Toward a combined merchant-regulatory mechanism for electricity transmission expansion

Electricity transmission pricing and transmission grid expansion have received increasing attention in recent years. There are two disparate approaches to transmission investment: one employs the theory based on long-run financial rights (LTFTR) to transmission (merchant approach), while the other is based on the incentive-regulation hypothesis (regulatory approach). In this paper we consider the elements that could combine the merchant and regulatory approaches in a setting with price-taking electricity generators and loads. The monopoly transmission firm (Transco) is regulated through benchmark or price regulation to provide long-term investment incentives. The two-part tariff approach used can be analyzed analytically only for well-behaved cost and demand functions. We explore a series of simplified transmission grids to argue that in a variety of circumstances those functions could have reasonable economic properties. The results suggest directions for further research to explore the properties of the cost functions and implications for design of practical incentive mechanisms and the integration with merchant investment in organized markets with LTFTRs.     

电力市场设计:理论与中国的改革

沿用最新的规制经济学和电力经济学的分析工具和分析框架 ,本文首先对电力市场设计中的核心基础理论———节点价格体系、双边契约机制和电力市场中的风险规避进行了详细的研究和分析。结果表明 ,采取节点边际价格体系以及相应的支撑体系 ,即两部清算机制和传输权市场等可以最优化短期经济调度 ,可以保证和促进行业发电、输电的长期投资 ,保证行业的持续健康发展。随后 ,在分析中国电力行业特殊的制度和经济约束条件的基础上 ,给出了中国电力市场机制改革的若干政策建议。     

Pitfalls in Restructuring the Electricity Industry

Abstract. This paper models some reductions in output that may follow the opening of electricity markets to competition. Specifically, we show that vertical separation of electricity generation, transmission and distribution could reduce welfare compared to the previous system of vertically integrated monopoly, if grid owners can act as monopolistic retailers or, alternatively, set access prices that maximize merchandizing surplus. Moreover, we show that a rule of non‐discriminatory pricing would not remedy any of these problems. Hence, to secure the efficiency gains of deregulation, the re‐regulation of the remaining monopolistic core – the electric grid – cannot rely on simple rules like cost‐based non‐discriminatory pricing.     

Using solar PV feed-in tariff policy history to inform a sustainable flexible pricing regime to enhance the diffusion of energy storage and electric vehicles

The aim of this paper is to analyses residential solar PV feed-in tariffs (FiT) policy history to inform the development of a sustainable flexible pricing regime to enhance the diffusion of energy storage, electric vehicles, solar PV installations and other distributed resources focusing on the case of ‘solar rich’ Australia. Solar PV has reached price parity at the retail level where the electricity price charged includes both transmission and distribution costs, in addition to the wholesale price. So the economic rationale for paying a FiT premium above market rates to achieve dynamic efficiency is no longer warranted. However, there is justification pay a premium to encourage dynamic innovation in energy storage. Socially, FiTs can be a problem because they can transfer wealth from poorer to richer households. Additionally, new investment in distribution and transmission, driven by peak demand spikes from air conditioners can act as a further transfer. Environmentally, FiTs can also fall short of their full potential to cut emissions if they lack ‘time of use’ price signals that reflect movements in the wholesale price. We suggest a sustainable flexible price regime that can be designed to addresses all three areas of concern: social, environmental and economic. The resultant transmission and distribution investment deferment would meet both environmental and economic objectives. We argue that the time has come to design a sustainable flexible price regime for solar PV that focusses upon allocative efficiency as an explicit goal and to introduce support for other distributed resources including energy storage to encourage dynamic efficiency.     

A market mechanism for electric power transmission

As competition is introduced into the electric power industry, access and pricing policy for transmission will play a pivotal role in shaping future market structure and performance. The externalities associated with the loop flow phenomenon in an electric power network constitute a significant barrier to the formation of efficient markets for electricity and transmission services. In this paper, we present a new approach to the design of an efficient market mechanism for transmission access that resolves these externalities. Under a trading rule that combines the Coasian and the Pigouvian principles to resolution of externalities, property rights are defined so that a competitive market could be established for transmission services and electricity to achieve a social optimum within a power pool. We characterize a dynamic trading process which is Lyapunov stable and always converges to a competitive equilibrium. Finally, we discuss some practical applicability and long-term investment issues.The authors are indebted to Charles Clark, Shmuel Oren, Pravin Varaiya, Robert Wilson, Felix Wu, and two referees for helpful comments and suggestions and particularly to William Hogan for many incisive comments and constructive suggestions. An earlier version of this paper was presented at the Annual Meeting of International Association of Energy Economists in Washington D.C., June 20, 1995, and at the Joint LBS/IFORS International Symposium on Energy Models for Policy and Planning in London on July 18–20, 1995. This paper does not represent the views of EPRI or its members. The authors remain solely responsible for the errors in this paper.     

复合嵌套实物期权的定价应用研究

传统的项目投资价值分析方法不能满足对不确定性较高的项目进行定价的要求,而实物期权定价方法由于具有诸如能识别出在不确定环境中投资决策者管理灵活性价值等优点,得到广泛运用。复合嵌套实物期权模型更能贴切地反映在实际项目中具有的多重期权的特性,因而更成为研究热点。基于战略投资的长周期性与分阶段性等特点,将最早用于金融期权定价的Geske模型经过改进后的复合嵌套实物期权模型,更能将战略投资中管理灵活性的价值识别出来,因此更适于对战略投资项目进行定价。本文对基于复合期权的战略投资定价模型的模型设定、假设、参数设定、参数意义进行了细致阐述,以提高其实用性。     

Fuzzy Value-at-risk: Accounting for Market Liquidity

In this paper we present a value-at-risk measure which accounts for market liquidity. We show that taking into account market liquidity implies a decoupling of valuation of long and short positions. We present a pricing model, named fuzzy measure model, that yields different values for positions of different sign and that can be usefully exploited to account for liquidity risk. This methodology is well-suited to price options when the distribution of the underlying asset is not known precisely, as in the case of implied options in corporate claims or real options. As an example, we apply our pricing technique to an option based model of value-at-risk, in line with the Merton and Perold approach, and we recover different value-at-risk figures for long and short positions.
(J.E.L.: C00, D81, G12).     

Using a Real‐Options Approach to Model Technology Adoption Under Carbon Price Uncertainty: An Application to the Australian Electricity Generation Sector*

The present climate for investment in electricity generation assets in Australia is uncertain. We develop a real‐options model to contrast the timing of the uptake of various electricity generation technologies under two carbon tax simulations: when a carbon tax of known size commences at a certain date in the future; and a carbon tax of known size commences at an uncertain date in the future. We find that uptake in the future varies significantly depending upon an investor's view of uncertainty and whether the technology is primarily designed to be viable in a market with or without carbon taxes.     

Intraday hedging with financial options: the case of electricity

As market intermediaries, electricity suppliers purchase electricity from the wholesale market or self-generate to deliver their customers. However, electricity suppliers are uncertain about how much electricity their residential customers will use at any hour of the day until they actually turn switches on. While demand uncertainty is a common feature of all commodity markets, suppliers generally rely on storage to manage it. Singularly, electricity suppliers are exposed to joint volumetric and price risk on an hourly basis given the physical attributes of electricity. In the literature on electricity markets, few articles compare the efficiency of forward contracts, options and physical assets (i.e. power plants) within intraday hourly hedging portfolios, whereas electricity markets are precisely hourly markets. We analyse portfolios made of forwards, options and/or power plants for specific hourly clusters (9 am, 12 pm, 18 pm, 9 pm) based on electricity market data from 2013 to 2015 from the integrated German–Austrian spot market. Through a VaR model, we prove that intraday hedging with forwards is structurally inefficient compared to financial options and physical assets, no matter the cluster hour. Moreover, our results demonstrate the contribution of ‘out of the money’ options for all hours within volatile spot markets.     

Incentive properties of coincident peak pricing

Coincident peak pricing is used in several electricity markets to recover the embedded cost of infrastructure, such as transmission. In this approach, measured consumption at the time of the peak is used to set charges for that pricing period or a subsequent period. If transmission costs are truly sunk, then such a recovery is unlikely to be efficient. However, in the context of growing peak demand, new additions must be built. We consider the incentive properties of coincident peak pricing when related investments are not considered to be sunk, finding that it can reproduce the incentive properties of an ideal time-varying price. We also consider several variations on this assumption.     

Pricing flexibility under rate-of-return regulation: Effects on network infrastructure investment

When a commodity market relies upon a regulated network service industry—e.g., telecommunications, electricity, or natural gas transmission—economic efficiency in that commodity market is a crucial consideration for regulatory design. This is because insufficient infrastructure investment relative to network demand results in congestion. The extraction of associated rents has distortionary effects on commodity spot market prices. Greater regulatory flexibility in network pricing can alleviate such issues by cultivating the incentives needed for stakeholders to invest in transmission capacity. To illustrate this effect I derive and numerically solve stylized optimality conditions for access and usage prices for a gas pipeline operator under alternative regulatory models. My results have general implications for regulation in network infrastructure industries, as energy and telecommunications markets are expected to expand considerably over the coming decades.     

实物期权方法在BOT公路投资项目中的应用

投资项目具有多种期权特性,传统的DCF评价方法无法评估多个不确定性对投资项目的影响。实物期权方法为决策者提供了一个有效管理不确定性因素的工具。国内外学者就BOT公路投资项目中的增长期权、延迟期权、投资扩张、政府保证、特许权期限调整、通行费率调整、投资成本和车流量不确定性等多个问题进行了大量的讨论。本文首先对实物期权理论在BOT公路投资项目方面的应用研究进行文献回顾,然后详细的分析了国内BOT公路投资项目收益的不确定性、项目投资的可延迟性、项目的可扩建性、政府的保证以及项目特有的土地开发及广告收益等多个特点具有的期权价值。并对这些期权的定价模型进行了简要的介绍。文章最后对运用实物期权理论应用过程中的难点进行了分析,并在此基础上总结实物期权理论在BOT公路投资项目中应用的研究方向。     

Investment criteria for production processes of non-storable goods with periodic demand and constant production constraints

Following Pareto's principles a general economic optimum is worked out for the producer of a non-storable good who has to satisfy a periodic demand with a constant production capacity. It is found that the marginal cost pricing rule applies, with some accommodations when the production capability of the plant is inelastic.A general investment criterion is also obtained, and it is shown that this general criterion can take simplified forms when applied to some well-defined classes of actual production functions.These results should find a broad application in peak-load pricing and in investment policies for such industries as electricity production, railways, telephone, etc.,…, i.e., for producers of non-storable commodities subject to seasonal demand variations.     

期权定价理论在风险投资决策中的应用探析

鉴于风险投资决策传统方法的局限性及风险投资的期权特性,根据金融期权的定价方法,引出实物期权的定价公式。通过计算风险投资项目中实物期权的价值,比较分析NPV法与实物期权定价法的差异,可得出在风险投资中引入实物期权的思想,对风险投资者作出正确的投资决策,以及对风险资本的保值增值有重大的指导意义。     

Investor Attention Strategy

This article documents the motivation, the construction, and the profitability of an investment strategy based on investor attention in the options market. Using the option volume after a 1-week dormant period as a proxy for investor attention, the author shows that heightened investor attention after the dormant period has rich investment implications. A portfolio constructed on the basis of volume spike events immediately after the dormant period generates an abnormal return of 68 basis points on a monthly basis (8.16% on an annualized basis). This abnormal return is robust to risk adjustment using standard asset pricing models. The author's findings constitute strong evidence that it is profitable for outside investors to mimic attentive investors in the options market and reap economically and statistically significant profits.     

Ad-Hoc Black–Scholes vis-à-vis TSRV-based Black–Scholes: Evidence from Indian Options Market

This research paper examines one-day-ahead out-of-sample performance of the volatility smirk-based options pricing models, namely, Ad-Hoc-Black–Scholes (AHBS) models on the CNX Nifty index options of India. Further, we compare the performance of these models with that of a TSRV-based Black–Scholes (BS) model. For the purpose, the study uses tick-by-tick data. The results on the AHBS models are highly satisfactory and robust across all the subgroups considered in the study. Notably, a daily constant implied volatility based ad-hoc approach outperforms the TSRV-based BS model substantially. The performance of the ad-hoc approaches improves further when the smile/smirk effect is considered. For the estimation of the implied volatility smile, we apply three weighting schemes based on the Vega and liquidity of the options. All the schemes offer equally competing results. The major contribution of the study to the existing literature on options pricing is in terms of the ex-ante examination of the ad-hoc approaches to price the options by calibrating volatility smile/smirk on a daily basis.

     

The adequacy of volatility for the elaboration of technology valuation based on real options

When evaluating the economic value of a technology or business project, we need to consider the period and cost for commercialisation. Since the discounted cash flow (DCF) method has limitations in that it can not consider consecutive investments or does not reflect the probabilistic property of commercialisation cost, we often take it desirable to apply the concept of real options with key metrics of underlying asset value, commercialisation cost, and volatility, while regarding the value of technology and investment as the opportunity value. We provide more elaborated real options model, which reflects the uncertainty in the option pricing model (OPM).     

Welfare-optimal pricing and capacity selection under an ex ante maximum demand charge

This paper deals with the simultaneous determination of welfare-optimal pricing and investment rules under a multi-period ex ante maximum demand charge by allowing the possibility of purchasing electricity from third party generators at some cost when excess demand occurs. I show that at the optimal size of capacity, expected short-run marginal shortage cost and long-run marginal capacity cost should be equal. The optimal maximum demand tariff does not entail marginal cost pricing. In general, it is shown that maximum demand charges are welfare superior to marginal cost pricing when tariffs must be set ex ante, before demand is known.     

Rethinking real-time electricity pricing

Most US consumers are charged a near-constant retail price for electricity, despite substantial hourly variation in the wholesale market price. This paper evaluates the first program to expose residential consumers to hourly real-time pricing (RTP). I find that enrolled households are statistically significantly price elastic and that consumers responded by conserving energy during peak hours, but remarkably did not increase average consumption during off-peak times. The program increased consumer surplus by $10 per household per year. While this is only one to two percent of electricity costs, it illustrates a potential additional benefit from investment in retail Smart Grid applications, including the advanced electricity meters required to observe a household’s hourly consumption.