Carlo Andrea Bollino

Electricity Demand in Wholesale Italian Market

In this paper we pursue two objectives: firstly we construct a theory based behavioral model of electricity demand in the Italian market; secondly we measure demand elasticity at hourly level, directly from consumer behavior. This is a novel approach providing the first attempt in the literature to estimate demand elasticity using individual demand bid data, in the Italian Power Exchange (IPEX). Econometric estimation allows us to identify robust results, showing that elasticity varies significantly with: time of the day; day of the week; season of the year; pattern of line congestion, as well as according to the level of equilibrium price. This has a policy implication: fostering more competition on the supply side could yield lower equilibrium prices and proportionately much higher quantities, for a lower offer curve, shifted to the right, would intersect a flatter portion of the demand curve.

Market Power and Transmission Congestion in the Italian Electricity Market

Analysis of market power in electricity markets is relevant for understanding the competitive development of the industrys restructuring and liberalization process, but in the existing literature, there is not an adequate consideration of line transmission congestion. The aim of this paper is to propose a new approach to measuring market power in the Italian Power Exchange (IPEX), explicitly considering transmission line congestion. We construct a new measure of the residual demand curve to disentangle unilateral market power from congestion rent for the main Italian generators during the period April 2004 to December 2007. In Italy, this period was one of stable transmission network structure. Following the approach of Wolak (2003, 2009), we measure the unilateral market power with the Lerner index (LI), computed as the inverse of the residual demand elasticity. In conclusion, the correct modeling of the residual demand curve including transmission congestions enables us to compute the zonal LI and therefore more accurately measure the market power when congestion occurs. Our results show that various generators exercise market power only in specific zones. These findings provide deeper understanding of market outcomes in the presence of congestion, suggesting appropriate policy directions for market surveillance and competition regulation.

Integration and Convergence in European Electricity Markets

In this paper we investigate wholesale electricity prices integration process in the main European markets. After reforms introduced in the last decades in Europe, wholesale electricity prices are now determined in regulated markets. However, while market institutional frameworks show several similarities, there are still differences in fuel mix, generation units technologies, market structure. Using multivariate cointegration techniques we test integration dynamics within four European markets (Austria, Germany, France and Italy) for which we have collected a novel dataset of spot prices from 2004 to 2010. We provide evidence that German market constitutes a common stochastic trend driving the long-run behavior of other markets. Our results are robust to causality test, to Granger causality test, to oil price relevance test and provide additional evidence to assess the efficient market hypothesis in European electricity markets.

Measuring Market Power in Wholesale Electricity Italian Market

In the new deregulated competitive Italian electricity many interesting issues arise as the market complexity, the firm strategic behavior, the market power size, and so on. Effective competition in the electricity market is a necessary features of a successful supply industry restructuring. In this paper we examine the degree of competition in the Italian market during the period April 2004 to December 2004 in two principal ways. In the first one we estimate a very intuitive relation among the differences between the hourly equilibrium price (ph) and the individual hourly bids that the competitors offer around ph, and a large set of structural and behavioral variables. In the second one the aim is twofold. The first one is to build the residual demand for each Italian Generation Company. The construction of the residual demand curve system is the necessary condition to get the second aim which is to measure the unilateral market power for the Italian Generation Companies. Following Wolak (2003) approach the appropriate measure of the unilateral market power is the Lerner index based on the residual demand curve elasticity which is computed as arc elasticity. The expected results is a deeper understanding of the Wholesale Italian Electricity Markets and of its mechanism in order to enhance competition and to design appropriate market surveillance.

Costs assessments of European environmental policies

The evolution of energy production in the European Union (EU) is going through a big change in recent years: the incidence of traditional fuels is diminishing gradually for increasing renewable energy sources (RES), due to international concerns over climate change and for energy security reasons. The aim of this paper is to construct a simulation model that identifies and estimates costs that may arise for a community of negotiating countries from opportunistic behavior of some country when defining environmental policies. In this paper, the model is applied specifically to the new 2030 Framework for Climate and Energy Policies (COM(2014) 0015) (EC, 2014 11) on the promotion of RES that commits EU governments to a common goal to increase the share of RES in final consumption to 27% by 2030. Costs faced by EU countries to achieve the RES target are different due to their endowment heterogeneity, the availability of RES, the diffusion process of cost improvements and the different instruments to support the development of the RES technologies. Given the still undefined participation agreement to reach the new overall RES target by 2030, we want to assess the potential cost penalty induced by free riding behavior. This could stem from some EU country, which avoids complying with the RES Directive. Our policy simulation exercise shows that costs increase more than proportionally with the non-participating country size, measured with GDP and CO2 emissions. Furthermore, we provide a model to analytically assess the likelihood each EU country may have to behave opportunistically within the negotiation process of the new proposal on EU RES targets (COM(2014) 0015).

Smart Grids and Consumer Attitude Toward Sustainable Development

ABSTRACT The electrical system is experiencing many challenges, including the increasing use of renewable energy sources characterized by high variability, the need to take action to mitigate climate change, the need to restructure the aged infrastructure, and then the development of smart grids. New ways of interplay between consumers and producers have emerged, but their implications have not been fully analyzed. This article analyzes the most relevant barriers that are perceived by consumers as obstacles to the development of smart grids, using a literature review. Our findings indicate that there are four relevant barriers: costs, privacy, cyber security, and regulatory aspects. Consumers must be informed in a transparent and convincing way. Indeed, electricity consumers play a key role in the development of smart grid technologies, since they will play the crucial role in the future electricity market.

Overview of socio-economic issues for smart grids development

The electrical world system is experiencing many challenges, including the increasing presence of renewable energy sources characterized by high variability, the call for actions to mitigate climate change, the need to restructure the infrastructure already aged and then the development of smart grids. Smart grid projects have been launched in various countries around the world. The transition to the smart grid is affecting primarily the European Union and the United States, but also emerging markets such as China and India are strongly investing in the smart grids. In this paper we analyze the socio-economic aspects that are among the key variables towards the feasibility of smart grid projects. Construction of new infrastructures generally rises acceptance problems. Social acceptance of consumers is important for the adoption of new technologies. We advocate that multidisciplinary cooperation is needed to develop scientific research on smart grids.

Sustainability: Will There Be the Will and the Means?

In this chapter we argue that a strong effort toward new technologies and investments can allow us to sustain economic growth without endangering the environment. We define this effort toward a new sustainable paradigm as consisting of a mix of renewable sources, energy efficiency, and energy savings issues discussed by others in the present volume. The crucial question, of course, is how much investment is required to achieve a sustainable paradigm and whether it is a plausible sacrifice compared with similar past investments. We argue that the difficulty in finding feasible solutions to address climate change is a political, not an economic problem. The lack of political will and willingness to cooperate, however, is not an exclusive characteristic of the climate change, as exemplified by the recent failure of Copenhagen meeting in December 2009. The lack of cooperation is typical of many vexing global questions related to human rights issues, trade agreements, financial capital taxation, offshore tax havens, property rights, and the safeguarding of biodiversity. Each of these issues requires time before a solution can be found. For example, negotiations to admit China to the World Trade Organization rather trivial matter compared to climate change took over 15 years. Finally the chapter argues that the size, intensity, and scope of policies required to achieve future sustainability are similar to those employed in the past to sustain economic growth, and hence there is no need for radical measures or a major departure from our current socio-economic system.

Marketing Renewable Energy in Italy

Following the abandonment of nuclear power with a post-Chernobyl referendum, Italian energy policy has created a culture in favor of renewables developed by entrepreneurs and paid for by end users in the form of subsidies. This has led to the success in Italy of incentives for the use of renewables, which in 2015 already met targets set for 2020. Focusing on the Italian case, this chapter initially describes the legal framework and, in particular, the incentive mechanisms and then analyzes the impact of renewables in the vertically integrated Italian electricity market with policy implications. The main results highlight that the massive spread of renewable energy sources (RES) has changed the attitude of policymakers from a command-and-control system to a more simplified and market-oriented approach. In particular, given the past intensive financial efforts, new legislation started to curb new RES investment by setting clear caps on the total financing allotments to the incentive policy. Furthermore, the massive injection of RESs has highlighted the inadequacy of the current electric market design. Finally, the large-scale penetration of RES into everyday life in Italy has increased consumer awareness of green electricity, stimulating a new quest for green electricity and better climate conditions.

Strategic Choices for Sustainability at EU Regional Level

Today, the supply of electricity still comes mainly from large power plants fueled primarily by fossil fuels that operate through established distribution and transmission systems. Although these systems provide an efficient service worldwide for many years, times are changing. Modern societies have understood that in order to mitigate climate change, it is needed to reduce polluting emissions. The optimum use of traditional sources must be accompanied by an ever-increasing use of renewable energy sources (RES). There is therefore the spread of a wide range of energy sources that involve a number of complexities in terms of improvements in RES’ technologies and design of electrical networks. The EU has launched several initiatives to increase the use of RES in all EU countries. With the climate and energy package, energy policy becomes a unilateral commitment in Europe. The achievement of macro-objectives outlined in the package is entrusted to the synergistic effects of different proposals closely linked. With regard to the RES Directive 2009/28/EC on the promotion of the use of energy from RES, it sets the overall policy framework in order to ensure coverage of 20 % of the energy demand of the EU through RES to the electricity, transport (biofuels), and heating–cooling sectors. The objectives of mandatory coverage with RES are implemented at the national level and they vary from one country to another; they are between 10 and 49 % of final consumption by 2020.