Browsing by Author "Hartley, Peter"

Now showing 1 - 6 of 6
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    Competition in Australia's Natural Gas Markets
    (2022-04-21) Neill, Kelly; Hartley, Peter; Perrigne, Isabelle; Medlock, Kenneth B
    Eastern Australia's domestic market for natural gas (hereafter ‘gas’) is deregulated. Daily uniform-price auctions are used to facilitate wholesale trade in gas at four major hubs. Similar to electricity auctions, bids take the form of supply schedules that specify the quantity of gas that firms are willing to inject at each price. The use of auctions for wholesale gas trade appears to be unique to Australia, and to my knowledge, this research is the first to study these markets outside of industry and government. The eastern Australian gas market is dominated by three large firms, which raises concerns about market power. The firms supply gas to the hubs, shipping it from production locations using the pipeline network. They also demand gas in the hubs because they have retail customers there. In this sense, the large firms are vertically integrated, and participate as both sellers and buyers in the gas auctions. Purchasing gas on behalf of retail customers reduces the firms’ incentive to use their market power to raise the price. However, gas use by each firm's retail customers is unobserved, because data is not available, so we cannot know then extent to which firms have incentive to mark-up the price. Therefore, I exploit variations between gas hubs to estimate gas use by firms' retail customers, without relying on estimating marginal costs. I find that the three large firms have only small net sales (or purchases) in the spot gas market, and conclude that markups (or markdowns) are small. Therefore, the daily auction price is likely to be indicative of marginal cost. Since both the gas and electricity markets are deregulated and organized as uniform-price auctions in eastern Australia, this is a unique opportunity to study the links between gas and electricity markets. The three large gas firms generate a significant volume of electricity, using all fuel types. I consider whether this market structure is detrimental for trade and competition. I also make a methodological contribution by undertaking the first estimation of a supply function equilibrium with asymmetric information. Two potential issues arise. First, when gas firms generate electricity from non-gas fuels, such as coal and renewables, they may have an incentive to raise the gas costs for rival gas-fired generators, because this would be passed through to higher electricity prices. I estimate that this incentive has raised the price of gas on average, but by a modest 0.8 percent. Second, when gas firms generate electricity using gas as a fuel, they can use the realized gas price to improve their forecast of their own future electricity generation levels. The resulting adverse selection problem leads to steeper gas-market supply schedules, and I estimate that this has reduced gains from trade by 10 percent on average. For the Australian market, adverse selection is more important, and increasing the frequency with which the gas market is cleared could improve market outcomes.
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    Efficiency in a New World - Electricity Markets with Renewables and Storage
    (2022-04-18) Idel, Robert; Hartley, Peter
    This dissertation addresses seven questions and challenges around electricity markets supplied by wind, solar, and storage. First, we examine the characteristics of the physical electricity system required if the power supply comes from wind, solar, and storage. As wind and solar are now responsible for balancing the electricity system, we can evaluate the cost of generating electricity by augmenting previous cost measures. Next, we zoom out and ask: What constitutes a good design for any electricity wholesale market? Compiling a comprehensive list of 9 goals that address efficiency, we observe that hourly spot price auctions can easily fulfill them if all generating facilities only face variable costs and no fixed costs. But as renewables do not meet this cost structure, we then examine which market designs and pricing mechanisms can support a wind, solar, and storage market in Germany and Texas. While showing that spot price auctions perform very poorly on the nine goals, some of their challenges might be resolved by a significant drop in storage costs and the accompanying change in market dynamics. Before simulating these markets, however, we thoroughly examine the bidding behavior of market participants in renewables plus storage markets. Recognizing complicated bidding considerations of storage owners in such a market leads to introducing a recursive bidding algorithm and two closed-form bidding solutions. Last, we specifically address welfare optimal supply reliability, one of the nine goals of a power market design. Reliability in electricity markets can be evaluated using the (marginal) Value of Lost Load, which we estimate using a household survey on the experience during the Texas Snow Storm 2021 and the accompanying power outages. Related to reliability is energy security during the energy transition, where we present a model arguing that energy security can, in fact, increase energy security.
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    Essays on Natural Gas and Electricity Markets
    (2023-12-01) Min, Luke; Hartley, Peter; Medlock, Ken
    This dissertation explores the dynamic and complex nature of energy markets, focusing on the impact of deregulation and market transitions in various geopolitical contexts. The first chapter examines the impact of partial deregulation on South Korea's electricity and natural gas markets, with a specific focus on the wholesale electricity market. In the early 2000s, reforms transitioned the vertically integrated market, previously dominated by KEPCO, into a competitive landscape. Concurrently, the natural gas market was liberalized, breaking KOGAS' monopoly and permitting private firms to import LNG. Utilizing a structural model, this study estimates hidden market variables, including the fuel costs for independent firms, and conducts counterfactual simulations based on extensive data from the power generation and gas markets. The findings indicate that partial deregulation resulted in a slight increase in wholesale electricity prices, contradicting the expected decrease commonly associated with market liberalization. This deregulation significantly enhanced the market share and profits of independent gas power plants, often at the expense of KEPCO and other entities. While there was a marginal overall increase in total market surplus, mainly benefiting independent firms, this was countered by a reduction in consumer surplus and an uneven distribution of benefits. These outcomes underscore the complexities of partial deregulation, suggesting that while it can promote competition and diversify LNG sources, its advantages and impacts are unevenly distributed across different market players. The study emphasizes the importance of nuanced policy approaches in the deregulation of energy markets, especially in scenarios where changes are partial or constrained. The second chapter of this dissertation focuses on the repercussions of Russia's invasion of Ukraine on February 24, 2022, particularly its impact on the security of natural gas supply in Europe. The unfolding events of 2022 have put the continent on alert, preparing for a winter that could pose significant challenges in terms of high prices and uncertainty. Despite a less severe winter than anticipated, the situation remains complex and unresolved. The drastic reduction in Russian gas imports casts a shadow of uncertainty over the future supply of natural gas in Europe. Germany, as the European Union’s largest economy, serves as a pivotal example in understanding the broader dynamics of the European natural gas market and the looming challenges. The reliance of manufacturing on natural gas underscores the potential far-reaching impacts on the availability of gas and the overall economic performance of the EU. To analyze the potential scenarios for the natural gas market balances in Germany in the upcoming winter season and beyond, we developed three demand-oriented scenarios: 1) a cold winter in 2022-23, 2) a mild winter in 2022-23, and 3) an extreme case scenario. This chapter presents the critical findings and implications derived from these scenarios, offering insight into the evolving landscape of energy security and economic stability in Europe. The third chapter of this dissertation delves into the burgeoning influence of renewable energy generation in Texas and its significant impact on the electricity market. This segment of the study investigates the effects of increased renewable energy penetration on the pricing strategies of firms in the wholesale electricity market. Leveraging data from the day-ahead market within Texas' wholesale electricity framework, the research examines the shift in market power across varying hours of the day. It is discovered that during peak hours, market power diminishes considerably in the wake of the planned expansion of solar generation. This finding highlights the transformative role of renewable energy sources in reshaping traditional market dynamics and influencing competitive behavior in the energy sector.
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    Essays on Renewable Energy and Electricity Markets
    (2023-11-27) Westphal, Igor; Hartley, Peter
    This PhD thesis comprises three essays about renewable energy and energy markets. In the first chapter, I study the case of less developed countries that have large solar energy resources but struggle with low solar capacity deployment. The study subject is a region in Brazil that has a developed South, in contrast to an underdeveloped North. I develop a directed subsidy scheme that attempts to increase residential solar deployment in the North by leveraging superior solar irradiation. Results show that improvements are possible, but they are limited. In the second chapter, I analyze the effects of the renewable energy portfolio diversification that took place in Texas over the past ten years. Results indicate that the subsidy scheme adopted by the US federal government contributed to making aggregated renewable generation more volatile. Additionally, renewable portfolio diversification can increase CO2 emissions by facilitating the dispatch of coal power plants. In the third chapter, I propose a method to improve the load forecasting performed by neural networks. The method is inspired by bootstrapping and involves retraining copies of these neural networks and combining their forecasts.
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    Have a cake and eat it too? Using auction design to balance multiple goals in the energy sector
    (2022-04-21) Hernandez, Igor; Hartley, Peter
    This dissertation provides empirical results related to scoring auctions used in the oil and gas sector, and how policymakers design auctions and contracts to balance multiple objectives. Scoring auctions summarize multiple bidding variables into a single index, and the bidder with the highest score wins the auction. I focus initially on the problem of multiple objectives for auctioneers when designing these auctions and some results from the literature. Next, I will discuss the case of onshore marginal leases in Mexico, in which I explore how changes in the scoring rule affect the selection of bidders and the execution of projects. Third, I explore the case of Brazil, in which I compare two commonly used contracts for the oil sector, how they affect bidders’ valuation of a project, their bidding strategies and investment behavior and ultimately government revenues. Finally, I draw lessons to policymakers from these cases.
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    Three Essays on Rationing, Matching and Scheduling
    (2014-11-24) Esmerok, Ibrahim Baris; Boylan, Richard; Hartley, Peter; Pazgal, Amit
    This dissertation consists of three chapters. In the first chapter, we are considering the problem of rationing a disposable indivisible good under satiated preferences. A standard of gains rationing (s.g.r.) method allocates successive units of good by following a linear ordering of individuals and non-zero demand pairs. The dual of a s.g.r. method is a standard of losses rationing (s.l.r.) method, it follows the same linear ordering to successively allocate units of deficit. In our main result, Theorem 1, we provide three characterizations of s.l.r. methods. The first characterization is by resource monotonicity (RM), strategy-proofness (SP), non-bossiness (NB), and a property we introduce in this chapter, independence of fully satisfied demand (IFSD). IFSD is weaker than both the well known consistency (CSY) axiom and a generalized version of RM that we introduce in this chapter, strong resource monotonicity (SRM). We offer the other two characterizations by replacing RM and IFSD in the first characterization with SRM, and by replacing IFSD and NB in the first characterization with CSY. We obtain an analogue of Theorem 1 for s.g.r. methods by using the duals of the axioms in Theorem 1. By combining SP and its dual with IFSD and its dual or with SRM or with the dual of SRM we provide three characterizations of fixed order priority rationing methods in Theorem 2. The second chapter is on roommate problems. We characterize Pareto efficient and group strategy-proof rules for roommate problems with an even number of individuals where individuals find all their potential partners acceptable. We define a priority rule (sequential dictatorship) as a recursive algorithm that matches individuals in successive rounds. Specifically in every round an individual with priority is matched to his top ranked partner among available individuals and the order of individuals with priority is a function of the prior matches. We then show that the class of Pareto efficient and group strategy-proof rules is equivalent to the family of priority rules. In our final chapter we consider a scheduling problem with deadlines. A group of individuals share a deterministic server which is capable of serving one job per unit of time. Every individual has a job and a cut off time slot (deadline) where service beyond this slot is as worthless as not getting any service at all. Individuals are indifferent between slots which are not beyond their deadlines (compatible slots). A schedule (possibly random) assigns the set of slots to individuals by respecting their deadlines. We only consider the class of problems where for every set of relevant slots (compatible with at least one individual) there are at least as many individuals who have a compatible slot in that set: we ignore the case of underdemand. For this class, we characterize the random scheduling rule which attaches uniform probability to every efficient deterministic schedule (uniform rule) by Pareto efficiency, equal treatment of equals, and probabilistic consistency (Chambers (2004)). We also provide an alternative description for the uniform rule by a ball drawing algorithm.