The impact of the European Union Emission Trading Scheme on electricity generation sectors

In order to comply with their commitments under the Kyoto Protocol, France and Germany participate to the European Union Emission Trading Scheme (EU ETS) which concerns predominantly electricity generation sectors. In this paper we seek to know if the EU ETS gives appropriate economic incentives for an e¢ cient and strong system in line with Kyoto commitments. Because if so electricity producers in these countries should include the price of carbon in their costs functions. After identifying the di¤erent sub periods of the EU ETS during its pilot phase (2005-2007), we model the prices of various electricity contracts and look at their volatilities around their fundamentals while evaluating the correlation between the electricity prices in the two countries. We finnd that electricity producers in both countries were constrained to include the carbon price in their cost functions during the …rst two years of operation of the EU ETS. During this period, German electricity producers were more constrained than their French counterparts and the inclusion of the carbon price in the cost function of electricity generation has been so much more stable in Germany than in France. Furthermore, the European market for emission allowances has increased the market power of the historical French electricity producer and has greatly contributed to the partial alignment of the wholesale price of electricity in France with those of Germany. .Carbon Emission Trading, Multivariate GARCH models, Structural break, Non Parametric Approach, Energy prices.

Modelling electricity prices with forward looking capacity constraints.

We present a spot price model for wholesale electricity prices which incorporates forward looking information that is available to all market players. We focus on information that measures the extent to which the capacity of the England and Wales generation park will be constrained over the next 52 weeks. We propose a measure of ‘tight market conditions’, based on capacity constraints, which identifies the weeks of the year when price spikes are more likely to occur. We show that the incorporation of this type of forward looking information, not uncommon in the electricity markets, improves the modeling of spikes (timing and magnitude) and the different speeds of mean reversionCapacity constraints; Mean reversion; Electricity indicated demand; Electricity indicated generation; Regime switching model;

A Strategic Model of European Gas Supply (GASMOD)

Structural changes in the European natural gas market such as liberalization, increasing demand, and growing import dependency have triggered new attempts to model this market accurately. This paper presents a model of the European natural gas supply, GASMOD, which is structured as a two-stagegame of successive natural gas exports to Europe (upstream market) and wholesale trade within Europe (downstream market), and which explicitly includes infrastructure capacities. We compare three possible market scenarios: Cournot competition on both markets, perfect competition on both markets, and perfect competition on the downstream with Cournot competition on the upstream market. We find that Cournot competition on both markets is the most realistic representation of today's European natural gas market, where suppliers at both stages generate a mark-up at the expense of the final customer (double marginalization). Our results yield a diversified supply portfolio with newly emerging (LNG) exporters gaining market shares. Enforcing perfect competition on the European downstream market would result in positive welfare effects. The limited infrastructure strongly influences the results, and we identify bottlenecks mainly for intra-European trade relations whereas transport capacity on the upstream market is sufficient (with the exception of Norwegian exports) in the Cournot scenario.Natural gas, Strategic behavior, Non-linear optimization, Europe

Multifractal analysis of Power Markets. Some empirical evidence

This work is intended to offer a comparative analysis of the statistical properties of hourly prices in the day–ahead electricity markets of several countries. Starting from the intermittent nature of typical price fluctuations in many power markets, we will provide evidence that working into a stochastic multifractal analysis framework can be of help to asses typical features of day–ahead market prices.Multifractals, Hurst Coefficient, Power Markets

Volatility-price relationships in power exchanges: A demand-supply analysis

The evidence of volatility-price dependence observed in previous works (Karakatsani and Bunn 2004; Bottazzi, Sapio and Secchi 2005; Simonsen 2005) suggests that there is more to volatility than simply spikes. Volatility is found to be positively correlated with the lagged price level in settings where market power is likely to be particularly strong (UK on-peak sessions, the CalPX). Negative correlation is instead observed in markets considered to be fairly competitive, such as the NordPool. Prompted by these observations, this paper aims to understand whether volatility-price patterns can be mapped into different degrees of market competition, as the evidence seems to suggest. Price fluctuations are modelled as outcomes of dynamics in both sides of the market - demand and supply, which in turn respond to shocks to the underlying preference and technology fundamentals. Negative volatility-price dependence arises if the market dynamics is accounted for by common shocks which affect valuations uniformly. Positive dependence is related to the impact of asymmetric shocks. The paper shows that under certain conditions, these volatility-price patterns can be used to identify the exercise of market power. Identification is however ruled out if all shocks affect valuations uniformly.Electricity, Market, Volatility, Supply Curve, Demand Curve, Fundamentals, Shocks

Agglomerative Magnets and Informal Regulatory Networks: Electricity Market Design Convergence in the USA and Continental Europe

The absence of one broadly accepted design template for liberalised electricity markets induces regulatory competition and institutional diversity. Focussing on continental Europe and the USA, this analysis explores how agents and structures accelerate or impede the move to one standard market design in the electricity sector. It reveals that market design convergence in Europe is driven by the 'Florence Consensus,' a tripartite coalition between the European Commission fostering European integration and the internal market, informal regulatory networks between grid operators, standardisation authorities and regulators, who have been coordinating their actions in the 'Florence Forum,' and epistemic communities exemplified in the Florence School of Regulation. In contrast, the United States' Federal Energy Regulatory Commission lacks support among politicians, many states' public utility commissions, the neo-liberal intelligentsia and even industrial lobbying groups to effectively push for a standardised market design. However, design convergence in the USA may be induced by the gradual expansion of multi-state markets operated by regional transmission organisations.Electricity, Deregulation, Regulatory Competition, Policy Diffusion

Deregulated Wholesale Electricity Prices in Europe

This paper analyses the interdependencies existing in the European electricity prices. The results of a multivariate dynamic analysis of weekly median prices reveal the presence of strong integration (but not perfect integration) among the markets considered in the sample and the existence of a common trend among electricity prices and oil prices. This implies that there are no long-run arbitrage opportunities. The latter result appears to be relevant also in the context of the discussion of efficient hedging instruments to be used by medium-long term investors.European electricity prices, Cointegration, Interdependencies, Equilibrium Correction model, Oil prices