Price Cap Research Articles

Equity effects of energy affordability interventions

This paper compares the distributional effects of price cap and lump sum transfer policies to aid the affordability of subsistence electricity consumption. A lump sum transfer is more progressive than a comparable price cap on all units of electricity. We identify conditions under which these policies have equal distributional effects. We prove that both interventions are progressive.

Comparison of price caps and tariffs to counter a foreign monopoly

This paper compares import tariffs and import price caps as policy measures to regulate a foreign monopolist. We show that for any positive import tariff there exists a set of price caps each of which Pareto-dominates the tariff. This result is particularly important in the case of nontransferable utilities, as in the illustrated example of the EU-Russia gas market.

Assessing the Effects of Tradable Green Certificates and Renewable Portfolio Standards through Demand-Side Decision-Making Simulation: A Case of a System Containing Photovoltaic Power

Understanding the effect of a tradable green certificate (TGC) and renewable portfolio standard (RPS) policy mix is of great importance for sustainable renewable-energy development and carbon neutrality, given that the demand side subjects are the responsible subjects under China’s RPSs and studies from the demand-side perspective are relatively limited. To fill this gap, this paper analyzes the coupled relationship between the TGC market and the electricity market as well as the reflexivity of the TGC market. Meanwhile, on the basis of modeling TGC prices and renewable-energy uncertainty, this paper constructs a Markov decision process (MDP) model to simulate the sequential decision-making process of the demand side and further proposes a solution model based on dynamic programming and evolutionary algorithms. The results show that: (1) In addition to policy parameters such as RPS weight, TGC price caps and penalties, a preference for short-term benefits and renewable-energy uncertainty also affect transaction behaviors on the demand side. (2) Increasing RPS weight within an appropriate range can stimulate demand for renewable power and TGC, while excessively low RPS weight will result in accumulation of unsold TGC. In addition, the preference for short-term benefits can stimulate demand for renewable power and curb demand for TGC. (3) An increase in the TGC price cap can stimulate demand for renewable power and restrain demand for TGC, but this phenomenon may not exist when RPS weight is too low or responsible subjects prefer short-term benefits. (4) Setting a penalty of no less than the TGC price cap is of great significance to ensure the operation of the TGC market and RPSs.

The 2022 energy crisis: Fuel poverty and the impact of policy interventions in Australia's National Electricity Market

The war in Ukraine and associated 2022 energy crisis had far-reaching effects, with seaborne prices for coal and gas reaching multiples of their historic averages. While Europe was the epicentre, countries as far away as Australia were impacted. Governments across multiple jurisdictions have since orchestrated very material energy subsidies for households to reduce the adverse effects, with fiscal estimates across EU member states ranging from 0.5 to 7% of GDP. As a major energy exporter, the Australian Government took a different policy pathway by targeting the source of electricity tariff increases, viz. imposing price caps of $125/t and $12/GJ for coal and gas, respectively. Some state governments in Australia also revised their household energy hardship policies. This article analyses the level of fuel poverty before- and after- the array of Commonwealth and State policy interventions. Commonwealth policy had the effect of moderating forecast electricity tariff increases from 35% to 16.5%, which benefits all customers. However, State Government customer hardship policy remains vitally important and makes the dominant contribution in reducing fuel poverty.

A pricing mechanism to jointly mitigate market power and environmental externalities in electricity markets

The electricity industry has been one of the first to face technological changes motivated by sustainability concerns. Whilst efficiency aspects of market design have tended to focus upon market power concerns, the new policy challenges emphasise sustainability. We argue that market designs need to develop remedies for market conduct integrated with regard to environmental externalities. Accordingly, we develop an incentive-based market clearing mechanism using a power network representation with a distinctive feature of incomplete information regarding generation costs. The shortcomings of price caps to mitigate market power, in this context, are overcome with the proposed mechanism.

The Competitive Foundations of Price Cap Regulation

Abstract Price cap regulation (PCR) as commonly implemented closely approximates atomistic Cournot competition in terms of the pass-through of industry and firm-specific cost-reducing innovation when the invariance property holds. A key finding is that the aggregate pass-through of cost-reducing innovation under PCR exceeds that under Cournot, holding the number of firms constant. The welfare gains under PCR are greater than Cournot when cost-reducing innovation is endogenous, the invariance property holds and demand is highly inelastic.

Food Security Challenges in Europe in the Context of the Prolonged Russian–Ukrainian Conflict

The ongoing conflict between Russia and Ukraine, two major agricultural powers, has numerous severe socio-economic consequences that are presently being felt worldwide and that are undermining the functioning of the global food system. The war has also had a profound impact on the European food system. Accordingly, this paper examines the implications of the ongoing conflict on food security pillars (viz. availability, access, use, stability) in European countries and considers potential strategies for addressing and mitigating these effects. The paper highlights that the food supply in Europe does not seem to be jeopardized since most European countries are generally self-sufficient in many products. Nonetheless, the conflict might impact food access and production costs. Indeed, the European agricultural industry is a net importer of several commodities, such as inputs and animal feed. This vulnerability, combined with the high costs of inputs such as fertilizers and energy, creates production difficulties for farmers and threatens to drive up food prices, affecting food affordability and access. Higher input prices increase production costs and, ultimately, inflation. This may affect food security and increase (food) poverty. The paper concludes that increasing food aid, ensuring a stable fertilizer supply, imposing an energy price cap, initiating a farmer support package, switching to renewable energy sources for cultivation, changing individual food behaviors, lifting trade restrictions, and political stability can safeguard food security pillars and strengthen the resilience of the European food system.

Pharmaceutical regulation under market integration through parallel trade

AbstractIn this paper, I study the effect of parallel trade (cross‐border resale of goods without the authorization of the manufacturer) on pharmaceutical regulation. Governments may restrict prices directly (price caps) or limit third‐party payer reimbursement for the drug (reimbursement limits). I find that parallel trade may relax regulation in the source country of parallel imports under both instruments and intensify regulation in the destination country under a reimbursement limit. I also find that parallel trade may change regulatory preferences: under no parallel trade, both the source and destination country set price caps, and under parallel trade, the source country sets a price cap but the destination country sets a reimbursement limit, thereby enforcing a higher price cap in the South. This implies that drug prices are higher under parallel trade in both source and destination countries.

Identifying optimal capacity expansion and differentiated capacity payments under risk aversion and market power: A financial Stackelberg game approach

We investigate how capacity payments in combination with scarcity pricing of energy can ensure resource adequacy in electricity markets, defined as the ability of supply and other resources to provide enough energy and capacity to meet demand under steady-state operating conditions. This work generalizes models for determining capacity payments by deriving second-best discriminatory payments by resource type that account not only for the “missing money” market failure that arises from energy price caps, but also for market power in the capacity market and differences in risk tolerance among resource types that can arise from failures in risk and capital markets. A bi-level equilibrium-constrained optimization model is proposed to define second-best capacity payments in a static long-run setting, considering the impacts of those payments on the mix and cost of generation investment and energy outputs. The lower-level suppliers play a Nash game to determine the generation mix under a capacity payment scheme, while the upper-level regulator considers consumer welfare and resource adequacy. We introduce an equivalent formulation via a variational inequality approach, and find conditions for the solution to exist. Discriminatory payments are found to be second-best when there are market power in the investment game, price caps in energy markets and imperfections in risk markets that lead to diverse risk attitudes.

Price authority and information sharing with competing supply chains

We characterize the degree of price discretion that two competing manufacturers grant their retailers in a framework where demand is uncertain and privately observed by the retailers, while manufacturers only learn it probabilistically. In contrast with the consolidated vertical contracting literature, we assume that manufacturers cannot use monetary incentives to align the retailers’ incentives to pass on their unverifiable distribution costs to consumers. Our objective is to study how, in this context, an information-sharing agreement according to which manufacturers share their demand information affects prices, profits and consumer surplus. While equilibria with full price delegation never exist, regardless of whether manufacturers share information, partial delegation equilibria may exist with and without the exchange of information. These equilibria feature binding price caps (list prices) that prevent retailers from passing on their distribution costs to consumers, and are more likely to occur when manufacturers exchange demand information than when they do not share this information. Manufacturers profit from exchanging demand information when products are sufficiently differentiated, and retailers’ distribution costs are high enough. Yet, expected prices are unambiguously lower when manufacturers exchange demand information than when they don’t, making the information exchange beneficial to consumers.

Building Options for the Brazilian Pre-salt: A technical-economic and infrastructure analysis of offshore integration between energy generation and natural gas exploration

The objective of this work is to evaluate the technical-economic and infrastructure aspects for the Brazilian Pre-salt natural gas use. Factors like technology maturity level, fuel and facilities costs, and electricity market are analyzed; the levelized cost of energy (LCOE) of two possibilities are calculated: (i) offshore Gas-to-Wire (GtW) and (ii) molecular natural gas outflow through the pipeline with onshore thermoelectric generation. This work also discusses the possibility of natural gas (NG) transport via liquefaction, considering the Floating Liquefied NG (FLNG) technology for national and international market. The LCOE of GtW technology is higher (67–87 US$/MWh) than onshore plants (43–69 US$/MWh) for Pre-salt area, higher than the historical energy price of Brazilian NG thermoelectric generation (44 US$/MWh), but, in general, lower than Brazilian NG energy auction price cap (84.5 US$/MWh) and lower than some values found in the literature for onshore plants (42–124 US$/MWh) abroad Brazil. FLNG technology is still new, there is no scale, few players use it, and it does not seem to be a feasible option for Pre-salt NG now. It is concluded that elements such as political uncertainties of the international natural gas market, the high CO2 rate in the Pre-salt's natural gas mixture, and the difficulties in implement deep-sea infrastructure are challenging elements for the three possibilities analyzed. The Brazilian market discussion is relevant since it is a greenfield natural gas area in need of development. Thus, it is of upmost importance to implement a comprehensive energy policy to address offshore-onshore energy integration regulation and technological developments for the offshore transmission systems, and CO2 content separation process.

Dynamics of the gas retail market under China's price cap regulation

To stabilise gas prices and safeguard consumer interests, China introduced a new price cap regulation for the gas retail market in 2013. This study is the first to evaluate the impact of this price cap regulation on the dynamics of retail gas prices. By using an asymmetric error correction model and Markov-switching regression based on daily gas-station-level price data from Inner Mongolia, China, we establish that retail prices respond asymmetrically to price caps, rather than crude oil prices, implying that price caps may serve as focal points for gas stations to collude tacitly. Additionally, the cyclic nature of retail prices is not obvious under the price cap regulation, which provides some evidence for the buffering effect of price caps on price cycles. Finally, we establish that price cycle characteristics differ by gas station and brand. These results may provide a better understanding of retail price dynamics in a price-cap-regulated market and guide policymakers and planners in optimising regulatory policies.

ВНЕШНЯЯ ТОРГОВЛЯ РОССИИ: ПРЕДВАРИТЕЛЬНЫЕ ИТОГИ ВТОРОГО ГОДА ПРОТИВОСТОЯНИЯ САНКЦИОННОМУ ДАВЛЕНИЮ

The article discusses the main trends in the development of Russia’s exports and imports in 2023 under an unprecedented sanctions regime. Having analyzed the dynamics of Russian exports in 2023, taking into account government policy measures to counteract the sanctions pressure (in particular, the price cap on Russian hydrocarbons) and the price situation on the world commodity markets, as well as the dynamics of Russian imports, the author concludes that the domestic foreign trade is highly adaptable to modern realities and relatively resistant to sanctions pressure, partly due to the fact that the "big-country trap" factor is still effective. She formulates proposals to improve state policy measures for the sustainable development of Russia's foreign trade.

Price cap and other sanctions push up discount on Russian exports

Oil and Energy TrendsVolume 48, Issue 1 p. 3-5 FOCUS Price cap and other sanctions push up discount on Russian exports First published: 12 January 2023 https://doi.org/10.1111/oet.12967Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat No abstract is available for this article. Volume48, Issue1January 2023Pages 3-5 RelatedInformation

Price Caps by Matching Platforms: The Case of Ticket Resales

Price Caps by Matching Platforms: The Case of Ticket Resales

Debt crisis in the electricity market: causes and threats to the economic security of electricity companies

The article states that one of the main sector conditions for Ukraine's accession to the European Union is the launch of a full-fledged energy market, for which purpose a number of institutional, economic and regulatory reforms have been implemented since 2015. It is proved that despite the government’s conscientious efforts to make a transition to the European model of energy markets, Ukraine has failed to do so due to a large number of regulatory restrictions on wholesale prices (price caps), an unbalanced policy of supporting renewable energy industry, the absence of market prices for households and the existing mechanisms for imposing special obligations, which together have led to the formation of a chain of debts “all to all” in the electricity market. It is substantiated that the debt crisis currently observed in the energy sector of Ukraine requires urgent measures. Further ignoring it is unacceptable, as it poses significant threats to both the country’s energy security and the financial viability of electricity companies. The article considers the chain of debts of electric power enterprises formed through the Public Service Obligations (PSO) model. The causes of the debt crisis in the Ukrainian electricity market are identified, including: incorrect operation of the PSO mechanism; significant underfunding of tariffs for households, as well as tariffs for electricity transmission services via the high-voltage trunk network and power system management (dispatching); granting debtors a preference - depriving them of "punishment" for late payment of the cost of consumed services. The author analyses the proposed measures to mitigate the crisis by: compensation of debts at the expense of the State budget; attraction of loans from State and international banks; cancellation of price restrictions established by the National Commission for State Regulation of Energy and Public Utilities (NCSREPU), the so-called price caps; allocation of part of the excise tax revenues to repay the debts incurred in the electricity market; increasing the volume of clean electricity exports to the EU; introduction of a market for guarantees of origin, under which each renewable energy producer will receive guarantees, i.e. an asset that can be sold. The advantages and disadvantages of each of the proposed measures are indicated.

Food consumption patterns and trends in response to inflationary pressures

Food prices have increased significantly in Hungary over the past year due to rising inflation. Price changes are crucial in shaping consumer behaviour and purchasing decisions. Supply chain disruptions, rising energy prices and extreme weather conditions have also had an adverse impact on prices. Another factor in the unfavourable situation was the distorting effect of the “price cap” (a government-imposed ceiling on the price of certain products) applied in Hungary. Based on an extensive and representative survey conducted during the autumn of 2022, this study presents the examination of trends in the food purchasing habits of the above 18 years of age population of a county of Hungary. The findings have confirmed a decrease in both supermarket visits and the level of consumption of fresh products including vegetables, fruits, dairy products, and baked goods due to high inflation and rising food costs. Additionally, there has been a noticeable shift towards shopping at discount supermarkets, accompanied by a decline in both bulk and small purchases. As spending on food has increased by over 40%, consumers are increasingly mindful of their spending.

Is the Price Cap for Gas Useful? Evidence from European Countries

Is the Price Cap for Gas Useful? Evidence from European Countries

The Effects of Price Caps on Open-End Loans: Evidence from the 2015 Expansion of the Military Lending Act

The Effects of Price Caps on Open-End Loans: Evidence from the 2015 Expansion of the Military Lending Act

A Theory of Price Caps on Non-Renewable Resources

A Theory of Price Caps on Non-Renewable Resources