses are likely to be in the range of 3200–10,000 GWh and Rs. 4200–13,600 million respectively. The impact of these losses on the consumers could be in terms of significant increase in energy bills (in the range of 19–40% for different scenarios) due to rise in tariffs.     

Incentive regulation of electricity distribution networks: Lessons of experience from Britain

This paper reviews the recent experience of the UK electricity distribution sector under incentive regulation. The UK has a significant and transparent history in implementing incentive regulation in the period since 1990. We demonstrate the successes of this period in reducing costs, prices, and energy losses while maintaining quality of service. We also draw out the lessons for other countries in implementing distribution sector reform. We conclude by discussing the place of incentive regulation of networks within the wider reform context, the required legislative framework, the need for appropriate unbundling, the importance of quality of service incentives, the regulatory information requirements, and the role of sector rationalisation.     

Electricity pricing under “carbon emissions trading”: A dominant firm with competitive fringe model

The aim of this paper is to analyze the impact of trading of CO₂ emissions allowances on electricity pricing in the short run. We mainly refer to the European Emissions Trading Scheme (ETS) and are interested in understanding the role of electricity market structures. We carry out a simple analytical model useful to verify whether (and under which conditions) the impact of the ETS under market power could be lower (or higher) than that under perfect competition. We analyze a context where generators compete in a uniform, first price auction. Market power in the form of a dominant firm facing a competitive fringe model is assumed. The paper highlights that the marginal CO₂ opportunity costs are fully included in energy prices when the electricity market is perfectly competitive. Under market power the impact of the ETS equals or exceeds that under the competitive scenario only when there is excess capacity and the share of most polluting plants in the market is low enough. Otherwise, the impact under market power is less than under perfect competition and significantly decreases in the degree of market concentration. This especially occurs when there is not high excess capacity and regardless of either the plant mix or the allowance price. In this case, moreover, the marginal pass-through rate is lower in the peak than in the off-peak hours and can be even nil if the degree of market concentration is high enough.     

The impact of energy efficiency programs on the growth of electricity sales

With increasing concern about carbon dioxide emissions from power generation, high natural gas costs for generating electricity, and rapidly increasing costs of constructing new power plants, energy efficiency programs are being given greater consideration by utilities and regulators. This study reports on a statistical analysis of the relationship between state-level efficiency program effort and growth in electricity sales between 2001 and 2006 in the United States. The higher the utility efficiency program expenditures per capita and the greater the range of other efficiency programs offered, the greater the reduction in the growth of power sales. Application of the portfolio of energy efficiency programs used in the states with most aggressive programs would have reduced the growth in a state's electricity sales by about 60% relative to the case where no efficiency programs were implemented.     

The environmental and efficiency effects of restructuring on the electric power sector in the United States: An empirical analysis

Recent measures to restructure the electric power sector in different US states have raised the interest of policy makers, commentators, and the general public as to the actual impact of restructuring on both the economy and the environment. This paper focuses on two aspects of restructuring, namely its potential impact on the efficiency of electricity generation and air pollution. Our empirical results suggest that restructuring contributes to improved efficiency of electricity generation and better air quality through reduced electricity-induced sulfur dioxide (SO₂) and carbon dioxide (CO₂) emissions, although no effect was found for emissions of nitrous oxides (NO_x). These results, in turn could have important implications for policy in this area.     

The pricing and allocation of electrical energy

Realizing that development planning is a continuous and sequential process utilizing the mobilization and efficient use of resources over space and time, this paper develops a suitable model to enhance the likelihood that economic efficiency will be obtained in the pricing and allocation of electrical energy in the USA. Within the structure developed, what will happen to the generating capacity profile is shown, as well as what will happen to the consumption and price over the period 1980–1990.