The emergence of markets in the natural gas industry

As countries have deregulated prices and lowered entry barriers in the natural gas industry, many new participants have emerged, promoting competition in the newly created markets. The increased competition has benefited everyone through more efficient pricing and greater choice among natural gas contracts. Four distinctstructural models have emerged in the industry's restructuring. The traditional model (a vertically integrated industry) has been increasingly replaced by models that decentralize the industry along horizontal and vertical lines. With increasing decentralization, regulation of the industry focuses on the pipeline transportation and distribution, the industry segments with natural monopoly characteristics. Regulation aims to protect both end users and participants in the deregulated segments from the market power of companies operating in the monopolistic segments. As a result of deregulation, two major markets emerge: the natural gas market (which facilitates the trading of natural gas as a commodity) and the transportation market (which enables market participants to trade the services needed to ship natural gas through pipelines). Competition and open entry are crucial for these two markets to function efficiently. The transportation market is affected by the market power of pipeline companies, but resale of transportation contracts brings competition to this market and facilitates the efficient allocation of contracts. Intermediaries and spot markets promote efficient pricing and minimize transaction costs. Markets have become more complex with deregulation, and trading mechanisms are needed to ensure the simultaneous clearing of natural gas and transportation markets at minimum cost to the industry. Two main trading models guide transactions: the bilateral trading model (which relies on decentralized bilateral negotiated between market participants) and the poolco model (which relies on a centralized entity to coordinate transactions). Properly applied, both models lead to the same outcome. The bilateral trading model has dominated because of its simplicity of implementation, but the poolco model has great potential once problems of sharing and processing information are addressed.Environmental Economics&Policies,Water and Industry,Economic Theory&Research,Markets and Market Access,Oil&Gas,Water and Industry,Oil Refining&Gas Industry,Markets and Market Access,Access to Markets,Oil&Gas

Regulatory tradeoffs in designing concession contracts for infrastructure networks

Network activities typically involve collecting a good or service (such as electric utilities, phone services, and rail transportation) from many producers or distributing them to many users. Producers and users are often widely scattered, geographically. Close financial integration of networks is justified on the basis of economies of scope and scale and the benefits from pooling and coordinating. In many countries, network operators are completely integrated publicly-owned firms (private firms being deemed insufficiently efficient or equitable). Challengers of this practice contend that the inefficiency resulting from lack of competition outweighs the gain from economic integration. With reform, some competitive mechanisms can be introduced even when monopoly seems the best option for delivering a service. But conflicts between policymakers'objectives -including efficiency, equity, speed, speed of reform, and signaling- influence the design of concession contracts for infrastructure network services (including communications and transportation services). Competition begins with the unbundling of various stages of delivery. Then competitive bidding is popular, with the public authority keeping property rights on productive assets but conceding their operation to a private firm. The winner gets the right to maximize profits, within limits (having to provide universal services, for example, and avoid price discrimination). In liberalizing the delivery of a service, policymakers must consider not only efficiency but also social and fiscal feasibility. The authors discuss how relevant information asymmetry is in contract design and the award and regulatory processes. They also discuss how to design pricing to accommodate the obligation to provide universal service. To illustrate, they describe Argentina's experiment in liberalization, which is increasingly viewed as a model for changing private sector and government involvement in infrastructure services. Beginning in 1989, Argentina began privatizing utilities and transport services, because the government had decided that it could no longer afford to subsidize those services or finance the investments needed for their effective operation. To introduce competition, the government unbundled services and introduced competitive bidding. It also created sector-specific regulatory agencies to protect consumers from private monopolies and to protect the private concessionaires from government micromanagement. Making concession-based reform and contracted-based regulation of private monopolists sustainable will require strengthening regulatory agencies, clarifying their terms of reference and accountability, and better separating the responsibilities of sector ministers and regulators.Health Economics&Finance,Environmental Economics&Policies,Economic Theory&Research,Labor Policies,International Terrorism&Counterterrorism,Environmental Economics&Policies,Health Economics&Finance,Education for the Knowledge Economy,Knowledge Economy,Economic Theory&Research

Offloading in Software Defined Network at Edge with Information Asymmetry: A Contract Theoretical Approach

The proliferation of highly capable mobile devices such as smartphones and tablets has significantly increased the demand for wireless access. Software defined network (SDN) at edge is viewed as one promising technology to simplify the traffic offloading process for current wireless networks. In this paper, we investigate the incentive problem in SDN-at-edge of how to motivate a third party access points (APs) such as WiFi and smallcells to offload traffic for the central base stations (BSs). The APs will only admit the traffic from the BS under the precondition that their own traffic demand is satisfied. Under the information asymmetry that the APs know more about own traffic demands, the BS needs to distribute the payment in accordance with the APs' idle capacity to maintain a compatible incentive. First, we apply a contract-theoretic approach to model and analyze the service trading between the BS and APs. Furthermore, other two incentive mechanisms: optimal discrimination contract and linear pricing contract are introduced to serve as the comparisons of the anti adverse selection contract. Finally, the simulation results show that the contract can effectively incentivize APs' participation and offload the cellular network traffic. Furthermore, the anti adverse selection contract achieves the optimal outcome under the information asymmetry scenario.Comment: 10 pages, 9 figure

Congestion Management in European Power Networks: Criteria to Assess the Available Options

EU Member States are pursuing large scale investment in renewable generation in order to meet a 2020 target to source 20% of total energy sources by renewables. As the location for this new generation differs from the location of existing generation sources, and is often on the extremities of the electricity network, it will create new flow patterns and transmission needs. While congestion exists between European countries, increasing the penetration of variable sources of energy will change the current cross-border congestion profile. It becomes increasingly important for the power market design to foster the full use of existing transmission capacity and allow for robust operation even in the presence of system congestion. After identifying five criteria that an effective congestion management scheme for European countries will need, this paper critically assess to what extent the various approaches satisfy the requirements.Power market design, integrating renewables, congestion management

Bidding for concessions

Privatization of infrastructure ventures in sectors such as energy, telecommunication, transport, and water has become popular over the last decade. Often- for good or bad reasons - private firms are given monopoly franchises under some type of long-term concession agreement, for example"Build-Operate-Transfer"schemes. The article surveys the issues arising in designing specifications as well as incentive and risk-sharing parameters comprehensively and consistently both to achieve efficient performance by the concessionaire and to minimize post-award renegotiations. Concession award should as a rule be made competitively, unless special requirements of speed, innovation, or excessive transaction cost argue otherwise. Typically, competitive concession award is made by first price sealed bids. There are strong arguments, however, to consider open auctions more seriously in a number of cases. Auctions may also be re-awarded by way of auction. However, somewhat arbitrary bid preferences may have to be set. Auctioneers for complex concession contracts should operate at arms-length from all interested parties, including politicians. It may be sensible to let independent agencies that regulate the concession scheme run the auction.Decentralization,Environmental Economics&Policies,Markets and Market Access,International Terrorism&Counterterrorism,Economic Theory&Research,International Terrorism&Counterterrorism,Environmental Economics&Policies,Access to Markets,Markets and Market Access,Economic Theory&Research

Merchant Electricity Transmission Expansion: A European Case Study

We apply a merchant transmission model to the trilateral market coupling (TLC) arrangement among the Netherlands, Belgium and France as a generic example, and note that it can be applied to any general market splitting or coupling of Europe's different national power markets. In this merchant framework; the system operator allocates financial transmission rights (FTRs) to investors in transmission expansion based upon their preferences, and revenue adequacy. The independent system operator (ISO) preserves some proxy FTRs to deal with potential negative externalities due to an expansion project. This scheme proves to be capable in providing incentives for investment in transmission expansion projects within TLC areas.transmission expansion, trilateral market coupling, Europe, financial transmission rights, congestion management

System Design of Internet-of-Things for Residential Smart Grid

Internet-of-Things (IoTs) envisions to integrate, coordinate, communicate, and collaborate real-world objects in order to perform daily tasks in a more intelligent and efficient manner. To comprehend this vision, this paper studies the design of a large scale IoT system for smart grid application, which constitutes a large number of home users and has the requirement of fast response time. In particular, we focus on the messaging protocol of a universal IoT home gateway, where our cloud enabled system consists of a backend server, unified home gateway (UHG) at the end users, and user interface for mobile devices. We discuss the features of such IoT system to support a large scale deployment with a UHG and real-time residential smart grid applications. Based on the requirements, we design an IoT system using the XMPP protocol, and implemented in a testbed for energy management applications. To show the effectiveness of the designed testbed, we present some results using the proposed IoT architecture.Comment: 10 pages, 6 figures, journal pape

Toward a Combined Merchant-Regulatory Mechanism for Electricity Transmission Expansion

Electricity transmission pricing and transmission grid expansion have received increasing regulatory and analytical attention in recent years. Since electricity transmission is a very special service with unusual characteristics, such as loop flows, the approaches have been largely tailor-made and not simply taken from the general economic literature or from the more specific but still general incentive regulation literature. An exception has been Vogelsang (2001), who postulated transmission cost and demand functions with fairly general properties and then adapted known regulatory adjustment processes to the electricity transmission problem. A concern with this approach has been that the properties of transmission cost and demand functions are little known but are suspected to differ from conventional functional forms. The assumed cost and demand properties in Vogelsang (2001) may actually not hold for transmission companies (Transcos). Loop-flows imply that certain investments in transmission upgrades cause negative network effects on other transmission links, so that capacity is multidimensional. Total network capacity might even decrease due to the addition of new capacity in certain transmission links. The transmission capacity cost function can be discontinuous. There are two disparate approaches to transmission investment: one employs the theory based on long-run financial rights (LTFTR) to transmission (merchant approach), while the other is based on the incentive-regulation hypothesis (regulatory approach). An independent system operator (ISO) could handle the actual dispatch and operational pricing. The transmission firm is regulated through benchmark or price regulation to provide long-term investment incentives while avoiding congestion. In this paper we consider the elements that could combine the merchant and regulatory approaches in a setting with price-taking electricity generators and loads.Electricity transmission, Incentive regulation, Financial transmission rights, Loop-flow problem

A Troubled Asset Reverse Auction

The US Treasury has proposed purchasing $700 billion of troubled assets to restore liquidity and solve the current financial crisis, using market mechanisms such as reverse auctions where appropriate. This paper presents a high-level design for a troubled asset reverse auction and discusses the auction design issues. We assume that the key objectives of the auction are to: 1) provide a quick and effective means to purchase troubled assets and increase liquidity; 2) protect the taxpayer by yielding a price for assets related to their value; and 3) offer a transparent rules-based process that minimizes discretion and favoritism. We propose a two-part approach. Part 1. Groups of related securities are purchased in simultaneous descending clock auctions. The auctions operate on a security-by-security basis to avoid adverse selection. To assure that the auction for each security is competitive, the demand for each security is capped at the total quantity offered by all but the largest three sellers. Demand bids from private buyers are also allowed. The simultaneous clock auctions protect the taxpayer by yielding a competitive price for each security and allow bidders to manage liquidity constraints and portfolio risk. The resulting price discovery also improves the liquidity of the securities that are not purchased in the auctions. Part 2. Following Part 1, the remaining quantity is purchased in descending clock auctions in which many securities are pooled together. To minimize adverse selection, reference prices are calculated for each security from a model that includes all of the characteristics of each security including the market information revealed in the security-by-security auctions of Part 1. Bids in the pooled auctions are specified in terms of a percentage of the reference price for each security.Auctions, financial auctions, financial crisis