The drivers for this trend are a powerful combination of economics, customer preference, and an increasingly central role for carbon footprint reduction along the electricity value chain.
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Other significant events in remain partially unresolved, such as whether additional mechanisms at the federal or state level might be established to support generation assets under economic stress—for example, some of the coal-fired and nuclear fleet. And severe weather events continue to drive utilities to improve their response and recovery capabilities and regulators to accommodate mitigation options.
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For example, in response to the California wildfires, regulators have worked with utilities on a new operating and regulatory model that enables utilities to curtail power when winds exceed specified speeds in order to reduce the risk of equipment potentially contributing to wildfires. An audit partner based in San Diego, Fullwidth SCC.
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EU, The European Market and Business Strategy (/)
Jamasb and Pollitt scored ex ante regulation—no ministerial involvement in decision making, network access conditions set by the regulator rather than elsewhere , dispute settlement by the regulator, and strong information acquisition powers—at 5 out 5, for regulatory strength.
The process of regulation focuses on: the degree of transparency that is exhibited by the regulator; the amount of stakeholder engagement; the procedural efficiency in coming to regulatory decisions; and the quality of the underlying techniques that are utilised in carrying out their functions. Regulators are thought to have better processes when they: are more transparent in their decision making; deliver their decisions in a timely way; undertake good levels of stakeholder engagement; and use best-practice techniques of regulation.
The outcomes of regulation are more difficult to measure. This is because regulators do operate under different rules and objectives. Process in a democracy matters for its own sake: Stakeholders do like and need to be consulted. Regulatory decisions can only be evaluated ex post, and it is not clear how to do this, given that there is very unlikely to be an unbiased, statistically identifiable measure of impact. Nillesen and Pollitt discuss a case study of the miscalculation of price controls in the Netherlands and how much this cost Dutch customers.
It is possible to try to benchmark regulator costs across countries, but this would need to be corrected for the number of regulatory functions and economies of scale in regulation see Domah and Pollitt The single electricity market project has undoubtedly spread good practice in the form, process, and outcomes of regulation—especially initially, as noted by Jamasb and Pollitt The directives have promoted independent sector regulation of electricity—notably forcing Germany to have an electricity regulator, when it initially did not.
CEER the industry association of regulators and ACER have been the fora for the spread of good regulatory practice, and many European countries have much better regulators then they would otherwise have had. We examined this question in earlier papers Jamasb and Pollitt ; Pollitt In what follows we review more recent work.
The European Single Market in Electricity: An Economic Assessment
We examine economic impact under a number of headings: prices, costs, return on capital, and fuel-related income distribution; quality of service; impact on the environment via renewables and decarbonisation ; and the impact on innovation. The fourth is about dynamic efficiency.
We conclude this section by revisiting overall assessments. Has the single market reduced average prices relative to business as usual and price dispersion as we would expect from theory—especially in the wholesale power market? Measuring the average price effect is hard because of the confounding impact of fossil fuel price fluctuations, renewables support policy, and network expenditure. This is in line with earlier studies that suggest limited price effects due to the introduction of a wholesale power market and the unbundling of transmission and generation.
There is more recent support for price convergence. The EU does measure the relative standard deviation of retail electricity prices in the EU member states. Industrial prices do show a degree of convergence over the period — see European Commission b , , p. Market coupling does appear to be associated with strong price correlations. Using a different measure fractional cointegration analysis of price convergence, de Menezes and Houllier also find evidence of price convergence between European electricity markets.
We would expect that prices and costs would move in parallel: decreases in prices likely imply decreases in costs. We can observe prices; but costs are more difficult to observe. They can be observed only indirectly: by examining returns on equity as well as prices.
If returns stay constant, costs and prices move together; if returns fall but prices stay the same, then costs must be rising—though the cost of capital may be falling—and vice versa.
We would expect liberalization to reduce overall returns to capital in the electricity sector; but it is possible that the profit-maximizing firms are good at price discriminating across their customer base, or at bargaining with their suppliers. Jamasb and Pollitt produced some early evidence of falling returns in the electricity sector following liberalization, as well as falling costs.
More recent studies that examine returns find mixed evidence of any change in underlying profitability. Mergers in the electricity sector have created more value for European acquirers over the period — Kishimoto et al. This would seem to indicate that the benefits of the single market are being brought about by the takeover of inefficient domestic firms by more efficient firms, and is consistent with the ability of mergers to create larger firms with greater economies of scale and scope.
OECD , chapter 5 shows a declining trend in clean energy returns on equity relative to the cost of equity in Europe over the period —; this might be indicative of tougher conditions for renewables procurement—though this is not necessarily directly related to liberalization. Tulloch et al. They suggest that their results are consistent with evidence that the markets are becoming more competitive, albeit with some offsetting increase in risk.
CEER find continuing wide variation in the target rates of return WACC used in electricity distribution and transmission, indicating a lack of standardization of network investment risks across Europe.
There is little evidence that this has systematically increased since ; but there is no doubt that energy remains a significant expenditure item for many households across the EU. The willingness to pay for continuity of service—avoiding outages—in electricity is very high: typically, of the order of 50— times more than the value of the retailed price of electricity. For instance, the avoidance of an outage of just half an hour in customer minutes could be worth as much as 0.
Regulators are also concerned about transmission system availability as this may be an indication of more serious failings in the transmission grid and the risk of wide-area blackouts. There does seem to be a general decrease in customer minutes that were lost over the period —, based on data that were reported to them. Measuring this is not straightforward, as it depends on how interruptions are monitored and reported—with different national definitions of what constitutes an interruption and different qualities of national reporting systems—and on exogenous drivers of interruption, such as extreme weather events.
Transmission system reliability also seems to have improved for several countries.websrv2-nginx.classic.com.np/map157.php
School of Management
One measure is the average interruption time AIT. However, this measure started from very low levels: Spain improved from 2. One quality issue is whether increased power flows between countries and system operator areas increases the risk of wider area blackouts. This is because one system operator has full visibility on the scheduling of generators and loads only within its control area, while interconnectors in an alternating current AC power system are subject to unscheduled loop flows as power that is transacted between areas A and B, may actually travel via a third area from A to C to B, without area C having sight of the transaction between A and B.
There have been other internationally power outage incidents, such as on the 4th November incident when a power line in Northern Germany had to be switched off to let a ship pass underneath it and caused a blackout in several European countries see UCTE Europe has made significant efforts to improve inter-transmission system operator TSO coordination to reduce these sorts of problems.
These RSCs undertake regional operational security coordination, regional outage coordination, coordinated capacity calculation, and capacity adequacy assessments and provide dynamic asset information. These RSCs are designed to reduce the risks that led to the international incidents in and The European electricity system has experienced a profound transition with respect to its environmental impact.
Between and , the share of electricity generation from renewable sources has doubled from Hydro-electricity has barely changed in absolute quantity over this period. The emissions intensity and energy efficiency of EU electricity has also improved significantly. Jamasb and Pollitt noted impressive improvements in emissions of sulphur and nitrous oxides from the power sector in the period from up to The econometric evidence—presented in Asane-Otoo —suggests that for individual countries CO 2 , NOX, and SO 2 intensity all decline with more liberalization as measured by PMR—Product Market Regulation—indicators for private ownership, vertical integration and market entry , though not always significantly, over the period — Other econometric evidence from Vona and Nicolli suggests that countries with greater amounts of liberalization in their electricity sector have higher penetration of wind and solar power.
Two channels for these effects might be: First, greater reliance on market forces to guide generation investment resulted in faster coal to gas substitution in the EU and across the non-Europe OECD ; and, second, that the initial efficiency gains from liberalization discussed in Pollitt were partly spent on supporting renewables. It is possible that over such a long period — the EU single market in electricity may have produced some positive short-run effects that mask negative long-run effects: Static gains may be offset by dynamic losses.
This is very difficult to measure because the rate of technological progress in electricity is slow and significantly affected by environmental regulation and other types of regulation, such as nuclear safety. Marino et al. They conclude that this is evidence for an inverted-U relationship between the strength of liberalization and patenting.
It is striking how little large-scale evidence has been produced for the overall impacts of the single market in electricity. It is even more striking that the most convincing evidence is simulated.