What drives investment in telecommunications? The role of regulation, firms’ internationalization and market knowledge

The aim of this paper is to classify the firms operating in the European telecommunications market according to their degree of internationalization and market knowledge, and to test the effects of this classification and the existence of access regulation on infrastructure investment in European broadband markets. To do so, we construct a (unique) data set for the 27 European countries for the period 2002 to 2009. We estimate, by means of panel data techniques (and instrumental variables to control for any potential endogeneity problem), an investment equation for all firms and separate equations for entrant and incumbent firms. Our results show no significant relation between regulation and total investment. The variables capturing the degree of internationalization and market knowledge have a positive and significant effect on total investment, being a positive and significant effect on entrants’ investment, but no significant impact on that of incumbent firms. This result indicates that, under the current regulatory framework, the firms that invest most are entrants with international experience, while the expansion of incumbents into other countries does not affect their investments in their home countries

Costs of power supply flexibility: the indirect impact of a Spanish policy change

The increase in the share of supply from intermittent power sources changes the demand for power from traditional power plants. The power system demands more volume flexibility from traditional plants. Our goal is to better understand the impact of a reduction of flexibility in power supply on the costs of volume adjustments. We define flexibility as the capacity with which nominated power plants can adjust their output to unexpected changed in residual demand. We exploit a policy change in Spain that affected the power market. The policy, implemented in 2010, aims to provide a stimulus for producing power with domèstic coal. The policy, in combination with a year with scant rainfall in the year after the policy was implemented, decreased the amount of flexibility in power supply and we use this to examine the effect of a change in flexibility on the costs of the power System. ..

The stabilizing effect of hydro reservoir levels on intraday power prices under wind forecast errors

The power system has to deal with three main sources of uncertainty: demand uncertainty and load prediction errors, failure of power plants and uncertainty of wind. The growing share of wind and other intermittent generation sources in the European supply increases the uncertainty about power production in day-ahead and longer-term predictions. As EU member states increase the deployment of wind power and other intermittent renewable energy sources, the intraday and balancing market will gain more interest, as additional demand for reserve and response operations is needed. Hence, it becomes relevant to analyse the effect of wind power forecasting errors on intraday power prices. A higher forecast error will increase the need of intraday markets to balance out the oversupply or deficit of wind power on an hourly basis. This oversupply or deficit can be corrected though flexible hydropower plants; however the power price is highly influenced by the fluctuations in the reservoir level (Huisman et. al [2013]). ..

From forward to spot prices: Producers, retailers and loss averse consumers in electricity markets

The benefits of smoothing demand peaks in the electricity market has been widely recognised. European countries such as Spain and some of the Scandinavian countries have recently given to the consumers the possibility to face the spot prices instead of having a fixed tariffs determined by retailers. This paper develops a theoretical model to study the relations between risk averse consumers, retailers and producers, both in the spot and in the forward markets when consumers are able to choose between fixed tariffs and the wholesale prices. The model is calibrated on a real market case - Spain - where since 2014 spot tariffs were introduced beside the flat tariffs for household consumers. Finally, simulations of agents behavior and markets performance, depending on consumers risk aversion and the number of producers, are used to analyse the implications from the model. Our results show that the quantities the retailers and the producers trade in the forward market are positively related with the loss aversion of consumers. The quantities bought by the retailers in the forward market are negatively related with the skewness of the spot prices. On the contrary, quantity sold forward by producers are positively related with the skewness of the spot prices (high probability of getting high prices increase the forward sale) and with the total market demand. In the spot market, the degree of loss aversion of consumers determine the quantity the retailers buy in the spot market but does not have a direct effect on the spot price

Analysing the sensitivity of electricity system operational costs to deviations in supply and demand

Increasing renewable penetration has given rise to a series of challenges as regards the ability of electricity systems to balance supply and demand, particularly with high levels of intermittent renewable generation. This new scenario requires a detailed quantitative assessment of the way in which the electricity system might both deliver and accommodate higher levels of RES-E generation and of the associated economic costs for the consumer. The estimations reported in this paper for the Spanish electricity system stress the importance of demand imbalance when accounting for the cost of balancing services, in contrast with previous studies that have focused their attention more specifically on supply effects

Impacts of intermittent renewable generation on electricity system costs [WP-IEB]

A successful deployment of power generation coming from variable renewable sources (VRES-E), such as wind and solar photovoltaic, strongly depends on the economic cost of system integration. This paper, in seeking to look beyond the impact of RES-E generation on the evolution of the total economic costs associated with the operation of the electricity system, aims to estimate the sensitivity of balancing market requirements and costs to the variable and non-fully predictable nature of intermittent renewable generation. The estimations reported in this paper for the Spanish electricity system stress the importance of both attributes as well as power system flexibility when accounting for the cost of balancing services

How do US state firearms laws affect firearms manufacturing location? An empirical investigation, 1986-2010

We exploit variations in US state firearms laws to study their relation to the spatial distribution of more than 2700 federally licensed manufacturers of firearms for the civilian and law enforcement markets across the country. Accounting for a variety of economic factors¿such as cost, tax burden and agglomeration effects¿we find that states with relatively permissive, end-user friendly laws host more firearms manufacturing establishments than do states with relatively restrictive, end-user unfriendly laws. This supply side-oriented paper complements a literature that predominantly attends to the market's demand side. It thus opens up a new avenue to study the US civilian firearms market

Regulatory environment and firm performance in EU telecommunications services

We empirically estimate the effects of regulated access prices and firms’multinational status on firm performance by using firm, corporate group, and country level information for the European broadband market between 2002 and 2010. Three measures of firm performance are used, namely: market share, turnover and productivity. Special attention is paid to differences in the impact on the performance measures depending on a firm’s position as either a market incumbent or entrant. We find that while access prices have a negative effect on entrants’ market share and turnover, the effect on incumbents’market share, turnover and productivity is positive. Further, we find that multinational entrants perform better than national entrants in terms of their market share but worse in terms of their turnover and productivity. The opposite is true of incumbent multinationals which perform better than nationals in terms of their turnover and productivity but worse in terms of their market share. This confirms that a firm’s multinational status has a significant impact on its performance, and that this impact differs for incumbents and entrants. Finally, when evaluating the impact of access prices on firm performance at the mean performance of national and multinational firms, we find that the impact of access prices is lower for multinational than for national firms

Analysing the potential economic value of energy storage

This paper examines the commercial opportunities for electrical energy storage, taking market prices as given and determining the extent to which a strategy of arbitrage across the day, buying at the lowest price times at night and selling at the highest price times during the early evening, and relying on price forecasts one day-ahead generates profits in the British context. The paper sets out the potential problems as the market moves to absorb increasing amounts of wind, then characterises the nature of prices, which reveals the importance of a strategy in which power is absorbed into store for a relatively few hours of the day and discharged over a relatively few hours. It argues that additional incentives may need to be put into place in order to render storage over relatively longer periods more attractive and to deliver broader social benefits which are unlikely to be generated and captured as a result of purely commercial considerations

Retail price effects of feed-in tariff regulation

The feed-in tariff regulation is the widest spread instrument used to promote electricity generation from renewable energy sources in the EU, with the costs of resources devoted to this promotion usually being borne by final consumers. Two components of the electricity retail price are expected to be influenced by the feed-in tariff regulation: the incentive to those firmsproducing electricity fromrenewable energy sources and thewholesale price of electricity. In this studywe analyze the effects that the feed-in tariff regulation has on the electricity retail price for industrial consumers. Weestimate the relative intensity of the impact of the cost of support electricity generation under the feed-in tariff and the electricity wholesale price on the Spanish industrial retail price. Special attention is devoted to technology-specific considerations, as well as short and long run effects. The results show that there is not a strong link between the retail and wholesale market for Spanish industrial consumers. Moreover, the results indicate that an increase of solar generation leads to a higher increase in the industrial retail price than in the case of a proportional increase of wind generation. This suggests that, when evaluating the feed-in tariff regulation impact on the retail price, the cost of incentives effect prevails over the wholesale price effect, and this is stronger for solar than for wind generation