Hung-po Chao

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.

Reliability Management in Competitive Electricity Markets

This paper examines market design issues for reliability management in competitive power markets. The institutional structure is characterized by a power exchange that conducts electricity market trading, a system operator that operates the electric power system, and a property right system for transimission pricing. In a competitive market, priority insurance fosters market information for determining efficient system reliability levels and induces system operator to maintain system security efficiently. A six-node network example is examined to illustrate the basic insights.

Greenhouse gas abatement: How much? and Who pays?

Two basic questions that arise in international policy debates over greenhouse gas emission reduction are: (1) How much to control? and (2) Who pays? In this paper, we investigate the interdependence between these two issues. We characterize general conditions under which the Pareto-optimal environmental control will depend on the distribution of the cost burden among nations and provide a sufficient condition under which a Pareto optimum can be implemented by a market mechanism with tradable emission permits. However, numerical results suggest that the interdependence may be weak in a hypothetical negotiation between the OECD and the ROW (the rest of the world). The approach can be applied to more realistic cases with multiple regions.

Coordination of OECD oil import policies: A gaming approach

In this paper, we assume that the world oil price is an increasing function of the level of world oil demand and that OECD nations adopt tariffs to reduce their oil imports. We present a simple model to investigate issues related to the coordination of tariff policies between two regions: US and other OECD nations. We compare the optimal tariff of each region for three cases: 1.(a) unilateral case,2.(b) noncooperative case,3.(c) cooperative case. Under the local linearity assumption, it is found that, for each region, the cooperative optimal tariff is greater than the noncooperative equilibrium tariff, which is, in turn, greater than the unilateral optimal tariff. Both the cooperative and the noncooperative optimal tariffs lead to greater net outputs for these two regions. In order to implement the cooperative optimal tariff, however, an agreement on a uniform tariff and on side payments may be needed. We conclude by discussing a numerical example.

A decision model for environmental R&D

Abstract In this paper, a simple decision model is formulated to investigate the optimal funding level for an environmental RD 2) the technical difficulty of the research area; 3) the potential payoffs involved in the decision that may be influenced by the research outcome; and 4) the prior knowledge of the key decision makers. Among other insights, analysis of the model demonstrated that the optimal research expenditure jumped from zero to a significant amount or conversely with small changes in parameters. The jump occurred when the expected cost of an uninformed decision equals the cost of research plus the expected cost of the contingent decision. In addition, the optimal research expenditure was sensitive to the technical difficulty of the research area.

Load: An electric technology R&D planning model with contingent decisions☆

Abstract In this paper, we present an R&D planning model which is focused on the optimal funding portfolio among baseload, peakload, load management, and load forecasting research for the electric utility industry. We assume that the R&D benefits are contingent upon utilities capacity expansion plans, which in turn, are affected by previous R&D outcomes. The level of future electricity demand and future regulatory environment are considered two key uncertainties which will have major impact on utilities capacity expansion strategies and R&D funding decisions. Important insights and useful decision guidelines are drawn from the sensitivity results.