Optimization with mixed-integer, complementarity and bilevel constraints with applications to energy and food markets

In this dissertation, we discuss three classes of nonconvex optimization problems, namely, mixed-integer programming, nonlinear complementarity problems, and mixed-integer bilevel programming. For mixed-integer programming, we identify a class of cutting planes, namely the class of cutting planes derived from lattice-free cross-polytopes, which are proven to provide good approximations to the problem while being efficient to compute. We show that the closure of these cuts gives an approximation that depends only on the ambient dimension and that the cuts can be computed efficiently by explicitly providing an algorithm to compute the cut coefficients in $O(n2^n)$ time, as opposed to solving a nearest lattice-vector problem, which could be much harder. For complementarity problems, we develop a first-order approximation algorithm to efficiently approximate the covariance of the decision in a stochastic complementarity problem. The method can be used to approximate the covariance for large-scale problems by solving a system of linear equations. We also provide bounds to the error incurred in this technique. We then use the technique to analyze policies related to the North American natural gas market. Further, we use this branch of nonconvex problems in the Ethiopian food market to analyze the regional effects of exogenous shocks on the market. We develop a detailed model of the food production, transportation, trade, storage, and consumption in Ethiopia, and test it against exogenous shocks. These shocks are motivated by the prediction that teff, a food grain whose export is banned now, could become a super grain. We present the regional effects of different government policies in response to this shock. For mixed-integer bilevel programming, we develop algorithms that run in polynomial time, provided a subset of the input parameters are fixed. Besides the $\Sigma^p_2$-hardness of the general version of the problem, we show polynomial solvability and $NP$-completeness of certain restricted versions of this problem. Finally, we completely characterize the feasible regions represented by each of these different types of nonconvex optimization problems. We show that the representability of linear complementarity problems, continuous bilevel programs, and polyhedral reverse-convex programs are the same, and they coincide with that of mixed-integer programs if the feasible region is bounded. We also show that the feasible region of any mixed-integer bilevel program is a union of the feasible regions of finitely many mixed-integer programs up to projections and closures

The Economics of International Coal Markets

In the scope of four related essays this thesis analyses the Chinese domestic coal sector and coal trade policies and their respective impact on international steam coal trade economics. In particular, the thesis investigates the role of domestic transport infrastructure investment policies as well as Chinese coal export and import controls and the potential exertion of market power through such trade instruments. For this purpose, several spatial equilibrium models have been developed that enable simulation runs to compare different policy scenarios. These models also permit ex-post analyses to empirically test hypotheses of non-competitive market conduct of individual players under the assumption of Cournot behaviour. These model-based analyses yield, among others, the following findings: If coal is converted into electricity early in the Chinese energy supply chain, worldwide marginal costs of supply are substantially lower than if coal is transported via railway. This can reduce China's dependence on international imports significantly. Allocation of welfare changes, particularly in favour of Chinese consumers while rents of international producers decrease. If not only seaborne trade but also interactions and feedbacks between domestic coal markets and international trade markets are accounted for, trade volumes and prices of a China - Indonesia duopoly fit the real market outcome best in 2008. Real Chinese export quotas have been consistent with simulated exports under a Cournot-Nash strategy. Uncertainties with regard to future Chinese coal demand and coal sector policies generate significant costs for international investors and lead to a spatial and temporal reallocation of mining and infrastructure investments. The potential exertion of Chinese demand side market power would further reduce the overall investment activity of exporters

Advances in Spatial Theory and Dynamics

This book originates from two meetings, set apart in time but closely connected by continuing collaborative efforts between researchers in an international network. The first of these meetings took place at IIASA in October 1984, organized by IIASA's Regional Issues Project under the title "Dynamic Analysis of Spatial Development". About half of the papers in this volume were presented at that meeting. These contributions have been elaborated and revised considerably during the preparation of this volume, and can now be regarded as mature papers embracing the frontiers of spatial and economic dynamics. Another set of contributions was presented during the European Summer Institute in Regional Science held at the University of Umea in June 1986. The Summer Institute was organized by CERUM in collaboration with the Departments of Economics and Geography at the same university. The contributions have been drawn from the sessions on technological change, nonlinear dynamics in spatial networks and infrastructure development. This is reflected in the three parts of the volume (1) Competition, specialization and technological change, (2) Spatial interaction, (3) Urban and regional infrastructure

Analysis of market incentives on power system planning and operations in liberalised electricity markets

The design of liberalised electricity markets (e.g., the energy, capacity and ancillary service markets) is a topic of much debate, regarding their ability to trigger adequate investment in generation capacities and to incentivize flexible power system operation. Long-term generation investment (LTGI) models have been widely used as a decision-support tool for generation investments and design of energy policy. Of particular interest is quantification of uncertainty in model outputs (e.g., generation projections or system reliability) given a particular market design while accounting for uncertainties in input data as well as the discrepancies between the model and the reality. Unfortunately, the standard Monte Carlo based techniques for uncertainty quantification require a very large number of model runs which may be impractical to achieve for a complex LTGI model. In order to enable efficient and fully systematic analysis, it is therefore necessary to create an emulator of the full model, which may be evaluated quickly for any input and which quantifies uncertainty in the output of the full model at inputs where it has not been run. The case study shows results from the Great Britain power system exemplar which is representative of LTGI models used in real policy processes. In particular, it demonstrates the application of Bayesian emulation to a complex LTGI model that requires a formal calibration, uncertainty analysis, and sensitivity analysis. In power systems with large amounts of variable generation, it is important to provide sufficient incentives for operating reserves as a main source of generation flexibility. In the traditional unit commitment (UC) model, the demand for operating reserves is fixed and inelastic, which does not reflect the marginal value of operating reserves in avoiding the events of load shedding and wind curtailment. Besides, the system-wide reserve constraint assumes that the operating reserve can be delivered to any location freely, which is not true in real-world power system operations. To recognize the value and deliverability of operating reserves, dynamic zonal operating reserve demand curves are introduced to an enhanced deterministic UC model for co-optimizing the day-ahead schedules for energy and operating reserves. In the case study on the RTS-73 test system, comparisons are made between the choices of reserve policies (e.g., single, seasonal or dynamic zones) and of different reserve zonal partitioning methods. Results suggest that the enhanced deterministic UC model produces on average lower operational cost, higher system reliability and higher energy and reserve revenues than the traditional one. Finally, we discuss future directions of methodological research arising from current energy system challenges and the computer models developed for better understanding of the impacts of market incentives on power system planning and operations

Modelling and Analysis of Global Coal Markets

The thesis comprises four interrelated essays featuring modelling and analysis of coal markets. Each of the four essays has a dedicated chapter in this thesis. Chapters 2 to 4 have, from a topical perspective, a backward-looking focus and deal with explaining recent market outcomes in the international coal trade. The findings of those essays may serve as guidance for assessing current coal market outcomes as well as expected market outcomes in the near to medium-term future. Chapter 5 has a forward-looking focus and builds a bridge between explaining recent market outcomes and projecting long-term market equilibria. Chapter 2, Strategic Behaviour in International Metallurgical Coal Markets, deals with market conduct of large exporters in the market of coals used in steel-making in the period 2008 to 2010. In this essay I analyse whether prices and trade-flows in the international market for metallurgical coals were subject to non-competitive conduct in the period 2008 to 2010. To do so, I develop mathematical programming models - a Stackelberg model, two varieties of a Cournot model, and a perfect competition model - for computing spatial equilibria in international resource markets. Results are analysed with various statistical measures to assess the prediction accuracy of the models. The results show that real market equilibria cannot be reproduced with a competitive model. However, real market outcomes can be accurately simulated with the non-competitive models, suggesting that market equilibria in the international metallurgical coal trade were subject to the strategic behaviour of coal exporters. Chapter 3 and chapter 4 deal with market power issues in the steam coal trade in the period 2006 to 2008. Steam coals are typically used to produce steam either for electricity generation or for heating purposes. In Chapter 3 we analyse market behaviour of key exporting countries in the steam coal trade. This chapter features the essay Market Structure Scenarios in International Steam Coal Trade. In this paper, we analyse steam coal market equilibria in the years 2006 and 2008 by testing for two possible market structure scenarios: perfect competition and an oligopoly setup with major exporters competing in quantities. The assumed oligopoly scenario cannot explain market equilibria for any year. While we find that the competitive model simulates market equilibria well in 2006, the competitive model is not able to reproduce real market outcomes in 2008. The analysis shows that not all available supply capacity was utilised in 2008. We conclude that either unknown capacity bottlenecks or more sophisticated non-competitive strategies were the cause for the high prices in 2008. Chapter 4 builds upon the findings of the analysis in chapter 3 and adds a more detailed representation of domestic markets. The corresponding essay is titled Nations as Strategic Players in Global Commodity Markets: Evidence from World Coal Trade. In this chapter we explore the hypothesis that export policies and trade patterns of national players in the steam coal market are consistent with non-competitive market behaviour. We test this hypothesis by developing a static equilibrium model which is able to model coal producing nations as strategic players. We explicitly account for integrated seaborne trade and domestic markets. The global steam coal market is simulated under several imperfect market structure setups. We find that trade and prices of a China - Indonesia duopoly fits the real market outcome best and that real Chinese export quotas in 2008 were consistent with simulated exports under a Cournot-Nash strategy. Chapter 5 looks at the long-term effect of Chinese energy system planning decisions. The time horizon is 2006 to 2030. The analysis in this chapter combines a dynamic equilibrium model with the scenario analysis technique. The corresponding essay is titled Coal Lumps vs. Electrons: How Do Chinese Bulk Energy Transport Decisions Affect the Global Steam Coal Market? The essay demonstrates the ways in which different Chinese bulk energy transport strategies affect the future steam coal market in China and in the rest of the world. Increasing Chinese energy demand will require additional energy to be transported from the supply to the demand regions. If domestic transport costs escalate, Chinese coal consumers could increasingly import coal. We analyse two settings: one in which coal is increasingly transported by rail and one in which coal energy is transported as electricity. A key finding is that if coal were converted into electricity early in the supply chain, worldwide marginal costs off coal supply would be lower than if coal were hauled by train. Furthermore, China's dependence on imports is significantly reduced in this context. Allocation of welfare changes particularly in favour of Chinese consumers while rents of international producers decrease

Combining Actual and Contingent Behavior to Estimate the Value of Sports Fishing in the Lagoon of Venice

This paper reports the results of a Travel Cost Method (TCM) study about the recreational use of the Lagoon of Venice for sports fishing. In April-July 2002, we conducted a mail survey of anglers with valid licenses fishing on the Lagoon of Venice to gather data on their fishing trips, behaviors and expenditures over the previous year. We also asked questions about trips that would be undertaken under hypothetical changes in the price of a trip and/or in the catch rate. Actual and hypothetical trips are combined to estimate single-site TCM demand function for trips. We propose several models to test whether it is acceptable to pool hypothetical and actual trip data, focusing on the respondent heterogeneity in the contingent behavior questions. Our models suggest actual and contingent behavior are driven by the same demand function, and can be pooled for estimation purposes. We use this estimated demand function, and its shift when the catch rate is improved, to compute angler surplus at the current catch rate and the change in surplus accruing from a 50% improvement in the catch rate. For the average angler in our sample, the former is about €1,700 a year, while the latter is about €2,800.Sports fishing value, Travel cost method, Environmental improvement

Three Essays on Energy Economics

This dissertation focuses on the economics of electricity generation. I aim to answer three main questions: After controlling for outside market forces, how did acid rain regulation impact Eastern coal production? How have the fundamental relationships in the natural gas market changed since deregulation, especially given the rise of production from shale resources? And how have sub-state policies affected the adoption of residential solar generation installations? For each question, I use economic tools to provide empirical answers which will contribute both to the academic literature as well as energy policy.;My first essay looks at the coal production in the Eastern US from 1983-2012. It is widely understood that the quantity of coal produced in this region declined during this time period, though its causes are debated. While some have identified the cause to be outside economic forces, the prevailing view is that federal regulation was the main driver. By controlling for outside market forces, this paper is able to estimate the effect that the differing regulatory periods have had on coal production. Results demonstrate how in general the regulatory phases of the Acid Rain Program are associated with decreases in production in the Illinois and Appalachian basins, however with varying magnitudes. Further, there are some areas that saw some increases. The essay also measure the mitigating impact that the installation of \u27scrubber\u27 units had on production. Overall, this essay provides a more nuanced look at the relationship between coal production and regulation during this time period.;The second essay in this dissertation models the natural gas market. Since the complete deregulation of the market in 1993, there have been significant changes. Most notably, the rapid rise of production from shale resources has greatly increased the supply and decreased the price of the commodity. Where for many years a net importer, the US is now predicted to be a net exporter of natural gas within the next year. This massive change has altered the fundamental relationships in the market. This essay utilizes recently developed methodology to estimate how these relationships have changed over time. Further, given our research design we are able to estimate how the supply and demand elasticities have been influenced in the new era of abundant and cheap natural gas. Results provide a more nuanced view of the natural gas market, and allow for a better understanding of its drivers.;My third essay measures the impact that certain policies have had in the residential solar market. Specifically, I estimate the impact on residential solar adoption associated with sub-state policies, enacted at the municipal, county, or utility level. To capture the clustering and peer effects in the adoption of residential solar that have been described in the literature, I utilize spatial econometric methods. To better model the nested nature of state and county renewable policies, a Bayesian hierarchical model is used. Results suggest that sub-state policies are associated with positive and significant increases in per-capita residential solar installations and capacity additions

Utilizing Natural and Man-made Resources for Economic Development: What Are the Mechanisms and Why?

This dissertation studies the roles of natural resources in determining economic outcomes such as innovation, investment, profitability and economic growth. The first chapter studies the ease of substitution between energy and other production inputs over time and across countries. Improvements in energy efficiency over the past decades have substantially decreased the amount of energy used per unit of capital. Yet, previous literature often assumes a constant elasticity of substitution between capital and energy. In this chapter, we develop a Solow growth model with a variable elasticity of substitution (VES) between production inputs and show that the long-run growth rate directly depends on the behavior of this VES over time. Next, using country-level data from 108 countries between 1971 and 2011, we provide the first empirical evidence for a capital-energy VES. Specifically, the elasticity of substitution between capital and energy positively relates to a country\u27s level of economic development and environmental protection efforts. Our results imply that growth-enhancing policies can ease the substitution between capital and energy, which in turn can foster long-run economic growth. In the second chapter, I study the risk and return behavior of green bonds, a new financial instrument that supports green projects around the world. Since its inception in 2007, the green bond market has experienced a compound growth rate of 50% annually. In 2014, green bond issuance totaled USD 36.6 billion, more than threefold its previous year\u27s level of USD 11 billion. This paper is the first to analyze the volatility behavior of the green bond market using data on daily closing prices of the S&P green bond indices between April 2010 and April 2015. Building on a multivariate GARCH framework, I find that compared to the ``labeled\u27\u27 segment of the green bond market, the ``unlabeled\u27\u27 segment experiences smaller volatility clustering. I also found a time-varying spillover effect between the green bond market and the overall conventional bond market. These results are meaningful insights into this new, yet very promising market, therefore, have important implications for asset pricing, portfolio management and risk management. The third chapter evaluates the role of a fossil fuel tax and research subsidy in directing innovation from fossil fuel toward renewable energy technologies in the electricity sector. Using a global firm-level electricity patent database from 1978 to 2011, we find that the impact of fossil fuel taxes on renewable energy innovation varies with the type of fossil fuel. Specifically, a tax on coal reduces innovation in both fossil fuel and renewable energy technologies while a tax on natural gas has no statistically significant impact on renewable energy innovation. The reason is that easily dispatchable energy sources (e.g., coal-fired power) need to complement renewable energy technologies (e.g., wind or solar) in the grid because renewables generate electricity intermittently. Our results suggest that a tax on natural gas, combined with research subsidies for renewable energy, may effectively shift innovation in the electricity sector towards renewable energy. In contrast, coal taxation or a carbon tax that increases coal prices has unintended negative consequences for renewable energy innovation. Finally, the last chapter of my dissertation takes a closer look at the efficiency of firms in developing countries. The private sector is the primary source of employment and local development in developing countries. Previous research in developing countries has documented a number of factors contributing to firm-level efficiency. However, which of these factors are the most important drivers of efficiency? This paper ranks the relative importance of the firm-level efficiency determinants in a transitional economy, using a comprehensive firm-level panel data set in Vietnam between 2005 and 2013. The empirical results show that firm-specific production and labor characteristics are the most significant determinants of efficiency. In contrast, legal factors such as formalization and government financial support play a modest role, due to the crowding-out effect of corruption. Thus, firms actively seeking to improve their own production process and labor force can be well-rewarded. Moreover, government technical supports and human resource training programs, combined with anti-corruption efforts, are beneficial for firm-level efficiency, thereby improving the living standards in developing economies

The Impact of the North Atlantic Oscillation on Electricity Markets: A Case Study on Ireland. ESRI WP509. July 2015

The North Atlantic Oscillation (NAO) is a large-scale circulation pattern driving climate variability in north-western Europe. As the deployment of wind-powered generation expands on electricity networks across Europe the impacts of the NAO on the electricity system will be amplified. This study assesses the impact of NAO, via wind-power generation, on the electricity market considering thermal generation costs, wholesale electricity prices and wind generation subsidies. A Monte Carlo approach is used to model NAO phases and generate hourly wind speed time-series data, electricity demand and fuel input data. A least-cost unit commitment and economic dispatch model is used to simulate an island electricity system, modelled on the all-island Irish electricity system. The impact of NAO obviously depends on the level of wind capacity within an electricity system. Our results indicate that NAO phases can affect thermal generation costs by up to 8%, wholesale electricity prices by as much as €1.5/MWh, and that wind power generators receive on average 12% higher remuneration