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Item Added: Electricity Market Reform. View Wishlist. The greek electricity market reforms : political and regulatory considerations Energy Policy, John Swales. The greek electricity market reforms : political and regulatory considerations. Its progress is benchmarked against the criteria suggested by Littlechild b. The focus is on the agendas of the Greek Keywords: government, other domestic political forces and the European Union. A central requirement is the clear Electricity market reforms commitment to liberalization by the Greek government.

All rights reserved. In this monopolistic market PPC We examine the journey taken from the previous monopolistic covered all electricity industry activities in Greece: it owned and market setting to a liberalized form of market operation. We discuss operated all the infrastructure and the assets of the industry.

This decision came as part of a requirement of the market operation and has, up to now, blocked full liberalization. Section 2 discusses the limited existing research on the issue and describes the current electricity market setting. Although Greece has achieved most of the Littlechild E-mail addresses: nikolaos. Danias , benchmarks, it falls down on a small number of crucial criteria. Kim Swales , p. Section 5 concludes by identifying institutional factors that inhibit 2 Tel.

Danias et al. Reform elements Progress Comments 1 Separation of competitive and Yes The four sectors of the electricity industry Generation, Transmission, Distribution and Supply monopolistic sectors have been unbundled and are operated separately. No bilateral the wholesale market contracts are allowed between electricity generators and suppliers.

Location of new generation capacity is planned by of new generation capacity the Transmission Operator and the Market Regulator. Also, regulated tariffs are still used in Low Voltage. Also, the powers of the regulator are limited with respect to some issues. But despite that movement, there is resistance to performance enhancement and fully eliminating political control. Vertical separation of competitive and regulated monopoly and Pollitt, However, there is only a limited literature on the sectors to facilitate competition and regulation Greek electricity market since liberalization.

Andrianesis et al. Iliadou also operates in the monopolist sectors of the market employing outlines the evolution of the Greek electricity market from the cross-subsidization, thereby creating market asymmetries. The sector start of the reform. It approaches the market transformation from unbundling also aids the regulator's role in a number of ways.

First, a political economy perspective but differs from the present paper incentive regulation can be applied more easily and more straightfor- on two counts. First, it does not cover the most recent time period. Second, the regulator has the option Second, it has a legal focus and so does not investigate the of adopting different strategies for the regulation of each sector. Third, incentives behind market changes.

PPC and controlled the potentially competitive activities of the Finally, there is very little research on electricity supply market electricity generation and supply as well as electricity markets in general: the most notable work comes from distribution. As far as the Greek electricity system, held the daily electricity auctions and was also responsible supply market is concerned, the present paper provides an over- for the operation of the wholesale electricity market.

Benchmarking Greek electricity liberalization 3 Other approaches provide similar prescriptions concerning liberalization Joskow and Noll, ; Joskow, Reform models do differ but their policy, The approach that we take is to benchmark the performance of rather than detailed technical, focus means that their implementation is left for the the liberalized electricity industry in Greece against the standard policymaker to determine.

For any given policymaker, following any of the various model for electricity market reform as presented by Littlechild reform models is likely to lead to a similar outcome. The timeline of the Greek electricity industry: from monopoly to liberalization. The Operator of Electricity supply is concerned.

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These are shown in Table 2. However, this element of the market reform has been Operator of Electricity Market, a. The alleged cross- Elpedison Elpedison Thessaloniki Such phenomena are being eliminated over time, Mytilineos Protergia Retail tariffs are gradually being removed with the aim of reaching a full Mytilineos Alouminion The independent electricity generators elect to build natural However, progress is uncertain.

In this fell to This Designation of an independent system operator to maintain electric plants. This means that the state-owned company has network stability and facilitate competition access to very low cost electricity generation. A liberalized market requires an independent organization to New independent suppliers have been reluctant to enter the ensure that the electricity network is operating properly and that Greek electricity market and serve all of the customer categories.

In the past, the policy of price-discrimination which operates the electricity transmission network. The goal is that such a policy is much harder to retain once there are new to eliminate barriers to entry in the market and foster competition. Creation of voluntary energy and ancillary service markets Electricity Market, b, c. These last two roles are currently undertaken by PPC.

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These require- of the market, leaving all the other market segments to be covered ments are the result of unique characteristics of electricity as a by PPC. But the regulator could attempt a minute-by-minute basis. Real-time balancing of the market and which would lead to almost non-existent market penetration for ancillary services is already in use in the Greek electricity industry. So the issue is not to attempt to Contract markets have not been introduced up to this point, since force electricity suppliers to serve the whole market, but rather to generators and suppliers are not allowed to engage in bilateral create a market setting that is attractive to independent suppliers.

The models for electricity market interconnection of new generation facilities reform outline the steps that a market regulator can take to lead it towards liberalization Littlechild, b; Joskow, ; Joskow The transmission network is a natural monopoly which serves and Noll, Its operation should take into consideration all the market This means that the introduction of market reforms remains a participants and ensure that all of them are given access to the challenging task. Access prices to electricity transmission should practice requires technical, legal, accounting and economic solu- be set in a way that encourages competition and new entry and tions for a wide range of issues.

Access to the transmission network is provided to all generators and suppliers and the introduction of new power plants takes place 3. Creation of independent regulatory agencies with adequate through central planning. Any new power plants entering the information, staff and powers, and duties to implement incentive electricity system need to be approved and licensed by the market regulation and promote competition regulator. Liberalization needs an independent authority that is respon- 3. This means that there are separate Regulatory Authority for Energy RAE that has a number of charges for monopolistic and for competitive activities.

Also, all responsibilities with regards to the energy sectors in Greece. Access to the distribution networks is to interconnections; monitoring energy markets; imposition of provided to all suppliers by the HEDNO. This reg- decreased service quality unless the necessary provisions are in ulatory arrangement renders decisions regarding the energy place to prevent that. For this reason, some transitional arrange- sectors in general and the electricity market in particular, still ments are likely to be required.

PPC, being the previous incumbent electricity supplier, has been given the legal obligation to serve the whole electricity market and acts as 3. Appropriate mechanisms have been used tions uncovered HTSO, Our empirical findings emphasize the need for increased efforts to harmonize national energy policies—especially against the background of renewable energy and climate targets in general—with relevance beyond the European Union.

The paper is structured as follows. Section 2 briefly reviews the benefits and current extent of electricity market integration in the European Union. Section 3 then characterizes the interplay between market integration processes and unilateral policy reforms and covers the German unilateral policy decisions.

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Section 4 presents our empirical analysis, subdivided into the description of the data set, the development of our empirical approach as well as detailed discussion of our estimation results. Section 5 concludes the paper with a summary of the main insights and a discussion of policy conclusions. European energy policy is undergoing a lengthy and ongoing integration process.

Initially, national electricity markets were heavily regulated, state-supported monopolies that first needed to be liberalized and harmonized before a serious integration process could commence see generally Serralles, As Antweiler explains, although electricity is in one sense homogeneous, given differing demand patterns and generation techniques, cross-border trade should be manifest in bi-directional flows which take advantage of arbitrage opportunities.

Following, for example, Domanico or Serralles , this is believed to have four potential impacts. More efficient utilization of existing generation and network capacities should lower electricity prices for customers. Second, a given security of supply level can be guaranteed with reduced spare capacities, essentially because an interconnected internal market makes it easier to balance fluctuations in demand in a particular country. Third, this balancing effect is becoming increasingly important with the increasing desire for environmental protection exhibited through expansion of intermittent wind and solar energy.

The benefits of electricity market integration—alongside assessments of its current degree—have been the focus of several prior studies. In the more specific literature aimed at identifying the degree of market integration, several studies apply pairwise price tests such as price ratios, correlations and co-integration analysis and typically find an increase in integration over time. De Menezes and Houllier analyse whether price volatility and market integration has changed across EU electricity markets after the German nuclear phase-out through correlation and co-integration analyses.

They estimate a reduced form and consider demand dynamics indirectly through calendar dummies. However, they do not identify the actual degree of integration, nor do they make comparison with a full integration counterfactual. In this paper, we apply a novel approach to estimate such counterfactual prices, which enables us to compute a measure for the degree of market integration. These can result in negative impacts, which might raise policy discussions or even storms of protest in the worst case damaging the idea of Europe.

Furthermore, such negative impacts are likely to go beyond short-term price increases to impacts on medium- and long-term investment decisions, even resulting in failures of national energy policies. For example, German government subsidies for renewable energies together with the improved interconnection of the German-Austrian and French markets may have a knock-on effect on, for example, the profitability of a proposed French investment in construction of a thermal power plant.

In this context, we analyse empirically the impacts of two distinct unilateral German policy reforms: the phase-out of nuclear power plants after the Fukushima incident in March and promotion of renewables that started in and was since reformed several times. Clearly, there are differences. First, while the nuclear phase-out was a single, sudden, unilateral decision with no comparators in other European countries, most European countries promote renewables and many have revised their policies over time.

Second, we expect opposing impacts of the two policy reforms. The events of Fukushima in March marked a complete switch in Germany from a policy favourable to nuclear power to a sudden decision to shut-off all the six active nuclear power plants opened before This was an event of some significance: 6. Generation from German nuclear power plants before and after the nuclear phase-out. Note : The dashed vertical reference line indicates the time of permanent closure of the 6. An additional temporary drop in generation capacity from nuclear sources—to a minimum marginally above 5 GW—in May and June was caused by obligatory security checks of the remaining nuclear plants.

Source : Grossi et al. Naturally, the removal of a significant fraction of generation capacity is expected to cause price increases on the spot and future markets. In particular, nuclear capacity provides a base-load power source, consistently generating at low marginal costs to satisfy minimum demand. Removing a significant fraction of this capacity forces a switch to more expensive lignite, hard coal or gas-fired power plants—located nearer to the right-hand side of the supply-cost curve merit order —in order to meet demand e.

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Knopf et al. The existing literature on the price effects of nuclear power plant closures confirms the general argument. Although the EEG was successful in making Germany a world pioneer in renewable energy from wind and especially solar sources 7 Joskow, ; Borenstein, , renewable capacity—as noted by Grossi et al.

We should highlight the difference between the nuclear phase-out and the expansion of generation from renewable sources. Generation from renewables creates permanent supply shocks for conventional power plant owners. The intermittent nature of generation from wind and solar is evident in the figure see also Grossi et al.

Share of intermittent renewable energy in total electricity generation. Note : Legend is ordered from highest to lowest shares of renewable energy generation in total energy generation. Renewables include wind and solar. Switzerland excluded due to negligibly small intermittent renewables. For example, a tariff or subsidy can improve the terms of trade of the large originating country while imposing a negative impact on social welfare on the trading partners see, for example, Krugman et al. Yet, assuming the loss of nuclear capacity raises the relative price of imports from neighbouring countries, a countervailing decrease in its welfare would result.

While different in motivation, the effects on the trading partners can be quite similar i. We study the existence and size of the effects on market prices empirically below. In a highly integrated market, both actions—the sudden nuclear phase-out and the expansion of renewables through support schemes—may be expected to cause substantial knock-on effects, while if the country is not integrated at all with Germany, we would expect zero impact.

By combining this with information on import and export cross-border congestion, the degree of market integration can be measured. More significantly, however, the degree of interdependence raises the question of whether the project of integrating European energy markets is in danger if unilateral decisions of certain Member States have substantial effects on medium- and long-term investment decisions in neighbouring countries as well as on short-term prices.

We provide an empirical assessment of the impacts of the two unilateral energy policy reforms in Germany on wholesale electricity prices in its directly connected neighbours: the Netherlands, France, Poland, the Czech Republic, Switzerland and Denmark West and East.

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  • Spain is used in a placebo test since, being unconnected directly or indirectly with Germany, it would not be expected to be affected by either change. The estimation results are in Section 4. We collected and merged data from several sources over the calendar years to to create the rich, unique data set used for our empirical analysis. All price series are collected on an hourly basis, but transformed into daily averages, in order to maintain analytical tractability. Our independent variables are of two broad types.

    Starting with the individual variables, hourly data on observed load in each country was obtained from European network of transmission system operators for electricity ENTSO-E , while information on hourly forecasted generation from the intermittent renewables wind and solar for each country comes from the commercial data provider Eurowind GmbH. To control for cross-border congestion, we have collected hourly data on the import and export interconnectors available for trade Available Transfer Capacities [ATC].

    We use this to calculate daily import and export congestion indices, defined as the percentage of hours of a day over which the respective interconnectors were congested. Congestion prevents further trans-border trade that would otherwise continue until prices equalize and arbitrage possibilities vanish. As common variables, we include monthly European hard coal and natural gas price indices base year —obtained from the Federal Statistical Office of Germany—and an EU ETS carbon emission price index which was downloaded from Thomson Reuters Datastream.

    Since load is likely endogenous, we instrument for it in our econometric analysis below.

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    Our instruments for load are the current level of area-specific air temperatures in each country and their squares. Data on daily air temperatures in many cities in Germany and its neighbouring countries have been downloaded from Mathematica 9 WeatherData and CityData. This data constitutes the basis for the calculation of population-weighted temperature indices.

    Table 1 Descriptive statistics. For countries outside the European Currency Union, daily exchange rates from Thomson Reuters are used for the transformation. Though Spain has no interconnection with Germany we include it for the application of a placebo test. As electricity is a homogeneous good, not trivial price differences indicate imperfectly integrated markets.

    Table 2 Average price differences between the German-Austrian market and its interconnected neighbours. Information on renewables in the form of electricity production through either wind or solar is limited to countries with an appreciable share of renewables. Germany-Austria has by far the largest amount in both categories 4. Germany has by far the largest import and export capacities available for trade ATC in both categories.

    However, surprisingly because Germany is a net exporter, interconnector capacities for export are roughly half the size of import capacities. This is mainly because interconnector capacity from Switzerland to Germany is around five times higher than in the opposite direction. However, our congestion index variables cannot be interpreted as direct measures for the degrees of integration.

    For example, price differences can occur even if interconnector capacity is not fully utilized depending on the allocation mode of interconnector capacity. Particularly in explicit auctions—as used between Germany and Switzerland, Poland and the Czech Republic—expectation errors of electricity traders can cause such price differences despite some interconnector capacity being available. The same is observed when price correlations are considered.

    For instance, French prices are less correlated with German-Austrian prices than Czech prices, despite the fact that Czech interconnectors with Germany are more frequently congested than French interconnectors with Germany. We further assume interconnector capacities are exogenous in the short run and unaffected by the nuclear outage.

    Interconnector capacity expansion is a long-term matter and variation in the transfer capacity is based on technical calculations according to the ENTSO-E method, reflecting the physical realities of the grid adjusted varying security margin. We also assume national fuel-fired generation capacities are exogenous and unaffected in the short-term and generation from renewables is particularly exogenous due to fixed feed-in tariffs and quota obligations provided through national renewable support schemes.

    Our empirical approach is subdivided into two parts. First, we estimate the impact of unilateral German policy decisions—the nuclear phase-out and the recent expansion of renewables resulting from national support schemes—on prices in its interconnected neighbouring countries and the German-Austrian market itself.