Posted Content•
Why Higher Price Sensitivity of Consumers May Increase Average Prices: An Analysis of the European Electricity Market
01 Nov 2010-Research Papers in Economics (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))-
TL;DR: In this article, the authors developed a model of the European electricity market that allows analyzing the impact of consumers' price sensitivity, defined as the willingness to change energy providers, on equilibrium prices.
Abstract: We develop a model of the European electricity market that allows analyzing the impact of consumers' price sensitivity, defined as the willingness to change energy providers, on equilibrium prices. The model is parameterized with publicly available data on total demand, marginal costs and capacity constraints of power generators. Comparably precise data on the price sensitivity is not available, so that we analyze its impact in a range of simulations. Contrary to apparently straightforward expectations, we find that a higher price sensitivity increases average prices under reasonable assumptions. The reason is that, when price sensitivity is high, the most efficient energy providers can attract sufficiently many consumers for operating at full capacity, even when price differences to their less efficient competitors are small. Hence, incentives to reduce prices are higher when the price sensitivity is low. We conclude that the widespread view that high electricity prices can (partially) be attributed to a low willingness of consumers to change their providers is flawed.
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TL;DR: In this paper, the authors analyzed the potential demand for privately used alternative fuel vehicles (AFVs), based on a nationwide survey in Germany among (potential) car buyers, and found that the most promising target group for the adoption of all kinds of AFVs is that of younger, well-educated, and environmentally aware car buyers.
Abstract: In this paper we analyze the potential demand for privately used alternative fuel vehicles (AFVs), based on a nationwide survey in Germany among (potential) car buyers. For this purpose, we applied a stated preference discrete choice experiment, using a wide range of vehicle alternatives (gasoline/diesel, natural gas, hybrid, plug-in hybrid, electric, biofuel, hydrogen) and vehicle attributes. By applying both a multinomial logit model and a mixed (error components) logit model, we estimate the attributes’ influence on vehicle choice and calculate consumers’ willingness-to-pay for the improvement of these attributes. Furthermore, in a scenario analysis, we simulate the impact of monetary and non-monetary policy measures on vehicle choice probabilities. We find that the most promising target group for the adoption of all kinds of AFVs is that of younger, well-educated, and environmentally aware car buyers, who, in the case of electric vehicles, also have the possibility to plug-in their car at home, and who have a high share of city trips and thus need a small car. Moreover, we find that, depending on the vehicle alternative, environmental awareness, and budget constraints for the next vehicle purchase, households are willing to pay substantial amounts for the improvement of fuel cost, driving range, charging infrastructure, CO2 emissions, vehicle tax exemptions, and free parking or bus lane access. Furthermore, the scenario results suggest that conventional vehicles will maintain their dominance in the market, whereas electric and hydrogen vehicles will remain unpopular. The market share of the latter is only expected to rise markedly if massive and multiple policy interventions are implemented. Finally, we find evidence that an increase in the fully electric vehicle’s driving range to a level comparable with all other vehicle alternatives has the same impact on its choice probability as would a market-based, multiple measures policy intervention package.
437 citations
TL;DR: In this article, a technoeconomic evaluation methodology for energy retrofit of buildings is introduced, geared towards finding the economically optimal set of retrofit measures and split incentives of building owners and users are considered explicitly in a conventional evaluation to identify the investment alternatives maximizing the net present value (NPV).
Abstract: In this study, a techno-economic evaluation methodology for energy retrofit of buildings is introduced, geared towards finding the economically optimal set of retrofit measures. Split incentives of building owners and users are considered explicitly in a conventional (static) evaluation to identify the investment alternatives maximizing the net present value (NPV). Energy price uncertainty for various distributional assumptions of the stochastic variables is addressed through Monte Carlo simulation. Results from the simulation are used to compute probabilities and expected NPVs. Based on this, a sequential (dynamic) evaluation methodology is developed, featuring a real options investment appraisal. The methodological advancements introduced are applied to an office building, illustrating the model’s performance. The case study results indicate that energy price changes significantly affect the profitability of retrofit investments, and that increased price volatility creates a substantial value of waiting, making it more rational to postpone the investment. Further insight is gained on various aspects of economic decision-making concerning energy retrofit of buildings.
252 citations
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TL;DR: In this article, the influence of preferences about RHS-specific attributes on the homeowners' adoption decision is analyzed and con-trol for influence of socio-demographic, home and spatial characteristics.
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222 citations
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References
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Book•
14 May 2002
TL;DR: In this paper, the authors present a detailed analysis of the real-time power market in theory and in practice, including the day-ahead market and the congestion pricing methods, as well as the two-settlement system.
Abstract: List of Results and Fallacies. Preface. Acronyms and Abbreviations. Symbols. Part 1: Power Market Fundamentals. Prologue. Why Deregulate? What to Deregulate. Pricing Power, Energy, and Capacity. Power Supply and Demand. What Is Competition? Marginal Cost in a Power Market. Market Structure. Market Architecture. Designing and Testing Market Rules. Part 2: Reliability, Price Spikes and Investment. Reliability and Investment Policy. Price Spikes Recover Fixed Costs. Reliability and Generation. Limiting the Price Spikes. Value-of-Lost-Load Pricing. Operating-Reserve Pricing. Market Dynamics and the Profit Function. Requirements for Installed Capacity. Inter-System Competition for Reliability. Unsolved Problems. Part 3: Market Architecture. Introduction. The Two-Settlement System. Day-Ahead Market Designs. Ancillary Services. The Day-Ahead Market in Theory. The Real-Time Market in Theory. The Day-Ahead Market in Practice. The Real-Time Market in Practice. The New Unit-Commitment Problem. The Market for Operating Reserves. Part 4: Market Power. Defining Market Power. Exercising Market Power. Modeling Market Power. Designing to Reduce Market Power. Predicting Market Power. Monitoring Market Power. Part 5: Locational Pricing. Power Transmission and Losses. Physical Transmission Limits. Congestion Pricing Fundamentals. Congestion Pricing Methods. Congestion Pricing Fallacies. Refunds and Taxes. Pricing Losses on Lines. Pricing Losses at Nodes. Transmission Rights. Glossary. References. Index.
1,447 citations
TL;DR: In this paper, the authors analyzed the potential demand for privately used alternative fuel vehicles (AFVs), based on a nationwide survey in Germany among (potential) car buyers, and found that the most promising target group for the adoption of all kinds of AFVs is that of younger, well-educated, and environmentally aware car buyers.
Abstract: In this paper we analyze the potential demand for privately used alternative fuel vehicles (AFVs), based on a nationwide survey in Germany among (potential) car buyers. For this purpose, we applied a stated preference discrete choice experiment, using a wide range of vehicle alternatives (gasoline/diesel, natural gas, hybrid, plug-in hybrid, electric, biofuel, hydrogen) and vehicle attributes. By applying both a multinomial logit model and a mixed (error components) logit model, we estimate the attributes’ influence on vehicle choice and calculate consumers’ willingness-to-pay for the improvement of these attributes. Furthermore, in a scenario analysis, we simulate the impact of monetary and non-monetary policy measures on vehicle choice probabilities. We find that the most promising target group for the adoption of all kinds of AFVs is that of younger, well-educated, and environmentally aware car buyers, who, in the case of electric vehicles, also have the possibility to plug-in their car at home, and who have a high share of city trips and thus need a small car. Moreover, we find that, depending on the vehicle alternative, environmental awareness, and budget constraints for the next vehicle purchase, households are willing to pay substantial amounts for the improvement of fuel cost, driving range, charging infrastructure, CO2 emissions, vehicle tax exemptions, and free parking or bus lane access. Furthermore, the scenario results suggest that conventional vehicles will maintain their dominance in the market, whereas electric and hydrogen vehicles will remain unpopular. The market share of the latter is only expected to rise markedly if massive and multiple policy interventions are implemented. Finally, we find evidence that an increase in the fully electric vehicle’s driving range to a level comparable with all other vehicle alternatives has the same impact on its choice probability as would a market-based, multiple measures policy intervention package.
437 citations
TL;DR: In this article, the real-time price elasticity of electricity has been quantified and shown to be fairly low for consumers currently active in the spot market, which would imply a limited scope for government intervention in supply security issues.
434 citations
"Why Higher Price Sensitivity of Con..." refers background in this paper
...Lijesen (2007) nds a low value for the real-time price elasticity of total peak demand relative to spot market prices, even when correcting for the possible bias that arises from the fact that not all electricity consumers observe the spot market price; see also Nakajima and Hamori (2010)....
[...]
TL;DR: In this paper, the authors use game theory to simulate the decision-making process for defining offered prices in a deregulated environment, which may be used by power pool coordinators to discourage unfair coalitions.
Abstract: The electric power industry is in transition to a deregulated marketplace for power transactions. In this environment, all power transactions are made based on price rather than cost. A regional power pool is noted as the most straightforward path to a deregulated electricity marketplace. However, many questions remain unanswered regarding the economics of power pool participation. In a deregulated energy marketplace, participants are interested in maximizing their own profits, regardless of the system-wide profits. It is perceived that competition will reduce the price of electricity for retail customers, however, the key issue for participants is related with the price definition to remain competitive. In this paper, the authors use game theory to simulate the decision making process for defining offered prices in a deregulated environment. The outcome of this study may be used by power pool coordinators to discourage unfair coalitions. A modified IEEE 30 bus power system is used as a deregulated power pool to illustrate the main features of the proposed method.
331 citations
"Why Higher Price Sensitivity of Con..." refers methods in this paper
...In particular, Ferrero et al. (1997) analyze a model with three power generators and a nite number of pricing strategies. Cruz Jr. and Tan (2004) restrict attention to two competitors and linear demand functions, and the paper by Boom (2003), which focuses on investment decisions of power generators, is also restricted to monopoly and duopoly situations. Li et al. (2002) focus on price strategies, but the impact of price sensitivity cannot be analyzed in their model....
[...]
...In particular, Ferrero et al. (1997) analyze a model with three power generators and a nite number of pricing strategies. Cruz Jr. and Tan (2004) restrict attention to two competitors and linear demand functions, and the paper by Boom (2003), which focuses on investment decisions of power generators, is also restricted to monopoly and duopoly situations....
[...]
...In particular, Ferrero et al. (1997) analyze a model with three power generators and a nite number of pricing strategies....
[...]
TL;DR: In this article, a technoeconomic evaluation methodology for energy retrofit of buildings is introduced, geared towards finding the economically optimal set of retrofit measures and split incentives of building owners and users are considered explicitly in a conventional evaluation to identify the investment alternatives maximizing the net present value (NPV).
Abstract: In this study, a techno-economic evaluation methodology for energy retrofit of buildings is introduced, geared towards finding the economically optimal set of retrofit measures. Split incentives of building owners and users are considered explicitly in a conventional (static) evaluation to identify the investment alternatives maximizing the net present value (NPV). Energy price uncertainty for various distributional assumptions of the stochastic variables is addressed through Monte Carlo simulation. Results from the simulation are used to compute probabilities and expected NPVs. Based on this, a sequential (dynamic) evaluation methodology is developed, featuring a real options investment appraisal. The methodological advancements introduced are applied to an office building, illustrating the model’s performance. The case study results indicate that energy price changes significantly affect the profitability of retrofit investments, and that increased price volatility creates a substantial value of waiting, making it more rational to postpone the investment. Further insight is gained on various aspects of economic decision-making concerning energy retrofit of buildings.
252 citations