... Bastian Henze∗∗∗∗ Tilburg University, CentER & TILEC Charles N. Noussair Tilburg Universi... more ... Bastian Henze∗∗∗∗ Tilburg University, CentER & TILEC Charles N. Noussair Tilburg University & CentER Bert Willems Tilburg University, CentER & TILEC Abstract: We conduct economic laboratory experiments in order to compare the performance of rate of return regulation ...
Allaz and Vila (1993) show that the existence of futures markets increases the efficiency of mark... more Allaz and Vila (1993) show that the existence of futures markets increases the efficiency of markets in a Cournot setting. This paper looks at the efficiency effect of financial options in a similar framework. It shows that the existence of financial options also makes markets more efficient; though to a smaller extent than futures. This is particularly relevant for markets with market power and costly storage, like electricity markets.
Many commodities are traded on both a spot market and a derivative market. We show that an incumb... more Many commodities are traded on both a spot market and a derivative market. We show that an incumbent producer may use financial derivatives to extract rent from a potential entrant. The incumbent can indeed sell insurance to a large buyer to commit himself to compete aggressively in the spot market and drive the price down for the entrant. It can do so by selling derivatives for more than his expected production level, i.e. by taking a speculative position. This comes at the cost of inefficiently deterring entry. JEL codes: D43, D86, K21, L12, L42
Abstract: This paper derives the socially optimal transmission prices in a congested electricity ... more Abstract: This paper derives the socially optimal transmission prices in a congested electricity network when there is imperfect competition in generation, and when the budget constraint of the network operator is binding. The results which we derive are a generalization of the standard Ramsey prices and also of the locational marginal prices (LMP). The model is illustrated with a numerical model based on the Belgian electricity data.
KNAW Narcis. Back to search results. Publication Academic opinion on : A System for Congestion Ma... more KNAW Narcis. Back to search results. Publication Academic opinion on : A System for Congestion Management in the Netherlands (2009). Pagina-navigatie: Main. ...
Page 1. KATHOLIEKE UNIVERSITEIT LEUVEN CENTER FOR ECONOMIC STUDIES Will Market Coupling increase ... more Page 1. KATHOLIEKE UNIVERSITEIT LEUVEN CENTER FOR ECONOMIC STUDIES Will Market Coupling increase the Market Power of a dominant generator? Bert Willems Page 2. Market Coupling ∎ Arbitrage → Allocative efficiency ∎ Electricity produced by plants with lowest costs ∎ Consumed by consumers with highest WTP ∎ Right amount of electricity is produced ∎ Market power ∎ Number of players increases: market power goes down ∎ Security of supply ∎ Economies of scale in providing security ...
Coordinating the timing of new production facilities is one of the challenges of liberalized powe... more Coordinating the timing of new production facilities is one of the challenges of liberalized power sectors. It is complicated by the presence of transmission bottlenecks, oligopolistic competition and the unknown prospects of low-carbon technologies. We build a model encompassing a late and early investment stage, an existing dirty (brown) and a future clean (green) technology and a single transmission bottleneck, and compare dynamic e ciency of several market designs. Allocating network access on a short-term competitive basis distorts investment decisions, as brown rms will preempt green competitors by investing early. Dynamic e ciency is restored with long-term transmission rights that can be traded on a secondary market. We show that dynamic e ciency does not require the existence of physical rights for accessing the transmission line, but nancial rights on receiving the scarcity revenues generated by the transmission line su ce.
We describe how recent EU regulation affects demand response (DR) and highlight some of the remai... more We describe how recent EU regulation affects demand response (DR) and highlight some of the remaining regulatory challenges from a legal and economic viewpoint. With the Clean Energy Package (CEP), the EU has opted for a fully market-based, consumer-centered approach for DR. The development of business models and products is left to a large extent to market forces. However, to enable the efficient development of those DR markets, network regulation has to adapt. (1) Network tariffs have to become more cost-reflective to provide correct incentives to market participants. The capacity tariffs have to increase, net-metering should be abolished, and optional tariff components for providing flexibility may need to be considered. (2) The regulation for distribution system operators (DSOs) may need to be fine-tuned to reflect their new roles. We present three scenarios: (a) a horizontal merger of unbundled DSOs under incentive regulation, (b) a DSO as a subsidiary of an integrated utility ...
... Bastian Henze∗∗∗∗ Tilburg University, CentER & TILEC Charles N. Noussair Tilburg Universi... more ... Bastian Henze∗∗∗∗ Tilburg University, CentER & TILEC Charles N. Noussair Tilburg University & CentER Bert Willems Tilburg University, CentER & TILEC Abstract: We conduct economic laboratory experiments in order to compare the performance of rate of return regulation ...
Allaz and Vila (1993) show that the existence of futures markets increases the efficiency of mark... more Allaz and Vila (1993) show that the existence of futures markets increases the efficiency of markets in a Cournot setting. This paper looks at the efficiency effect of financial options in a similar framework. It shows that the existence of financial options also makes markets more efficient; though to a smaller extent than futures. This is particularly relevant for markets with market power and costly storage, like electricity markets.
Many commodities are traded on both a spot market and a derivative market. We show that an incumb... more Many commodities are traded on both a spot market and a derivative market. We show that an incumbent producer may use financial derivatives to extract rent from a potential entrant. The incumbent can indeed sell insurance to a large buyer to commit himself to compete aggressively in the spot market and drive the price down for the entrant. It can do so by selling derivatives for more than his expected production level, i.e. by taking a speculative position. This comes at the cost of inefficiently deterring entry. JEL codes: D43, D86, K21, L12, L42
Abstract: This paper derives the socially optimal transmission prices in a congested electricity ... more Abstract: This paper derives the socially optimal transmission prices in a congested electricity network when there is imperfect competition in generation, and when the budget constraint of the network operator is binding. The results which we derive are a generalization of the standard Ramsey prices and also of the locational marginal prices (LMP). The model is illustrated with a numerical model based on the Belgian electricity data.
KNAW Narcis. Back to search results. Publication Academic opinion on : A System for Congestion Ma... more KNAW Narcis. Back to search results. Publication Academic opinion on : A System for Congestion Management in the Netherlands (2009). Pagina-navigatie: Main. ...
Page 1. KATHOLIEKE UNIVERSITEIT LEUVEN CENTER FOR ECONOMIC STUDIES Will Market Coupling increase ... more Page 1. KATHOLIEKE UNIVERSITEIT LEUVEN CENTER FOR ECONOMIC STUDIES Will Market Coupling increase the Market Power of a dominant generator? Bert Willems Page 2. Market Coupling ∎ Arbitrage → Allocative efficiency ∎ Electricity produced by plants with lowest costs ∎ Consumed by consumers with highest WTP ∎ Right amount of electricity is produced ∎ Market power ∎ Number of players increases: market power goes down ∎ Security of supply ∎ Economies of scale in providing security ...
Coordinating the timing of new production facilities is one of the challenges of liberalized powe... more Coordinating the timing of new production facilities is one of the challenges of liberalized power sectors. It is complicated by the presence of transmission bottlenecks, oligopolistic competition and the unknown prospects of low-carbon technologies. We build a model encompassing a late and early investment stage, an existing dirty (brown) and a future clean (green) technology and a single transmission bottleneck, and compare dynamic e ciency of several market designs. Allocating network access on a short-term competitive basis distorts investment decisions, as brown rms will preempt green competitors by investing early. Dynamic e ciency is restored with long-term transmission rights that can be traded on a secondary market. We show that dynamic e ciency does not require the existence of physical rights for accessing the transmission line, but nancial rights on receiving the scarcity revenues generated by the transmission line su ce.
We describe how recent EU regulation affects demand response (DR) and highlight some of the remai... more We describe how recent EU regulation affects demand response (DR) and highlight some of the remaining regulatory challenges from a legal and economic viewpoint. With the Clean Energy Package (CEP), the EU has opted for a fully market-based, consumer-centered approach for DR. The development of business models and products is left to a large extent to market forces. However, to enable the efficient development of those DR markets, network regulation has to adapt. (1) Network tariffs have to become more cost-reflective to provide correct incentives to market participants. The capacity tariffs have to increase, net-metering should be abolished, and optional tariff components for providing flexibility may need to be considered. (2) The regulation for distribution system operators (DSOs) may need to be fine-tuned to reflect their new roles. We present three scenarios: (a) a horizontal merger of unbundled DSOs under incentive regulation, (b) a DSO as a subsidiary of an integrated utility ...
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