impacts of wind and solar spatial diversification on its market value a case study of the chilean electricity market abstract renewable energy is expected to become the main electricity source in the world in the coming decades with solar and wind power taking a big share of the energy supply although there has been a remarkable advance on renewable energy technologies their integration is still difficult for regulators market designers and system operators due to the high variability and limited predictability of solar and wind resources measures can be adopted to ease their integration among them geographical diversification there is plenty of literature about the diversification of solar and wind resources and there is a common conclusion greater dispersion smooths out power production however literature on the effects of spatial diversification on the power system electricity prices and renewable energy market value is much scarcer this paper studies the effects of spatial diversification and questions whether integration policies are incentivizing the placement of renewable generators where they provide the highest value to the electricity system in chile using real data and a simplified dispatch model the analysis presented shows evidence of the effects of diversification on wind and solar market value in chile results suggest that spatial diversification has a strong positive effect on the market value of renewable energy especially in scenarios with active transmission and hydro storage constraints wind market value may vary up to us 10 mw h depending on the level of diversification and the spatial and temporal constraints of the system and given current storage capacity of hydro reservoirs the solar market value may increase us 5 mw h due to diversification if transmission capacity is enough even though these results must be observed with caution because they depend on the assumptions made there is an important effect of renewable spatial diversification that should be observed by regulators

common trends and common cycles the existence of a serial correlation common feature among the first differences of a set of i 1 variables implies the existence of a common cycle in the beveridge nelson stock watson decomposition of those variables a test for the existence of common cycles among cointegrated variables is developed the test is used to examine the validity of the common trend common cycle structure implied by flavin s excess sensitivity hypothesis and campbell and mankiw s mixture of rational expectations and rule of thumb hypothesis for consumption and income linear independence between the cointegration and the cofeature vectors is exploited to decompose consumption and income into their trend and cycle components copyright 1993 by john wiley sons ltd

doubts or variability reinterpreting most of the market price of risk as a price of model uncertainty eradicates a link between asset prices and measures of the welfare costs of aggregate fluctuations that was proposed by hansen et al 1999 tallarini 2000 and alvarez and jermann 2004 prices of model uncertainty contain information about the benefits of removing model uncertainty not the consumption fluctuations that lucas 1987 2003 studied a max min expected utility theory lets us reinterpret tallarini s riskaversion parameter as measuring a representative consumer s doubts about the model specification we use model detection instead of risk aversion experiments to calibrate that parameter plausible values of detection error probabilities give prices of model uncertainty that approach the hansen and jagannathan 1991 bounds fixed detection error probabilities give rise to virtually identical asset prices as well as virtually identical costs of model uncertainty for tallarini s two models of consumption growth

the second french nuclear bet following the first oil crisis france launched the world s largest ever nuclear energy program commissioning 58 new reactors these reactors are now reaching 40 years of age the end of their technological lifetime this places france at an energy policy crossroads should the reactors be retrofitted or should they be decommissioned the cost optimal decision depends on several factors going forward in particular the expected costs of nuclear energy production electricity demand levels and carbon prices all of which are subject to significant uncertainty to deal with these uncertainties we apply the robust decision making framework to determine which reactors should be retrofitted we build an investment and dispatch optimization model calibrated for france then we use it to study 27 retrofit strategies for all combinations of uncertain parameters with nearly 8000 runs our analysis indicates that robust strategies involve the early closure of 10 to 20 reactors while extending the life of all other reactors these strategies provide a hedge against the risks of unexpected increases in retrofit costs low demand and low carbon prices our work also highlights the vulnerabilities of the official french government scenarios and complements them by suggesting new robust strategies these results provide a timely contribution to the current debate on the lifetime extension of nuclear plants in france

redistribution effects of energy and climate policy the electricity market abstract energy and climate policies are usually seen as measures to internalize externalities however as a side effect the introduction of these policies redistributes wealth between consumers and producers and within these groups while redistribution is seldom the focus of the academic literature in energy economics it plays a central role in public debates and policy decisions this paper compares the distributional effects of two major electricity policies support schemes for renewable energy sources and co2 pricing we find that the redistribution effects of both policies are large and they work in opposed directions while renewables support transfers wealth from producers to consumers carbon pricing does the opposite more specifically we show that moderate amounts of wind subsidies can increase consumer surplus even if consumers bear the subsidy costs co2 pricing in contrast increases aggregated producer surplus even without free allocation of emission allowances however not all types of producers benefit these findings are derived from an analytical model of electricity markets and a calibrated numerical model of northwestern europe our findings imply that if policy makers want to avoid large redistribution they might prefer a mix of policies even if co2 pricing alone is the first best climate policy in terms of allocative efficiency

the welfare cost of macroeconomic uncertainty in the post war period abstract with standard assumptions on preferences and a fully fledged econometric model we computed the welfare costs of macroeconomic uncertainty for post war u s using the beveridge nelson decomposition welfare costs are about 0 9 per capita consumption 175 77 a year and marginal welfare costs are about twice as large

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

globalization and its challenges rudi was born and grew up in krefeld germany he was an undergraduate at the university of geneva and completed his ph d at the university of chicago in 1971 which is where we met he was a student of robert mundell and both the subject matter the development of the mundell fleming model and the elegance and insights of his early work reflected mundell s influence he taught at the university of rochester and at the university of chicago before accepting an offer from mit in 1975

future wind and solar power market values in germany evidence of spatial and technological dependencies abstract achieving ambitious climate targets entails an extensive utilisation of renewable energy sources however due to weather dependent fluctuations generation from variable renewable energy vre sources is characterised by significantly lower market values in comparison to conventional technologies reinforced by a decline in electricity prices this development poses interesting questions as to its drivers and to what extent market values of wind and solar power can be influenced by the design of electricity markets against this background a scenario based analysis is conducted to trace the future development of market values using endogenously derived electricity prices considering different regional and technological vre diversification strategies and investments into vre technologies on a myopic basis the results show a continued decline in market values with increasing regional discrepancies indicating a growing importance of interregional interdependencies for assessing the profitability of vre furthermore from a system point of view a more distributed allocation of onshore wind capacities to contend with declining market values does not always prove to stabilise market values by facilitating a more constant feed in pattern contrary to expectation finally replacing onshore with offshore wind energy appears to be beneficial as it can lead to an overall increase in the market values of offshore onshore as well as pv generation technologies compared to other mitigation strategies this result raise interesting questions about the systemic economic value of offshore wind despite its higher lcoe in the context of market integration of vre

where do all the windmills go influence of the institutional setting on the spatial distribution of renewable energy installation abstract promoting renewable energy sources is one policy response to climate change not only is there currently a debate over the best policy instrument it is also discussed whether the renewable energy production should be expanded centralized at locations with the highest production potential or decentralized close to load it is yet not fully understood what influences the spatial distribution of renewable energy installation i assess the effect of subsidy scheme and market design on the spatial distribution of wind energy installations by comparing a feed in tariffs versus market premiums and b uniform versus nodal pricing the analysis is based on theoretical considerations and using a six node test model that reflects the consumption and renewable resource distribution in several countries and regions the institutional setting has great influence on the spatial distribution and resulting system costs with uniform pricing a market premium only leads to a more decentralized expansion of renewable energy production than a tariff when sites share similar wind conditions spatially more distributed expansion of wind power performs better in terms of total costs and share of wind power in final demand when networks are restricted

measuring the intensity of competition in export markets abstract this paper develops an approach to measuring the intensity of competition in international markets using readily available data on destination specific values and quantities of exports at the seven digit industry level the intensity of competition a group of exporters faces in a particular export market is measured by the residual demand elasticity the group faces this elasticity is identified by exchange rate shocks which rotate the supply relation of the source country export group relative to competitors located in other countries we apply this method to german exports of beer and us exports of linerboard paper the resulting estimates of market power appear to be plausible and consistent with other indicators of competition e g market shares the number of competitors providing support for the applicability of our framework in measuring competition in international markets

spatial dependence in wind and optimal wind power allocation a copula based analysis abstract the investment decision on the placement of wind turbines is neglecting legal formalities mainly driven by the aim to maximize the expected annual energy production of single turbines the result is a concentration of wind farms at locations with high average wind speed while this strategy may be optimal for single investors maximizing their own return on investment the resulting overall allocation of wind turbines may be unfavorable for energy suppliers and the economy because of large fluctuations in the overall wind power output this paper investigates to what extent optimal allocation of wind farms in germany can reduce these fluctuations we analyze stochastic dependencies of wind speed for a large data set of german on and offshore weather stations and find that these dependencies turn out to be highly nonlinear but constant over time using copula theory we determine the value at risk of energy production for given allocation sets of wind farms and derive optimal allocation plans we find that the optimized allocation of wind farms may substantially stabilize the overall wind energy supply on daily as well as hourly frequency

welfare gains from international risksharing abstract this paper uses consumption data to compute yet unexploited welfare gains that can be achieved through risksharing among twenty oecd countries there is both aggregate national consumption risk and nondiversifiable individual specific risk countries engage in an optimal risksharing arrangement to pool risk associated with the aggregate consumption endowment streams welfare gains are associated with reduced consumption variability and with the international pricing of the consumption streams of individual countries the paper considers the standard vnm time additive preferences as well as nonexpected utility and habit formation preferences large unexploited gains are found under all sets of preferences leading to an international risksharing puzzle

why is consumption so smooth for thirty years it has been accepted that consumption is smooth because permanent income is smoother than measured income this paper considers the evidence for the contrary position that permanent income is in fact less smooth than measured income so that the smoothness of consumption cannot be straightforwardly explained by permanent income theory the paper argues that in postwar u s quarterly data consumption is smooth because it responds with a lag to changes in income

balancing power and variable renewables three links abstract balancing power is used to quickly restore the supply demand balance in power systems the need for this tends to be increased by the use of variable renewable energy sources vre such as wind and solar power this paper reviews three channels through which vre and balancing systems interact the impact of vre forecast errors on balancing reserve requirements the supply of balancing services by vre generators and the incentives to improve forecasting provided by imbalance charges the paper reviews the literature provides stylized facts from german market data and suggests policy options surprisingly while german wind and solar capacity has tripled since 2008 balancing reserves have been reduced by 15 and costs by 50

estimating the value of wind energy using electricity locational marginal price abstract there is an increasing interest in adding renewables such as wind to electricity generation portfolios in larger amounts as one response to concern about atmospheric carbon emissions from our energy system and the resulting climate change most policies with the aim of promoting renewables e g rps fit do not explicitly address siting issues which for wind energy are currently approached as the intersection of wind resource land control and transmission factors this work proposes the use of locational marginal price lmp the location and time specific cost of electricity on the wholesale market to signal locations where generation can address electricity system insufficiency after an examination of the spatial and temporal behavior of lmp in michigan over the first two years of wholesale market operation this work combines lmp with wind speed data to generate a value metric high value sites in michigan tend to be sites with higher wind speeds with the bulk of value accruing in the fall and winter seasons

measuring the cost of economic fluctuations with preferences that rationalize the equity premium lucas 2003 argues that the potential welfare gains from stabilizing the business cycle are small in fact he shows that the benefits of eliminating all economic fluctuations are small especially when compared with the potential gains from other reforms his estimates are obtained using standard preferences i show that a model consistent with observed data on asset returns leads to very different conclusions calibrating preferences to observed asset market data raises the estimated welfare gains from completely eliminating aggregate fluctuations by approximately two orders of magnitude most of the gains however come from the elimination of low frequency contributions lucas 2003 suggere que les gains de bien etre potentiels qui emergeraient d une stabilisation du cycle economique sont faibles de fait il montre que les avantages aeliminer toutes les fluctuations economiques sont specialement faibles quand on les compare aux gains potentiels qu on peut attendre d autres reformes il developpe ces estimations a l aide de preferences standards on montre qu un modele consistant avec les donnees observees sur le rendement des actifs nous amene a des conclusions differentes le fait d arrimer les preferences aux donnees observees sur le marche des actifs double a peu pres la magnitude des gains de bien etre si on eliminait completement les fluctuations agregees le gros des gains cependant emergerait de l elimination des evenements peu frequents

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

identifying barriers to large scale integration of variable renewable electricity into the electricity market a literature review of market design abstract for reaching the 2 c climate target the robust growth of electricity generation from variable renewable energy sources vre in the power sector is expected to continue accommodation of the power system to the variable uncertain and locational dependent outputs of vre causes integration costs integrating vre into a well functioning electricity market can minimize integration costs and drive investments in vre and complementary flexible resources however the electricity market in the european union eu as currently designed seems incapable to deliver this end this paper aims to provide a comprehensive literature review of barriers to the large scale market integration of vre in the eu electricity market design based on the set up of the eu electricity market a framework was developed to incorporate the most pertinent market integration barriers and resulting market inefficiencies this paper concludes that an overhaul is needed for the current eu electricity market to address all barriers identified firstly a discrete auction intraday market a marginal pricing balancing market a two price imbalance settlement and a nodal pricing locational marginal pricing mechanism seem more promising in limiting integration costs secondly to support business cases of vre and complementary flexible resources in the electricity market a level playing field should be established and the price cap should be lifted up to the value of lost load voll meanwhile to fit vre s market participation a higher time resolution of trading products and later gate closure time in different submarkets would be required lastly feed in support schemes currently widely used for vre investments might be inconsistent with market integration as they increase integration costs and lock vre investments in a subsidy dependent pathway to avoid such lock in further investigation of alternative capacity based support schemes is recommended

the market value of variable renewables the effect of solar wind power variability on their relative price this paper provides a comprehensive discussion of the market value of variable renewable energy vre the inherent variability of wind speeds and solar radiation affects the price that vre generators receive on the market market value during windy and sunny times the additional electricity supply reduces the prices because the drop is larger with more installed capacity the market value of vre falls with higher penetration rate this study aims to develop a better understanding on how the market value with penetration and how policies and prices affect the market value quantitative evidence is derived from a review of published studies regression analysis of market data and the calibrated model of the european electricity market emma we find the value of wind power to fall from 110 of the average power price to 50 80 as wind penetration increases from zero to 30 of total electricity consumption for solar power similarly low value levels are reached already at 15 penetration hence competitive large scale renewable deployment will be more difficult to accomplish than as many anticipate

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

the impact of wind power support schemes on technology choices abstract in energy systems with large shares of variable renewable energies electricity generation is lower during unfavorable weather conditions system friendly wind turbines sfts rectify this by producing a larger share of their electricity at low wind speeds this paper analyzes to what extent sfts benefits out weigh their additional costs and how to incentivize investments into them using a wind power investment model for germany i show that sfts indeed deliver benefits for the energy system that over compensate for their cost premium floating market premium schemes incentivize their deployment only where investors bear significant price risks and possess sufficient foresight alternatively a new production value based benchmark triggers investors to install sfts that meet the requirements of power systems with increasing shares of variable renewable energies

on the welfare costs of business cycle fluctuations and economic growth variation in the 20th century and beyond lucas 1987 has shown a surprising result in business cycle research the welfare cost of business cycles are very small our paper has several original contributions first in computing welfare costs we propose a novel setup that separates the eects of uncertainty stemming from business cycle uctuations and economic growth variation second we extend the sample from which to compute the moments of consumption the whole of the literature chose primarily to we gratefully acknowledge the comments of caio almeida carlos e da costa robert f engle pedro c ferreira antonio fiorencio rodolfo manuelli samuel pessoa and octavio tourinho on this or on earlier versions of this paper all errors are ours we thank cnpq brazil faperj and inct for nancial support y corresponding author

the comovement between output and prices abstract in this paper i analyze the comovement of us prices and output in the postwar period i use a new set of statistics to characterize the comovement between variables the statistics capture important information about the dynamics in the system the estimation procedure does not require assumptions about the order of integration or the types of assumptions needed for var decompositions i find that the comovement between output and prices is positive in the short run and negative in the long run i show that a model in which demand shocks dominate in the short run and supply shocks dominate in the long run can explain these empirical results while sticky price models with only demand shocks cannot

growth trends cyclical fluctuations and welfare with non expected utility preferences abstract using standard time separable discounted expected utility eu models lucas models of business cycles 1987 and others argue that growth trends have a crucial and cyclical fluctuations a trivial effect on individuals utility these conclusions are drastically altered if instead non eu preferences are assumed

using asset prices to measure the persistence of the marginal utility of wealth we derive a lower bound for the volatility of the permanent component of investors marginal utility of wealth or more generally asset pricing kernels the bound is based on return properties of long term zero coupon bonds risk free bonds and other risky securities we find the permanent component of the pricing kernel to be very volatile its volatility is about at least as large as the volatility of the stochastic discount factor a related measure for the transitory component suggest it to be considerably less important we also show that for many cases where the pricing kernel is a function of consumption innovations to consumption need to have permanent effects

cost of business cycles with indivisibilities and liquidity constraints it is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk in this paper simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles two versions of incomplete insurance markets are considered and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy

robust permanent income and pricing i suppose there exists an extremely powerful and if i may so speak malignant being whose whole endeavours are directed toward deceiving me rene descartes meditations ii 1

system friendly wind power how advanced wind turbine design can increase the economic value of electricity generated through wind power abstract previous studies find that the economic value of electricity usd mwh generated by wind power drops with increasing market share different measures can help mitigate the value drop including electricity storage flexible conventional plants expansion of transmission and demand response this study assesses another option a change in design of wind power plants advanced wind turbines that are higher and have a larger rotor compared to rated capacity lower specific rating generate electricity more constantly than classical turbines recent years have witnessed a significant shift towards such advanced technology our model based analysis for northwestern europe shows that such design can substantially increase the spot market value of generated electricity at a 30 penetration rate the value of 1 mwh of electricity generated from a fleet of advanced turbines is estimated to be 15 higher than the value of 1 mwh from classical turbines the additional value is large whether compared to wind generation costs to the value drop or to the effect of alternative measures such as electricity storage extensive sensitivity tests indicate that this finding is remarkably robust the increase in bulk power value is not the only advantage of advanced turbines additional benefits might accrue from reduced costs for power grids and balancing services to fully realize this potential power markets and support policies need to be appropriately designed and signal scarcity investors

comparing the costs of intermittent and dispatchable electricity generating technologies economic evaluations of alternative electric generating technologies typically rely on comparisons between their expected life cycle production costs per unit of electricity supplied the standard life cycle cost metric utilized is the levelized cost per mwh supplied this paper demonstrates that this metric is inappropriate for comparing intermittent generating technologies like wind and solar with dispatchable generating technologies like nuclear gas combined cycle and coal levelized cost comparisons are a misleading metric for comparing intermittent and dispatchable generating technologies because they fail to take into account differences in the production profiles of intermittent and dispatchable generating technologies and the associated large variations in the market value of the electricity they supply levelized cost comparisons overvalue intermittent generating technologies compared to dispatchable base load generating technologies they also overvalue wind generating technologies compared to solar generating technologies integrating differences in production profiles the associated variations in the market value of the electricity supplied and life cycle costs associated with different generating technologies is necessary to provide meaningful comparisons between them this market based framework also has implications for the appropriate design of procurement auctions created to implement renewable energy procurement mandates the efficient structure of production tax credits for renewable energy and the evaluation of the additional costs of integrating intermittent generation into electric power networks