discovering price load relationships in california s electricity market this paper reports on characterizing recent price behavior in the califomia electricity market market participants that is producers consumers and traders are highly motivated by the potential for profits to develop strategies to explore and exploit the limits of system operation these strategies should be reflected in the market as different price to load relationships we show that a number of regimes i e characteristic behaviors exist in the price time series and provide a brief analysis of each regime knowledge of the number of regimes their characteristics and switching dynamics allows insight into the market and power system performance

dynamic pricing of electricity as both a regulator and an academic fred kahn argued that end use electricity consumers should face prices that reflect the time varying marginal costs of generating electricity this has been very slow to happen in the us even in light of recent technological advances that have lowered costs and improved functionality for meters and automated demand response technologies we describe these recent developments and discuss the remaining barriers to the proliferation of time varying electricity pricing

a simple hybrid model for power derivatives article deposited according to the policy found on the elsevier website http www elsevier com wps find authorsview authors postingpolicy june 28 2012

consistent and robust delimitation of price zones under uncertainty with an application to central western europe abstract new and alternative delimitations of price zones for central western europe cwe might constitute a mid term solution to cope with the increasing congestion in the electricity transmission grids the significantly growing infeed from renewable energy sources puts more and more pressure on the grid and emphasizes the need for improved congestion management thus a new delimitation of price zones is frequently considered in current discussions and research the present paper applies a novel hierarchical cluster algorithm that clusters locational marginal prices and weights nodes depending on their demand and supply situation to identify possible new price zone configurations pzcs the algorithm is applied in a scenario analysis of six scenarios reflecting main drivers that influence the future development of european electricity markets in line with the trilemma of energy policy targets robustness of the new configuration is an important criterion for price zone configurations according to the european guideline on capacity allocation and congestion management cacm therefore a robust price zone configuration is computed taking into account all the six individual scenarios results show that shape size and price variations of price zones on the one hand strongly depend on the individual scenario on the other hand the identified robust configuration is shown to outperform other configurations particularly also the current price zone configuration in cwe

electricity derivatives pricing with forward looking information in order to increase overall transparency on key operational information power transmission system operators publish an increasing amount of fundamental data including forecasts of electricity demand and available capacity we employ a fundamental model for electricity prices which lends itself well to integrating such forecasts while retaining ease of implementation and tractability to allow for analytic derivatives pricing formulae in an extensive futures pricing study the pricing performance of our model is shown to further improve based on the inclusion of electricity demand and capacity forecasts thus confirming the general importance of forward looking information for electricity derivatives pricing however we also find that the usefulness of integrating forecast data into the pricing approach is primarily limited to those periods during which electricity prices are highly sensitive to demand or available capacity whereas the impact is less visible when fuel prices are the primary underlying driver to prices instead

an aggregate weibull approach for modeling short term system generating capacity deregulation of electricity markets is occurring all over the world this trend introduces new risks and uncertainties into the electricity industry the most significant being price risk the spot price of electricity is highly volatile and the ability to price risk management contracts on this commodity is contingent on a robust and realistic model of the underlying price process one key driver of electricity spot price is the forced outages of generating plants in the system the current paper describes a system aggregate model of short term generating capacity that can be adapted to any generating system of interest after describing the model we test it using the ieee reliability test system rts

stochastic security for operations planning with significant wind power generation in their attempt to cut down on greenhouse gas emissions from electricity generation several countries are committed to install wind power generation up to and beyond the 10 20 penetration mark however the large scale integration of wind power represents a challenge for power system operations planning because wind power 1 cannot be dispatched in the classical sense and 2 its output varies as weather conditions change this warrants the investigation of alternative short term power system operations planning methods capable of better coping with the nature of wind generation while maintaining or even improving the current reliability and economic performance of power systems to this end this paper formulates a short term forward electricity market clearing problem with stochastic security capable of accounting for nondispatchable and variable wind power generation sources the principal benefit of this stochastic operation planning approach is that when compared to a deterministic worst case scenario planning philosophy it allows greater wind power penetration without sacrificing security

demand generation and price in the norwegian market for electric power we analyse the simultaneous determination of supply demand and price in the competitive norwegian electricity market deregulated in 1991 this market is pretty mature and it offers numerous data required carrying out an interesting study stochastic and seasonal water inflow water storage possibilities and demand variations make this market interesting both from a theoretical and empirical view we establish a small supply demand model of the norwegian electricity market the model is estimated using weekly data from 1994 to 1995 data for 1996 are used for post sample examination of the model unexpected inflow snow and temperature conditions explain a large part of the variation in the electricity generation demand and price within and post sample simulation of the estimated model reproduce demand and price patterns considerably well

the short run and long run effects of behavioral interventions experimental evidence from energy conservation we document three remarkable features of the opower program in which social comparison based home energy reports are repeatedly mailed to more than six million households nationwide first initial reports cause high frequency action and backsliding but these cycles attenuate over time second if reports are discontinued after two years effects are relatively persistent decaying at 10 20 percent per year third consumers are slow to habituate they continue to respond to repeated treatment even after two years we show that the previous conservative assumptions about post intervention persistence had dramatically understated cost effectiveness and illustrate how empirical estimates can optimize program design jel d12 d83 l94 q41

valuation and optimal operation of electric power plants in competitive markets we present an algorithm for the valuation and optimal operation of hydroelectric and thermal power generators in deregulated electricity markets real options theory is used to derive nonlinear partial integro differential equations pides for the valuation and optimal operating strategies of both types of facilities the equations are designed to incorporate a wide class of spot price models that can exhibit the same time dependent mean reverting dynamics and price spikes as those observed in most electricity markets particular attention is paid to the operational characteristics of real power generators for thermal power plants these characteristics include variable start up times and costs control response time lags minimum generating levels nonlinear output functions and structural limitations on ramp rates for hydroelectric units head effects and environmental constraints are addressed we illustrate the models with numerical examples of a pump storage facility and a thermal power plant this pide framework can achieve high levels of computational speed and accuracy while incorporating a wide range of spot price dynamics and operational characteristics

establishing the role that wind generation may have in future generation portfolios assessing the correct future mix in generation portfolios has become more difficult given the introduction of emission trading schemes the recent fuel price rises and the increasing competitiveness of wind energy this paper combines analysis of generation economics load and wind generation characteristics generation adequacy and plant utilization to gain insight into the role of wind generation in desirable generation portfolios the unique characteristics of wind generation are accounted for in the analysis and sensitivity analysis is carried out with respect to discount rates carbon taxes and various fuel price scenarios results show that for a large range of future scenarios wind generation has a significant role to play in future generation portfolios in ireland mean variance portfolio theory is applied to examine the benefits of portfolio diversification in terms of avoiding exposure to volatile fuel prices analysis shows that wind generation has a further role to play in generation portfolios in this respect

stochastic joint optimization of wind generation and pumped storage units in an electricity market one of the main characteristics of wind power is the inherent variability and unpredictability of the generation source even in the short term to cope with this drawback hydro pumped storage units have been proposed in the literature as a good complement to wind generation due to their ability to manage positive and negative energy imbalances over time this paper investigates the combined optimization of a wind farm and a pumped storage facility from the point of view of a generation company in a market environment the optimization model is formulated as a two stage stochastic programming problem with two random parameters market prices and wind generation the optimal bids for the day ahead spot market are the ldquohere and nowrdquo decisions while the optimal operation of the facilities are the recourse variables a joint configuration is modeled and compared with an uncoordinated operation a realistic example case is presented where the developed models are tested with satisfactory results

on the efficiency of connection charges part ii integration of distributed energy resources this two part paper addresses the design of retail electricity tariffs for distribution systems with distributed energy resources ders part i presents a framework to optimize ex ante two part tariffs for a regulated retailer who faces stochastic wholesale prices on the one hand and stochastic demand on the other in part ii the integration of ders is addressed by analyzing their effect on the optimal two part tariff and the induced welfare gains two der integration models are considered a decentralized model involving behind the meter ders and a centralized model with retailer integrated ders it is shown that ders integrated under either model can achieve the same social welfare and that net metering is optimal the retail prices for both models are equal and reflect the expected wholesale prices the connection charges differ and are affected by the retailer s fixed costs and the statistical dependencies between wholesale prices and behind the meter ders these charges are higher under the decentralized model an empirical analysis is presented to estimate the impact of der on welfare distribution and cross subsidies it shows that with the prevailing net metering tariffs consumer welfare decreases with the level of der integration issues of cross subsidy and practical drawbacks of decentralized integration are also discussed

predicting price spikes in electricity markets using a regime switching model with time varying parameters this paper shows that a stochastic regime switching model can represent the volatile behavior of wholesale electricity prices associated with price spikes effectively the structure of the model is very flexible because the mean prices in the two regimes and the two transition probabilities are functions of the load and or the implicit reserve margin using price data from the single settlement market in pjm may 1999 to may 2000 the results show that the estimated switching probability from the low to the high regime predicts price spikes well if the reserve margin is measured accurately

stochastic optimization model to study the operational impacts of high wind penetrations in ireland a stochastic mixed integer linear optimization scheduling model minimizing system operation costs and treating load and wind power production as stochastic inputs is presented the schedules are updated in a rolling manner as more up to date information becomes available this is a fundamental change relative to day ahead unit commitment approaches the need for reserves dependent on forecast horizon and share of wind power has been estimated with a statistical model combining load and wind power forecast errors with scenarios of forced outages the model is used to study operational impacts of future high wind penetrations for the island of ireland results show that at least 6000 mw of wind 34 of energy demand can be integrated into the island of ireland without significant curtailment and reliability problems

a model for energy pricing with stochastic emission costs we use a supply demand approach to value energy products exposed to emission cost uncertainty we find closed form solutions for a number of popularly traded energy derivatives such as forwards european call options written on spot prices and european call options written on forward contracts our modeling approach is to first construct noisy supply and demand processes and then equate them to find an equilibrium price this approach is very general while still allowing for sensitivity analysis within a valuation setting our assumption is that in the presence of emission costs traditional supply growth will slow down causing output prices of energy products to become more costly over time however emission costs do not immediately cause output price appreciation but instead expose individual projects particularly those with high emission outputs to much more extreme risks through the cost side of their profit stream our results have implications for hedging and pricing for producers operating in areas facing a stochastic emission cost environment

on the trade off between real time pricing and the social acceptability costs of demand response abstract dynamic tariff policies have become an essential feature of modern electric grid design the successful implementation of such policies usually depends on overcoming the resistance of end users to real time pricing and its political implications in this paper we review the literature on the social acceptability costs of implementing demand response programs and we discuss the key features of implementing a real time price to energy although the literature acknowledges the existence of a social acceptability cost it does not propose an explicit approach to dealing with this issue a model for investigating the implications of the social acceptability cost is thus introduced and through it we discuss thoroughly the joint impact of the elasticity and externality parameters on the tariff design of a demand response program we explore how the increases in elasticity and in externality effects influence price changes in such programs and how the social acceptability cost could be reduced as a function of pricing policies we conclude by discussing the policy design mechanisms in line with demand elasticity and their role in decreasing price variations to cope with the minimum volatility principle in the presence of policies that penalize high prices there is an even further decrease in price variations

a stochastic two settlement equilibrium model for electricity markets with wind generation incentives to encourage the uptake of renewable energy generation have fostered wind energy in many power systems these incentives usually take the form of market instruments e g feed in tariff or premium that are not directly amenable to optimization representations of the market in this paper we propose an equilibrium model of the short term market to address the impact of wind operation under different structural assumptions the model is formulated for several price taking risk averse firms in competition it accounts for wind generation uncertainty and embeds a representation of the day ahead and balancing mechanisms the consumer is modeled by a linear inverse demand function we focus on feed in premium as the incentive to wind as this is the instrument most favored today in european discussions the model is formulated as a stochastic equilibrium problem where the karush kuhn tucker kkt conditions from the optimization problem of each firm are simultaneously solved together with market clearing conditions on energy capacity for reserve and energy for reserve the problem for each firm consists of a two stage stochastic optimization problem with a recourse function based on the conditional value at risk cvar as a risk measure due to price taking assumptions the model is a single stage complementarity problem it is implemented and solved using the software gams an example based on a stylized simplification of the spanish power market and motivated by the impact of wind penetration on the revenue of conventional plants is used to illustrate the proposed approach

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

the price of power the valuation of power and weather derivatives abstract pricing contingent claims on power presents numerous challenges due to 1 the unique behavior of power prices and 2 time dependent variations in prices we propose and implement a model in which the spot price of power is a function of two state variables demand load and fuel price in this model any power derivative price must satisfy a pde with boundary conditions that reflect capacity limits and the non linear relation between load and the spot price of power moreover since power is non storable and demand is not a traded asset the power derivative price embeds a market price of risk using inverse problem techniques and power forward prices from the pjm market we solve for this market price of risk function during 1999 2001 the upward bias in the forward price was as large as 50 mwh for some days in july by 2005 the largest estimated upward bias had fallen to 19 mwh these large biases are plausibly due to the extreme right skewness of power prices this induces left skewness in the payoff to short forward positions and a large risk premium is required to induce traders to sell power forwards this risk premium suggests that the power market is not fully integrated with the broader financial markets

short term uncertainty in long term energy system models a case study of wind power in denmark when wind power constitutes a larger share of the electricity production mix credible and reliable modelling of its operation in long term investment models becomes increasingly important in this paper the intermittent characteristics of wind power are modelled as a stochastic parameter in a long term times model of the danish heat and electricity sector to our knowledge this is not a common approach in long term investment models and has not been done previously in times where the short term uncertainty of wind power is normally taken into account by a deterministic constraint that ensures excess back up capacity in our model the stochasticity gives lower total energy system costs significant lower investments in wind power less expected electricity export and higher expected biomass consumption compared to using the traditional deterministic approach also the deterministic investment strategy can be insufficient in periods with poor wind conditions based on our findings we recommend using a stochastic representation of intermittent renewables in long term investment models to provide more solid results for decision makers

monte carlo computation of power generation production costs under operating constraints this paper highlights the need for considering the stochastic processes associated with the frequency and duration of generating unit outages for assessing the mean and variance of production costs under operating constraints a numerical example based on a markov model is given to show that monte carlo estimates of these quantities may be incorrect if only the forced outage rates are used in place of the stochastic parameters underlying the outage frequency and duration additionally it describes a variance reduction procedure whereby the monte carlo estimates can be obtained with a much smaller sample size than would be required otherwise a numerical example is given for a small system

contract design and costly verification games abstract in this paper the signalling subgame in costly verification models is studied in the context of the investor entrepreneur contract without assuming the possibility of commitment to verification it is shown that the game has a unique perfect bayesian equilibrium in mixed strategies implying that truth telling and deterministic verification are not an equilibrium behavior when the entire game starting from the stage of contract design is considered it is shown that the contract designed by the informed entrepreneur results in less verification cost than the one designed by the uninformed investor this could be taken as a normative criterion based upon which institutional arrangements as regards the distribution of bargaining initiative are to be designed

impact measurement of tariff changes when experimentation is not an option a case study of ontario canada abstract this paper presents the first year results of a three year study that was designed to measure the impact of time of use rates in the canadian province of ontario unlike prior studies which have analyzed such impacts in an experimental setting featuring the randomized allocation of customers to treatment and control groups this study deals with a situation where the deployment of time of use rates was not experimental in nature it was part of a full scale program by carefully drawing samples across four local distribution companies we were able to interpret the study as a natural experiment and construct control groups and treatment groups we used the addilog model of consumer demand to estimate elasticities of substitution between peak mid peak and off peak periods the addilog model includes as a special case the constant elasticity of substitution model that has been widely used in the literature on customer response to time of use rates the estimated elasticities are well behaved and consistent with those found in the literature

taxation of economic rents economic rents have long been identified as an efficient tax base in addition the recent literature documents that rent income is highly concentrated and that rents are quickly increasing rent taxation thus seems attractive for reasons of both efficiency and equity nevertheless rent taxation remains a marginal topic in research and policy making in a systematic review of the neoclassical literature on different rent types we find that some types of rents reflect inefficiencies and should thus be minimized while others reward investments and should be supported in line with social welfare what remains for taxation are land rents one of the few true scarcity rents land rents have significant potential to improve the efficiency of the tax system we then begin to develop a comprehensive theory of land rent taxation by identifying relevant efficiency and equity effects the interaction of many of these effects remains unexplored which might explain policymakers hesitation in using land taxes to date

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

on the efficient market diffusion of intermittent renewable energies abstract capacity costs of renewable energies have been decreasing dramatically and are expected to fall further making them more competitive with fossils building on an analytically tractable peak load pricing model we analyze how intermittency of renewable energies affects the market diffusion that results from these lower costs in particular once renewables have become competitive by attaining the same levelized cost of electricity lcoe as fossils the marginal increase in efficient capacities due to a further cost reduction varies substantially initially it is small then it rises but it falls again once renewable capacities are large enough to satisfy the whole electricity demand at times of high availability if external costs of fossils are internalized by a pigouvian tax then perfect competition leads to efficient investments in renewable and fossil capacities even though we assume that only a subgroup of consumers can adapt their demand to price fluctuations that are caused by the intermittency of renewables moreover fossils receive a capacity payment through the market for their reliability in serving demand of non reactive consumers maximum electricity prices rise with the share of renewables if regulators impose a price cap this initially raises investments in renewables but the effect may reverse if the share of renewables is large

the value of intra day markets in power systems with high wind power penetration in this paper the value of intra day markets in managing wind power uncertainty in competitive electricity markets is analyzed a competitive electricity market model consisting of a day ahead market and a number of intra day markets is considered real time operation adjustment is also taken into account stochastic programming is used to model decision making under wind power uncertainty numerical simulations based on two test systems are presented

scheduling and pricing for expected ramp capability in real time power markets higher variable renewable generation penetrations are occurring throughout the world on different power systems these resources increase the variability and uncertainty on the system which must be accommodated by an increase in the flexibility of the system resources in order to maintain reliability many scheduling strategies have been discussed and introduced to ensure that this flexibility is available at multiple timescales to meet variability that is the expected changes in system conditions two recent strategies have been introduced time coupled multi period market clearing models and the incorporation of ramp capability constraints to appropriately evaluate these methods it is important to assess both efficiency and reliability but it is also important to assess the incentive structure to ensure that resources asked to perform in different ways have the proper incentives to follow these directions which is a step often ignored in simulation studies we find that there are advantages and disadvantages to both approaches we also find that look ahead horizon length in multi period market models can impact incentives this paper proposes scheduling and pricing methods that ensure expected ramps are met reliably efficiently and with associated prices based on true marginal costs that incentivize resources to do as directed by the market case studies show improvements of the new method

performance of wholesale electricity markets with high wind penetration abstract this paper examines the impact of progressively deeper levels of wind generation and or abatement on the performance of a wholesale market and its incumbent thermal generators with non convex unit commitment constraints comparison is made to the result that marginal cost pricing should induce investors to build the least cost capacity mix since it is not clear that this will hold in renewable rich systems it is first found that unit commitment and forecast uncertainty do not cause significant departure from this result when the generator fleet is optimal optimality in this sense is determined in a capacity expansion problem that does not feature unit commitment and which allows thermal generators to be built or retired as greater renewable generation or abatement is mandated in contrast the wholesale market with no retirement of thermal generation experiences progressively greater disparity between total system prices and costs and lower returns to generators simply due to over capacity rather than any form of variability related market failure a carbon price is observed to be far superior to a renewable portfolio standard when the existing set of thermal generators do not retire but this difference is less stark when the generation mix is optimal the implications of these results for market design and system planning are then discussed

honesty and evasion in the tax compliance game conventional models of tax compliance emphasize that taxpayers make strategic tax reports underreporting income to the extent that this behavior is functionally rewarded in contrast to this view considerable empirical evidence suggests that many taxpayers are inherently honest reporting truthfully regardless of the incentive to cheat in this article we build a game theoretic model of tax compliance that includes both honest and potentially dishonest taxpayers we show that including honest taxpayers significantly alters the model leading to much improved empirical predictions and somewhat different and novel policy implications

on the efficiency of connection charges part i a stochastic framework this two part paper addresses the design of retail electricity tariffs for distribution systems with distributed energy resources such as solar power and storage in particular the optimal design of dynamic two part tariffs for a regulated monopolistic retailer is considered where the retailer faces exogenous wholesale electricity prices and fixed costs on the one hand and stochastic demands with intertemporal price dependencies on the other part i presents a general framework and analysis for revenue adequate retail tariffs with advanced notification dynamic prices and uniform connection charges it is shown that the optimal two part tariff consists of a dynamic price that may not match the expected wholesale price and a connection charge that distributes uniformly among all customers the retailer s fixed costs and a price volume risk premium a sufficient condition for the optimality of the derived two part tariff among the class of arbitrary ex ante tariffs is obtained numerical simulations quantify the substantial welfare gains that the optimal two part tariff may bring compared to the optimal linear tariff without connection charge part ii focuses on the impact of two part tariffs on the integration of distributed energy resources

knowledge is less power experimental evidence from residential energy use abstract imperfect information about product attributes inhibits efficiency in many choice settings but can be overcome by providing simple low cost information we use a randomized control trial to test the effect of high frequency information about residential electricity usage on the price elasticity of demand informed households are three standard deviations more responsive to temporary price increases an effect that is not attributable to price salience conservation extends beyond pricing events in the short and medium run providing evidence of habit formation and implying that the intervention leads to greenhouse gas abatement survey evidence suggests that information facilitates learning jel d12 d83 l11 l94 q41 q54

regulation asymmetric information and auditing this article analyzes a model of a regulated firm that is better informed about its cost function than is the regulator by auditing at a cost however the regulator is assumed to be able to observe the realized cost of the firm if the regulator finds that the firm had misrepresented its costs at the time at which prices were set he can order a refund to consumers in the optimal policy the regulator audits when the firm reports for pricing purposes that its costs will be high and orders a refund when the auditfinds that realized costs are lower than anticipated given the original report a separation result that obtains for an important case indicates that the initial pricing decision is independent of the auditing decision the auditing decision however depends on the price that was initially set the optimal auditing strategy is characterized and the nature of the welfare gains are identified the methodology used in the analysis involves the characterization of an equilibrium of a revelation game with an ex post observable

income tax compliance in a principal agent framework previous analyses have modeled income tax evasion as a portfolio problem deriving the optimal consumption of the risky asset unreported income under the assumption of a fixed probability of detection the purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions in particular we compare alternative audit policies to the standard random audit policy we focus on an audit cutoff policy in which an agent triggers an audit if his or her reported income is too low and is not audited if reported income is sufficiently high this paper establishes two major results first random audit rules are weakly dominated by audit cutoff rules it can be shown given lump sum taxes and fines that these audit cutoff rules are the least cost policies which induce truthful reporting of income second the dominance of audit cutoff rules over random audit rules holds for lump sum as well as proportional taxation in fact the equilibrium consequences of the two are equivalent

efficient retail pricing in electricity and natural gas markets a long line of research investigates whether the retail prices of electricity and natural gas send proper signals about scarcity in order to induce efficient consumption historically regulated utilities have not designed tariffs that set marginal prices equal to marginal costs currently some jurisdictions are opening the retail sectors to competition via retail choice these new regimes replace imperfect regulation with imperfect competition as the process by which retail tariffs are formed we discuss the challenges in evaluating the efficiency of tariffs and present evidence of how pricing has changed in markets with retail choice

costly monitoring loan contracts and equilibrium credit rationing this paper develops a model with asymmetrically informed agents and costly monitoring of loan contracts where an equilibrium can exhibit credit rationing borrowers are identical ex ante but some receive loans and others do not in contrast to existing credit rationing theories rationing does not occur here due to inflexible prices adverse selection or moral hazard optimizing behaviour produces a standard debt contract in equilibrium the aggregate quantity of loans and equilibrium interest rates respond differently depending on whether there is rationing in equilibrium

smart demand response in china challenges and drivers abstract smart demand response sdr induces change in electricity consumption by end users in response to price signals or incentives via smart infrastructures in china sdr programs are instrumental in peak shaving renewables integration emissions reduction and grid reliability improvement previous literature has not captured the effects of the latest development of electricity market reform on sdr our work is distinguished from prior work by a comprehensively identifying china specific sdr challenges by contrasting these with international experience b identifying effective drivers to overcome new market challenges and c recommending policies and providing insights into china s future sdr development our paper identifies three major challenges for sdr development and adoption in china namely financial and market consumer and infrastructural challenges in parallel we identify drivers to overcome these challenges including electricity market reform introduction of new market entrants and development of decentralized electricity systems finally we put forth china specific policy recommendations including continuous market reform performance based regulations for national utilities a level playing field for new market entrants and investments on consumer based technologies these measures aim to create equitable compensations to sdr align the interests of utilities with sdr initiatives provide incentives for consumer outreach and improve the responsiveness of consumers to sdr signals

exotic options for interruptible electricity supply contracts this paper presents the design and pricing of financial contracts for the supply and procurement of interruptible electricity service while the contract forms and pricing methodology have broader applications the focus of this work is on electricity market applications which motivate the contract structures and price process assumptions in particular we propose a new contract form that bundles simple forwards with exotic call options that have two exercise points with different strike prices such options allow hedging and valuation of supply curtailment risk while explicitly accounting for the notification lead time before curtailment the proposed instruments are priced under the traditional gbm price process assumption and under the more realistic assumption for electricity markets of a mean reverting price process with jumps the latter results employ state of the art fourier transforms techniques

a two part feed in tariff for intermittent electricity generation abstract as electricity generation from intermittent energy sources wind sun tides is gaining momentum it becomes increasingly important to price these electricity sources efficiently conventional flat feed in tariffs ignore the heterogeneity of these sources taking into account the degree of substitutability or complementarity of these sources with respect to each other and with respect to stochastic demand variations this paper derives optimal pricing instruments composed of a feed in tariff fit and a capacity augmentation tariff cat an empirical analysis looks at wind and solar farms operating in ontario in order to determine the optimal use of fit cat pricing the magnitude of optimal price differentiation turns out to be economically significant furthermore the emergence of grid scale electricity storage underscores the need to price energy and capacity separately

load following reserves procurement considering flexible demand side resources under high wind power penetration the variable and uncertain nature of the leading renewable energy resources such as wind power generation imposes the development of a sophisticated balance mechanism between supply and demand to maintain the consistency of a power system in this study a two stage stochastic programming model is proposed to procure the required load following reserves from both generation and demand side resources under high wind power penetration besides a novel load model is introduced to procure flexible reserves from industrial clients load following reserves from load serving entities lse are also taken into account as well as network constraints load shedding and wind spillage the proposed methodology is applied to an illustrative test system as well as to a 24 node system

a hybrid system econometric model for electricity spot prices considering spike sensitivity to forced outage distributions with the current trend in deregulation all electricity markets have been subject to volatile electricity prices typically in peak season as markets mature new financial and operational risk management instruments are becoming available in order to price such instruments a model for the underlying price process is required in this paper a hybrid model is described that contains aspects of the power system as well as the historical time series of spot prices observed in the market by including both aspects of the problem a model with both economic and system based aspects is created its modular design allows easy adaptation to different markets based on generating system reliability load patterns and price histories the spot price histories are manifest in two probability distributions for these prices whereas the system specifics are included via load and generation models which are calibrated to the climate and system of interest

investing in electricity production under a reliability options scheme abstract reliability options ros are used to enhance the security of supply in electricity systems when a power producer writes a ro s he agrees to set a cap on the price of electricity that s he cashes in return the system operator i e the party that is buying the option pays to the option issuer a fixed premium in this paper we analyze how ros affect the timing and value of investments in the energy sector and we show under what conditions they can be used as investment stimuli we prove that contrarily to what is expected ros can potentially harm the security of supply by delaying the adoption of new capacity and by reducing the value of investing in it to avoid such a result a careful setting of the relevant parameters is needed

optimal contracts under costly state falsification we examine an exchange economy with two agents one risk neutral with a certain endowment and a second risk averse with a random endowment the realization of the endowment is public but can be falsified by the second agent at a cost for a broad class of falsification cost functions the optimal no falsification contract is noncontingent on a left hand interval and strictly increasing with a slope strictly less than one on a right hand interval under a mild further restriction optimal no falsification contracts are in addition piece wise linear optimal contracts may in general require falsifying the state but for a set of the highest endowment realizations there is no falsification we find simple conditions under which the optimal contract is a no falsification contract the model has applications that include financial insurance and employment contracts and tax policy

optimal interconnection and renewable targets for north west europe we present a mixed integer linear programming model for determining optimal interconnection for a given level of renewable generation using a cost minimisation approach optimal interconnection and capacity investment decisions are determined under various targets for renewable penetration the model is applied to a test system for eight regions in northern europe it is found that considerations on the supply side dominate demand side considerations when determining optimal interconnection investment interconnection is found to decrease generation capacity investment and total costs only when there is a target for renewable generation higher wind integration costs see a concentration of wind in high wind regions with interconnection to other regions

wind storage interconnection and the cost of electricity generation abstract we evaluate how increasing wind generation affects wholesale electricity prices balancing payments and the cost of subsidies using the irish single electricity market sem as a test system with hourly data from 1 january 2008 to 28 august 2012 we model the spot market using a system of seemingly unrelated regressions sur where the regressions are the 24 hours of the day wind has a negative impact on the system marginal price with every mwh increase in wind generation equal to about 0 2 of the average wind generation in our sample leading to a decrease of the system marginal price of 0 018 mwh or about 0 3 of its average value we use time series models to analyse the balancing market and show that wind generation increases balancing payments as do the forecast errors of demand and wind every mwh of additional wind generation is associated with an increase in constraint payments of 3 2 or about 0 01 lack of storage increases the impact of wind on balancing payments whereas the lack of interconnection has no effect overall wind decreases costs through its effect on the electricity price more than it increases constraint payments even when storage is on outage the effect of wind remains positive after including the cost of subsidies given to wind generation

evaluation of the trading development in the iberian energy derivatives market the efficiency of the iberian energy derivatives market in its first five and a half years is assessed in terms of volume open interest and price the continuous market shows steady liquidity growth its volume is strongly correlated to that of the over the counter otc market the amount of market makers the enrolment of financial agents and generation companies belonging to the integrated group of last resort suppliers and the otc cleared volume in its clearing house the hedging efficiency measured through the ratio between the final open interest and the cleared volume shows the lowest values for the spanish base load futures as they are the most liquid contracts the ex post forward risk premium has diminished due to the learning curve and the effect of the fixed price retributing the indigenous coal fired generation this market is quite less developed than the european leaders headquartered in norway and germany enrolment of more traders mainly international energy companies financial agents energy intensive industries and renewable generation companies is desired market monitoring reports by the market operator providing post trade transparency otc data access by the energy regulator and assessment of the regulatory risk can contribute to efficiency gains

modeling the impact of a wind power producer as a price maker wind energy is present in many countries throughout the world the main types of wind sales in electricity markets are via regulated tariffs or pool based markets production companies choose cost effective options for selling wind energy and some markets like the irish electricity market use regulated tariffs to remunerate wind production this paper aims to provide some answers to explain what effect wind offers may have in an electricity market if wind power producers participated in the day ahead market without receiving any premium or aid a price maker optimization model is used to detect its effect on prices the model encompasses energy offers by other technologies using residual demand curves and detailed modeling of wind imbalances it is observed that wind acting as price maker reduces electricity prices and the imbalance penalties help the system operator to reduce imbalances a realistic case study using data from the irish electricity market illustrates the methodology used comparing the effect of imbalance penalties in the models in terms of profit and total imbalance of the system

information constrained insurance the revelation principle extended abstract private information induced incentive constraints can cause allocations to diverge from full information optimal allocations often in the direction of limited insurance but can bring unanticipated anomalies related plausible contract exclusion restrictions can be damaging in welfare terms more generally private information optimal allocations can be sensitive to the information structure suggesting that the latter be specified with an eye toward realism as well as tractability in an effort to make tractability less of a constraint the paper shows how two apparently difficult information structures a costly state verification environment and a multiperiod multilateral private information environment can be handled theoretically by revelation principle methods the paper also shows how solutions can be generated numerically

a model for hedging load and price risk in the texas electricity market energy companies with commitments to meet customers daily electricity demands face the problem of hedging load and price risk we propose a joint model for load and price dynamics which is motivated by the goal of facilitating optimal hedging decisions while also intuitively capturing the key features of the electricity market driven by three stochastic factors including the load process our power price model allows for the calculation of closed form pricing formulas for forwards and some options products often used for hedging purposes making use of these results we illustrate in a simple example the hedging benefit of these instruments while also evaluating the performance of the model when fitted to the texas electricity market

spot price modeling and the valuation of electricity forward contracts the role of demand and capacity we propose a model where wholesale electricity prices are explained by two state variables demand and capacity we derive analytical expressions to price forward contracts and to calculate the forward premium we apply our model to the pjm england and wales and nord pool markets our empirical findings indicate that volatility of demand is seasonal and that the market price of demand risk is also seasonal and positive both of which exert an upward seasonal pressure on the price of forward contracts we assume that both volatility of capacity and the market price of capacity risk are constant and find that depending on the market and period under study it could either exert an upward or downward pressure on forward prices in all markets we find that the forward premium exhibits a seasonal pattern during the months of high volatility of demand forward contracts trade at a premium during months of low volatility of demand forwards can either trade at a relatively small premium or even in some cases at a discount i e they exhibit a negative forward premium

delegation as commitment the case of income tax audits in this article we study the value of delegating authority over income tax audit policy arising from the incompleteness of contracts consider a utilitarian government whose ability to commit is limited to aggregate dimensions of its audit policy as publicly verifiable information about detailed allocations of audit budgets is not available we show that the welfare level associated with the full commitment solution can be attained by delegating authority over audit policy to a manager the latter is offered a simple incentive scheme based only on the aggregate variables which are publicly observable in contrast if the government retains authority direct commitment to these same variables does not allow the full commitment welfare level to be achieved thus despite sharing a common informational basis delegation may perform better than centralized arrangements in the presence of incomplete contracts