The Political Economy of Solar Energy

At the present time, solar power is not a competitive fuel for supplying electricity to the grid in the United States. However, an economic model developed by the U.S. National Renewable Energy Laboratory (NREL) forecasts that solar power production costs could drop twenty percent every time output doubles. Commercial demand for solar cells in the United States has been increasing at a rate of twenty-five percent a year. Such cost projections, if accurate, imply that solar power could be a competitive source of power to the U.S. grid by 2010. Eventually, technical progress and falling production costs will render solar power an important source of energy in the future. As technology improves, it may be possible to supply a substantial part of the nation with solar power from sites in the Southwest of the United States and Mexico. Scientists believe that the cost of solar power will drop to the neighborhood of two cents a kilowatt-hour or perhaps even one cent per kilowatt-hour. If there is enough foresight to develop the technology, then solar-derived hydrogen could become a competitive feedstock in petrochemicals. However, if there is no leadership from government, this process of change could take fifty years. With proper leadership, it could be realized in less than ten to fifteen years.Solar energy, photovoltaics, learning by doing, political economy.

Lumpy Investment in Regulated Natural Gas Pipelines: An Application of the Theory of the Second Best

We address investment in regulated natural gas pipelines when investment is lumpy and the demand for gas is stochastic. This is a problem that can be solved in theory as a dynamic program, but a practical solution depends on functions and parameters that are either subjective or cannot be estimated. We then reformulate the problem from the standpoint of consumers that face incomplete markets. It is shown that for reasonable parameter values consumers prefer to pay for excess capacity rather than bear the risk of congestion. These strategies can be implemented with reasonably straightforward policies. Since the demand for gas is very inelastic, the welfare losses associated from small deviations from a first best optimum are minimal. This implies that the gas pipeline system can be regulated with a relatively simple set of transparent rules without any significant loss of welfare.Transmission investment, Natural-gas regulation, Congestion management, Gas pipelines, Second-best theory

Strategic Behavior and International Benchmarking for Monopoly Price Regulation: The Case of Mexico

This paper looks into various models that address strategic behavior in the supply of gas by the Mexican monopoly Pemex. The paper has three very strong technical results. First, the netback pricing rule for the price of domestic natural gas (based on a Houston benchmark price) leads to discontinuities in Pemex's revenue function. Second, having Pemex pay for the gas it uses and the gas it flares increases the value of the Lagrange multiplier associated with the gas processing constraint. Third, if the gas processing constraint is binding, having Pemex pay for the gas it uses and flares does not change the short run optimal solution for the optimization problem, so it will have no impact on short-run behavior. These results imply three clear policy recommendations. The first is that the arbitrage point be fixed by the amount of gas Pemex has the potential to supply in the absence of processing and gathering constraints. The second is that Pemex be charged for the gas it uses in production and the gas it flares. The third is that investment in gas processing and pipeline should be in a separate account from other Pemex investment.Natural gas, strategic pricing, benchmark regulation, gas pipelines, Mexico

Information and Multi-Period Optimal Income Taxation with Government Commitment

The optimal income taxation problem has been extensively studied in one- period models. When consumers work for many periods, this paper analyzes what information, if any, that the government learns about abilities in one period can be used in later periods to attain more redistribution than in a one- period world. liken the government must commit itself to future tax schedules, the gains cane from relaxing self-selection constraints by intertemporal nonstationarity. The effect of nonstationarity is analogous to that of randomization in one-period models. In a model with two ability classes it is shown that the key use of information is that only a single lifetime self-selection constraint for each type of consumer must be imposed. Sane necessary and sufficient conditions for randomization or nonstationarity are given. The planner can make additional use of the information when individual and social rates of time discounting differ. In this case, the limiting tax schedule is a nondistorting one if the government has a lower discount rate than individuals.

Timing of Investment in LPG Pipelines in Mexico

This paper addresses the timing of optimal investment in LPG pipelines when the goal is to maximize consumer surplus less private cost and social of transporting LPG. The loss of consumer surplus is small. The important elements are the private cost of transporting LPG and the congestion created by trucks

The Political Economy of Solar Energy

At the present time, solar power is not a competitive fuel for supplying electricity to the grid in the United States. However, an economic model developed by the U.S. National Renewable Energy Laboratory (NREL) forecasts that solar power production costs could drop twenty percent every time output doubles. Commercial demand for solar cells in the United States has been increasing at a rate of twenty-five percent a year. Such cost projections, if accurate, imply that solar power could be a competitive source of power to the U.S. grid by 2010. Eventually, technical progress and falling production costs will render solar power an important source of energy in the future. As technology improves, it may be possible to supply a substantial part of the nation with solar power from sites in the Southwest of the United States and Mexico. Scientists believe that the cost of solar power will drop to the neighborhood of two cents a kilowatt-hour or perhaps even one cent per kilowatt-hour. If there is enough foresight to develop the technology, then solar-derived hydrogen could become a competitive feedstock in petrochemicals. However, if there is no leadership from government, this process of change could take fifty years. With proper leadership, it could be realized in less than ten to fifteen years

IMPLICATIONS OF THE ELASTICITY OF NATURAL GAS IN MEXICO ON INVESTMENT IN GAS PIPELINES AND IN SETTING THE ARBITRAGE POINT

We address the optimal timing of investment in gas pipelines when the demand for gas is stochastic. We will show that this is a problem that can be solved in theory, but the practical solution depends on functions and parameters that are either subjective or cannot be estimated. We will then reformulate the problem in a manner that can Pareto rank investment strategies. These strategies can be implemented with reasonably straightforward policies. The demand for gas is very inelastic and thus the welfare losses associated from small deviations from a first best optimum are minimal. This implies that the gas pipeline system can be regulated with a relatively simple set of rules without any significant loss of welfare. Regulation of the gas pipeline system can be transparent and a result may be a good candidate for some institutional arrangement in which there is substantial private investment in gas pipelines

The Political Economy of Solar Energy

At the present time, solar power is not a competitive fuel for supplying electricity to the grid in the United States. However, an economic model developed by the U.S. National Renewable Energy Laboratory (NREL) forecasts that solar power production costs could drop twenty percent every time output doubles. Commercial demand for solar cells in the United States has been increasing at a rate of twenty-five percent a year. Such cost projections, if accurate, imply that solar power could be a competitive source of power to the U.S. grid by 2010. Eventually, technical progress and falling production costs will render solar power an important source of energy in the future. As technology improves, it may be possible to supply a substantial part of the nation with solar power from sites in the Southwest of the United States and Mexico. Scientists believe that the cost of solar power will drop to the neighborhood of two cents a kilowatt-hour or perhaps even one cent per kilowatt-hour. If there is enough foresight to develop the technology, then solar-derived hydrogen could become a competitive feedstock in petrochemicals. However, if there is no leadership from government, this process of change could take fifty years. With proper leadership, it could be realized in less than ten to fifteen years

Timing of Investment in LPG Pipelines in Mexico

This paper addresses the timing of optimal investment in LPG pipelines when the goal is to maximize consumer surplus less private cost and social of transporting LPG. The loss of consumer surplus is small. The important elements are the private cost of transporting LPG and the congestion created by trucks