Essays on Renewable Energy, Electricity Markets and Local Communities
Creators: Ortega Moreno, Boris
Publisher: name: University of Alberta Library
Year: 2023

<p>This dissertation consists of three essays spanning various fields, including energy economics, labor economics, development economics, and regulation. As many jurisdictions worldwide shift towards low-carbon energy sources, energy producers, consumers, and policymakers face new challenges. The main objective of this dissertation is to advance our understanding of the effects of this renewable energy transition at different levels, such as energy producers and consumers, as well as policymakers.<br>
Chapter 1 focuses on two commonly used renewable support policies: a fixed-price feed-in tariff (FiT) and a premium-price FiT. The objective is to empirically analyze how these renewable support policies affect wholesale market outcomes like equilibrium prices and quantities and other outcomes of interest such as carbon dioxide emissions and policy costs. Using data from the Alberta wholesale electricity market, a three-stage model simulates a renewable energy procurement auction, a forward contract market, and a spot market competition. The results suggest that a fixed-price FiT increases competition compared to a premium-price FiT through a lower equilibrium price and higher equilibrium output. Further, under a premium-price FiT, the strategic behavior of the firms plays a crucial role in determining the outcomes. This strategic behavior depends heavily on the characteristics of the firms, like the flexibility of their asset portfolio and marginal cost curves. Additionally, due to the lower spot market output, carbon dioxide emissions are lower under a premium-price FiT, while policy costs are lower under a fixed-price FiT. The results highlight the numerous trade-offs associated with these compensation policies and their sensitivity to market and firm characteristics.<br>
Chapter 2 concentrates on an often overlooked effect of renewable energy projects: their impacts on local communities. Policymakers often consider hydroelectric projects as a tool to boost local economies, principally through local job creation and investment inflow. Therefore, using Chilean data from 1990 to 2017, Chapter 2 studies the local effects of hydroelectric projects on salary, employment, the housing market (i.e., probability of owning a house versus renting), and health (i.e., probability of visiting a doctor). The methodology relies on a weighted two-way fixed effect difference-in-differences estimator that accounts for selection into treatment and heterogeneous treatment effects over time. The results show that the measured effects are short-lived, only between 2 and 3 years after project construction starts. The labor market effects primarily manifest as higher salaries in the construction industry with positive spillover effects on the manufacturing and hospitality industries, but these effects do not persist beyond three years. The short-term nature of the results highlights the necessity of understanding the local effects of energy projects, especially as we are increasingly transitioning to renewable energy.<br>
Chapter 3 revisits the role of renewable compensation policies to investigate their interaction with conventional energy capacity investment. In a setting of imperfect competition and uncertain demand, this Chapter develops a two-stage duopoly model where firms have a fixed amount of renewable capacity and can invest in conventional energy capacity. Conventional output is compensated at market prices, but renewable output can be compensated by a fixed-price feed-in tariff or a premium-price FiT. Generally, the pro-competitive effect of a fixed-price FiT is expected to encourage capacity investment to allow the firm to expand its spot market output during peak hours. Nevertheless, the main result shows that modifying the renewable CP has an ambiguous effect on the level of capacity investment, which depends on the relative size of the renewable capacity owned by the firm and its rival. For instance, if a firm owns sufficiently low renewable capacity compared to its rival, a fixed-price FiT encourages it to decrease its conventional capacity investment. This stylized model provides a formal theoretical framework that characterizes the relationship between renewable compensation policies and conventional capacity investment. Understanding this relationship is crucial as we transition towards renewable energy sources while maintaining a reliable supply through conventional generation.</p>