Marginal Cost Of Supply Research Articles

Battery Storage for Resilient Homes

Small-scale battery energy storage systems (BESS), especially for behind-the-meter applications, are still relatively expensive, but we show that it can be a potent solution to render homes resilient to storm related power outages. We present a stochastic programming model formulation to optimize PV/BESS explicitly accounting for resilience benefits these investments entail, over and above their ability to reduce cost of supply. The stochastic optimization considers uncertainties around storm related grid supply failures as well as variability of solar PV. The model includes an embedded Monte Carlo simulation module that considers storm related outage risks using climate model reanalysis data. It is a least-cost planning framework that optimizes selection of BESS, solar PV, grid supply, and diesel generator, from a home-owner’s perspective. We present two case studies with low and high storm risks that demonstrate how different risk exposures can impact on the selection of alternative options to build resilience. Duals, or shadow prices, of demand-supply constraints from the model for both normal days and for storm related contingencies, provide interesting insights into the marginal cost of supply that can inform innovative pricing schemes to promote customer level resilience measures. The case study results reveal significant merits of BESS, in combination with PV, to enhance resilience. We find that in low-risk areas like Bethesda, MD, incremental PV and BESS required for a more resilient system can add $79 (4%) to annual electricity costs for a typical household, and a considerably higher $208 (10.6%) in Miami, FL which is at a much greater risk. These options are, however, 27% (in Bethesda) and 20% (in Florida) less expensive than the conventional solution of installing a diesel generator. These results provide insights into the value of BESS as part of a resilient and clean energy solution for households.

The economic impact of price controls on China's natural gas supply chain

Despite significant progress made by China in liberalizing its natural gas market, certain key areas such as market access and pricing mechanisms remain controlled by the government. To assess how such distortions impact the market, we have developed a Mixed Complementarity Problem model of China's natural gas industry, with a novel representation of price caps associated with supply obligations. The model is used to assess how government pricing policies and restricted third party access to midstream infrastructure impacted the supply logistics of China's profit maximizing natural gas firms in the year 2015. We find that lifting the price caps for regulated natural gas demand sectors could yield a 4.7% (1.4 billion USD) reduction in total system cost and reduce the national average of marginal supply costs by 14%. Improving third party access to the pipeline and regasification infrastructure would result in an additive total cost saving of 7.6% (2.2 billion USD) and a 16% reduction in average prices, due to replacing domestic and imported LNG with pipeline imports. The LNG industry would be negatively affected by the reforms investigated in this study, as market players would gain more flexibility in their logistics and would utilize lower cost supply pathways.

LNG import quotas in Lithuania – Economic effects of breaking Gazprom's natural gas monopoly

Until 2014, Russia's Gazprom had a natural gas monopoly in Lithuania. In order to break the Russian monopoly, the Lithuanian state financed an import terminal for liquefied natural gas (LNG) in Klaipėda. In addition to building the terminal, Lithuania signed a long-term contract (LTC) which can be interpreted as a minimum import volume quota for LNG having higher marginal supply costs than Russian gas. This study assesses the potential of such a minimum import volume quota to mitigate the market power of a monopolistic supplier. A market consisting of a dominant supplier with low marginal supply costs and a competitive fringe with high marginal supply costs is analyzed. It is shown that there is a minimum import volume quota for fringe supplies that optimizes the consumer surplus, which is adjusted by a compensation paid for the fringe's market entry. Therefore, the Lithuanian decision to incentivize the market entry of high-cost LNG can be rationalized.

Regression analysis of historic oil prices: A basis for future mean reversion price scenarios

We propose price forecasting algorithms based on regression analysis of historic oil prices over 150years (1861–2012). From 1986 onward daily market prices allow more detailed analyses of the principal crude oil benchmarks (West Texas Intermediate [WTI] and Brent). The mean reversion price for a given time period corresponds to the marginal cost of supply. When supply and demand are out of equilibrium, spot prices move in a bandwidth bound at the bottom by cash cost of supply and at the top by the concurrent price of demand destruction. Short-term elasticity of demand is 0.015 (highly inelastic), and long-term elasticity of supply changed from 0.99 (highly elastic) during 1965–1983 to 0.39 (less elastic) during 1984–2012. We derive functions for the long-term equilibrium price and expand them into scalable equilibrium price functions for forecasting future price scenarios if “business-as-usual” is assumed. We also consider how two hypothetical black swan events (“unknown unknowns”) may affect the mean equilibrium price.

Estimating Mill Residue Surplus in Canada: A Spatial Forest Fiber Cascade Modeling Approach

Abstract The potential development of a Canadian forest-based bioeconomy requires an assessment of both fiber availability and associated marginal supply costs. To a large extent, the bioeconomy is expected to rely on wood fiber made available through primary products, sawnwood, and pulp production processing streams. Therefore, it is important to understand the regional wood fiber flows and mill residue availability through various processing streams. In this study, we developed a spatially explicit Forest Fiber Cascade Model (FCM) to estimate regional fiber flows and availability of untapped residue surplus. The FCM was calibrated to 2013 production levels, and we evaluated the wood fiber cascade through existing forest industry in Canada. The results show that, under current conditions, there is limited availability of surplus mill residues in Canada, especially in the Eastern provinces. It is therefore critical to consider the impacts on regional fiber flows and feedstock availability to the secondary industries when designing feedstock supply strategies and policies for the emerging forest-based industries.

Self-financed efficiency incentives: case study of Mexico

Numerous countries use public funds to subsidize residential electricity for a variety of socioeconomic objectives. These subsidies lower the value of energy efficiency to the consumer while raising it for the government. Further, while it would be especially helpful to have stringent Minimum Energy Performance Standards (MEPS) for end uses in this environment, they are hard to strengthen without imposing a cost on ratepayers. In this second-best world, where the presence of subsidies limits the government’s ability to strengthen standards, we find that efficiency-induced savings in subsidy payments can be a significant source of financing for energy efficiency incentive programs. Here, we introduce the Lawrence Berkeley National Laboratory (LBNL) Energy Efficiency Revenue Analysis (LEERA) model to estimate the greatest appliance efficiency improvements that can be achieved in Mexico by the revenue neutral financing of incentive programs from savings in subsidy payments yielded by the same efficiency improvements. We analyze Mexico’s tariff structures and the long-run marginal cost of supply to calculate the marginal savings for the government from appliance efficiency. We find that these avoided subsidy payments alone can provide enough revenue to cover the full incremental manufacturing cost of refrigerators that are 29 % more efficient and televisions that are 36 % more efficient than baseline models. For room air conditioners (ACs), the same source of financing can contribute up to one third of the incremental manufacturing cost of a model that is 10 % more efficient than baseline. We analyze the sensitivity of our results to the most important parameters and find our main conclusion that efficiency-induced avoided subsidy payments will contribute significantly to financing efficiency incentive programs in Mexico to be significant and robust.

Woody biomass potential for energy feedstock in United States

Abstract The production reliability and relatively low costs of sustainably harvested woody biomass such as logging residue and low value roundwood could make it a significant component of the Renewable Fuel Standards portfolio. This research explored a set of woody biomass harvesting combinations of different sources and wood types using a cost minimizing linear programming model populated with disaggregated regional inventory, yield, and cost data, and projected future conventional wood demand of the United States. The model pre-satisfied conventional wood demand before harvesting roundwood as woody biomass. Findings suggest that collecting forest residue and non-merchantable (small sized) timber may provide the largest initial contribution in woody biomass supply. Regional estimations imply that not all regions have the capacity to develop bioenergy plants without using merchantable (medium sized) wood. Within a reasonable range of harvesting costs, demand for roundwood is expected to increase with higher energy production targets. Harvesting merchantable natural softwood as woody biomass has a relatively small impact on marginal supply costs. This will result in little or no disturbance to merchantable natural softwood timber management and operations if demand for woody biomass increased.

Does Greater Autonomy Improve Performance? Evidence from Water Service Providers in Indian Cities

We assess the efficiency of urban water supply in 27 Indian cities using data envelopment analysis (DEA). We also group cities by the management structure of their water utilities. Utilities with greater degree of functional autonomy perform better, supporting the hypothesis that more autonomy in management leads to better performance among water utilities. Our results also have implications for urban domestic water pricing -- most of the utilities operate under decreasing returns to scale (DRS) implying water should be priced at marginal cost of supply.

Measuring the performance of water service providers in urban India: implications for managing water utilities

This study assesses the efficiency of the urban water supply system in 27 selected Indian cities. It applies data envelopment analysis (DEA) as an analytical tool to measure technical efficiency. Cities are categorized into different groups according to the management structure of their water utilities. The results show that within groups, the utilities that are managed by ‘municipal corporations (MCs) and parastatals', with a certain amount of functional autonomy, perform better in comparison to the group ‘MCs and government’ and thus, strengthen the hypothesis that functional autonomy in management leads to better performance of the water utilities. Moreover, the results also have implications for urban domestic water pricing. We find that most water utilities are operating under decreasing returns to scale (DRS), implying that water should be priced at a marginal cost of supply.

Coal lumps vs. electrons: How do Chinese bulk energy transport decisions affect the global steam coal market?

This paper demonstrates the ways in which different Chinese bulk energy transport strategies affect the future steam coal market in China and in the rest of the world. An increase in Chinese demand for steam coal will lead to a growing need for additional domestic infrastructure as production hubs and demand centers are spatially separated, and domestic transport costs could influence the future Chinese steam coal supply mix. If domestic transport capacity is available only at elevated costs, Chinese power generators could turn to the global trade markets and further increase steam coal imports. Increased Chinese imports could then yield significant changes in steam coal market economics on a global scale. This effect is analyzed in China, where coal is mainly transported by railway, and in another setting where coal energy is transported as electricity. For this purpose, a spatial equilibrium model for the global steam coal market has been developed. One major finding is that if coal is converted into electricity early in the supply chain, worldwide marginal costs of supply are lower than if coal is transported via railway. Furthermore, China's dependence on international imports is significantly reduced in this context. Allocation of welfare changes particularly in favor of Chinese consumers while rents of international producers decrease.

Incorporating Unaccounted for Water into the Performance Measurement: An Application to the Indian Water Sector

In some Indian cities, unaccounted for water (UFW) is more than half of the water produced. Benchmarking must credit utilities for reduction in UFW and improvements in service delivery. Using data from 20 Indian urban water utilities, the study evaluates utility performance considering that reduction in UFW is costly. It applies directional output distance function as an analytical tool for measuring technical inefficiencies of the utilities. The results exhibit that at the mean level, the Indian water utilities have potential of increasing water delivery level and reducing UFW by 20 percent. About half of that can be realized by changing the scale of operation. The results concerning returns to scale support the idea that water should be priced at marginal cost of supply. The regression results reveal that percentage of metered connections and length of distribution network are major determinant of performance of water utilities.

The impact of electricity market reform on consumers

We examine the effect of electricity market reform on residential consumers, using hypothetical scenarios likely to be prompted by reform. These include raising tariffs to cost reflective levels and introducing a standing charge to recover 10% of the revenue to mirror cost reflective structures. For Albania and Bulgaria, where household expenditure surveys and electricity tariffs are available, we analyse the effects by expenditure decile and region. The impact of reforms varies considerably, depending on how far current tariffs reflect the long run marginal costs of supply, but likely reform scenarios will adversely affect low income households more than others.

Electricity Pricing to U.S. Manufacturing Plants, 1963-2000

We develop a large customer-level database to study electricity pricing to U.S. manufacturing plants from 1963 to 2000. We document tremendous dispersion in price per kWh, trace that dispersion to quantity discounts and spatial differentials, estimate the role of cost factors in quantity discounts, and test whether marginal price schedules conform to marginal cost and Ramsey pricing conditions. Our cost analysis and pricing tests rely on a novel empirical approach that exploits utility-level differences in the customer size distribution to estimate how supply costs vary with purchase quantity. The results reveal that annual supply costs per kWh fall by more than half in moving from smaller to bigger purchasers, providing a clear cost-based rationale for quantity discounts. Before the mid 1970s, marginal price and marginal cost schedules are nearly identical, in line with efficient pricing. In later years, marginal supply costs exceed marginal prices for smaller manufacturing customers by 10% or more. In contrast to a clear role for cost factors, our evidence provides no support for a standard Ramsey-pricing interpretation of quantity discounts. Spatial dispersion in retail electricity prices among states, counties and utility service territories is large and rises over time for smaller purchasers.

Electric Load Management Using Electricity Tariff Algorithm

The tariff is the best incentive factor for the industrial customer today to reduce the peak load. This paper describes different methods of pricing electricity. It is important to study the influence of the tariff on the industrial loads and the costs of electricity before ILM can be implemented. This paper is interested in studying the economic aspects of fixed and operating cost, other factors affecting the generation economy, distribution of power, etc. Costs of supplying electricity to consumers are also considered. A utility can influence its customers' load by providing financial incentives through the prices charged for electricity at different times of use. By designing discriminatory time of use tariffs in which the prices of electricity corresponds to the marginal cost of supply, a utility provides appropriate signals to the customer to increase consumption of electricity at off peak periods. The proposed algorithm is implemented to a real system in operation.

Planning the future of Botswana's coal

Botswana has vast proven deposits of steam coal, which, for a long time, the government has wanted to develop but without much success. The main objectives of this study are • to forecast possible coal exports from Botswana and the land routes for these exports • to determine the competitiveness of Botswana's coal in world steam coal trade • to make recommendations on the appropriate policy for the exploitation of this coal. To accomplish these objectives, we construct a model of the global steam coal trade and apply this model to forecast the likely optimal size of mine, timing of capacity, and choice of export port for the years 2005 and 2010 from a 2000 base forecast year. The results of our regional analysis suggest that Botswana's coal exports are competitive in Asia and Western Europe. These results are shown to be least sensitive to changes in rail transportation costs and marginal supply costs but more sensitive to changes in capital costs for mine development.

The real price of water

Water issues are among the top priorities of the international community. As humanity's numbers have more than doubled over the past half century and the world's economy has increased seven-fold, water use has tripled. Agricultural, industrial, and residential demands are outstripping the sustainable supply. As a result, water tables all over the world are falling, wells are running dry, and rivers and lakes are being drained. Meanwhile, pollution corrupts the dwindling water resources. The burden of our water shortage, regretably, falls on the vast majority of poor people of the world. Largely without access to piped water, they pay a great deal more for water and sanitation services than their wealthy neighbors – sometimes between ten and one hundred times more. They also pay more in terms of physical effort to obtain water, as well as an enormous price in terms of health costs as a result of water-related diseases. A number of strategies and technologies are required for efficient, environmentally sustainable water management and expanding the provision of water services to the poor. They include raising agricultural and urban water productivity and rainwater harvesting. Perhaps the most important management approach to providing water for drinking and sanitation, and the system that could most benefit and furnish a fair share for all, especially the poor, would be progressive water pricing. Admittedly, pricing is a complicated issue, and in some cases the poor have suffered from excessive water price increases. But, I believe progressive pricing is the recommended approach on economic, environmental, and equity grounds. Progressive pricing is also referred to as increasing block pricing, and involves setting a price structure that charges more per unit the more water is used. A basic-needs amount of water should be sold at a low price, and subsidized if necessary, so that poor people can afford the minimum required for a healthy existence. Increasing levels of consumption are charged at progressively higher tariffs per unit sold, with the price increasing in steps. The highest level of tariff should reflect the long-run marginal cost of supply – that is, the cost of the next or incremental unit of water supply. There is sound economic justification for such an approach. The cost of supply increases as additional investments in water infrastructure are required, because the cheapest options are invested in first. Supplying a basic amount of water to each person involves a lower level of consumption and investment in water supply infrastructure than does a higher level of supply to large-scale users. Furthermore, large-scale users require the construction of new water supply infrastructure earlier. Also, the public good benefits of supplying the poor with clean water are very high in many developing countries. While existing large-scale users may protest that they cannot afford to pay unsubsidized prices for water, careful analysis suggests this may not be true over the long term. Some of the increased revenue from water price increases could be used to assist large-scale users to improve the efficiency with which they use water, for example, through investment in more modern irrigation technologies. And this assistance might also be economically efficient, in that the water saved through current users adopting more efficient technologies could be used elsewhere, and saved at a lower cost than that of building a new reservoir. It may be that some large-scale users cannot afford to pay the true cost of water, which suggests that their activities were not economically efficient in the first place. Fixing leaks and largely eliminating water theft – which in many African cities costs 40% of the water supply – might also control price increases by raising revenue. This growth in water utility revenue could be used to improve water services to poor people. It is important to remember, of course, that increasing water prices is only one aspect of improving water management. Such pricing must be part of a comprehensive approach to improving water governance and management, generating new and creative sources of finance for environmentally-sustainable water technologies, and applying sound science to support water management and policy decisions. For only if we are able to bring the benefits of fresh water to the majority of the world's people in an environmentally sustainable and equitable manner can we achieve our internationally agreed development goals of halving by 2015 the proportion of people living without access to safe drinking water and basic sanitation. Progressive water pricing will help us do that. Klaus Töpfer Under-secretary General of the United Nations and Executive Director of the United Nations Environment Program

Socialiniai energetikos rinkos trūkumai ir būdų juos įveikti tyrimas Lietuvoje

Rinkos principų diegimas energetikos sektoriuje turi būti siejamas su socialinės apsaugos tinklo plėtra, nes energijos kainų liberalizavimas turi didelę įtaką namų ūkio biudžetams. Daugelyje turtingų Vakarų šalių taikomos paramos gyventojams schemos netinka Lietuvai, nes joms būtinos didelės valstybės pajamos. Skandinavijos šalyse, Vokietijoje, Prancūzijoje ir kt. taikomos netikslinės piniginės įmokas gyventojams, siekiant pakelti jų disponuojamas pajamas iki tam tikro lygio, ir jos nėra siejamos su kokių nors konkrečių paslaugų, pavyzdžiui, su energijos tiekimą, apmokėjimu. Gyventojai tuos pinigus gali išleisti savo nuožiūra.Straipsnio tikslas - išanalizuoti galimas paramos gyventojams sumokėti už energiją schemas Lietuvoje, remiantis tokiais pagrindiniais kriterijais - schemos taiklumas, aprėpimas, administracinės išlaidos, gerovės sąnaudos, prognozavimo galimybė ir socialiai pageidaujamo energijos suvartojimo lygio užtikrinimas.

Conservation Incentives for Consumers

This paper investigates profit-maximizing conservation incentives of a utility, where the interest in conservation results from prices regulated below the marginal costs of supply and where consumers differ with respect to their subjective time preference. Conventional least-cost planning implies that a program should focus on inefficient consumers (those who apply high discount rates). However, this scheme provokes strategic reactions of the consumers. Hence, incentive-compatible conservation schemes-one tied to efficiency, the other tied to electricity consumption-are derived that differ starkly from the above finding and from actual programs.

Mitigation of power sector environmental emissions through energy efficiency improvements: the case of Pakistan

This paper assesses the potential of selected efficient electrical appliances for avoiding power generation and for mitigation of selected air pollutants from the power sector in Pakistan from technical as well as national, utility and user perspectives. The study shows that about 14, 21 and 35% of the total CO2, SO2and NOxemissions in the business as usual (BAU) case could be avoided by the adoption of selected efficient appliances during 1997–2015 from the national perspective, while the corresponding figures from the user perspective are 12, 17 and 29%, respectively. All selected efficient appliances would be cost effective to the users if electricity prices were set at the long-run marginal cost of supply.1998 Academic Press

Policy implications from water pricing experiences in various countries

Water pricing can be used for improving water use efficiency. Prices, if accurately designed, give information to users, to make choices regarding water use. In practice water pricing schemes may be designed to meet many objectives, including political ones. This paper reviews water pricing experiences across 22 countries in various sectors and over time. The information shows that countries have different reasons for charging for water, including cost recovery, redistribution of income, improvement of water allocation and water conservation. The paper compares both the fixed and the variable rates for urban, agricultural and industrial sectors. Main findings are that fixed rates vary greatly between countries, while per unit rates are in a reasonable range. For urban and agricultural water, all developing countries, and some developed countries, set charges on the basis of average rather than marginal cost of supply. The willingness of countries to undertake water pricing reforms and successfully implement them cannot be solely explained by their water scarcity levels nor by the size of their budget deficits. However, high income countries are relatively more open to reforming water pricing policies.