Pierre-Olivier Pineau

An Oligopolistic Investment Model of the Finnish Electricity Market

The investment problem faced by producers in deregulated electricity markets contains high uncertainties about the future. It can also be seen as a game, as only a small number of large players act in the market. A dynamic stochastic oligopoly model to describe the production and investment in such a situation is developed and applied to the Finnish electricity market. The demand growth rate is modeled as a stochastic variable. The strategies of the firms consist of investments and production levels for base and peak load periods. The firms have nuclear, hydro and thermal capacities, but are only allowed to invest in new thermal capacity. Using a so-called sample-path adapted open-loop information structure, the model contributes to the understanding of the dynamics of production, investment and market power in a medium time horizon. The solution method uses recent developments in variational inequality and mixed complementarity problem formulations.

Measuring international electricity integration: a comparative study of the power systems under the Nordic Council, MERCOSUR, and NAFTA

Many regions of the world feel the pressure to interconnect electric power systems internationally. Regional integrations of the electricity sector have become part of free trade and common market initiatives, though the steps individual national jurisdictions take towards developing integrated systems vary. In this article, we review three regions concerned with common market initiatives and at different stages of integration processes that involve infrastructural, regulatory, and commercial decisions. First, we examine the North European countries in the Nordic Council, then countries in the Southern Cone of South America in MERCOSUR, and finally Mexico, the United States and Canada, linked under NAFTA. This comparative study highlights the potential, but also the many hurdles, that electricity sector integrations face. The study suggests a framework for measuring the level of electricity sector integration that could be applied to other regions.

Electricity sector reform in Cameroon: is privatization the solution?

Abstract The economic difficulties of Cameroon and of its Government-owned companies led the International Monetary Fund (IMF) and the World Bank to set up a vast privatization program, with the Governments collaboration. In the electricity sector, the state had a complete control over the industry through the SOciete National d’ELectricite (Sonel), an integrated monopoly utility. Under the IMF–World Bank program, Sonel has been sold to foreign interests. This article presents Cameroons electricity sector, the proposed reform and the importance of electricity in economic development. An evaluation of the reform is presented from two different perspectives. First, we consider the reform from a theoretical and market design point of view. Second, we challenge the reform from a more fundamental level, by questioning the relevance of privatization at this stage of the electricity sector development. This brings us to review the strategic place of electricity in economic growth, how different countries have dealt with their electricity industry in early development stage and how the objective of multinational corporations could be in conflict with specific electricity sector goals. From these two different perspectives, we conclude that the IMF and the World Bank have set up a reform process that is against good public policy. We conclude with some suggestions for improving the reform process.

Impact of some parameters on investments in oligopolistic electricity markets

It is seldom the case that one has the opportunity to compare investments as projected by a long-term multi-period model to what is eventually realized in practice. Further, although sensitivity analysis is of common use in any optimization setting, the impact of some parameters on strategic investments is not yet fully assessed in the context of the deregulated electricity industry. Starting with a benchmark model of the Finnish industry, we precisely explore the impact on equilibrium investments of varying such parameters as direct- and cross-price elasticities, length of the planning horizon and the depreciation rate of capacity. We run the model with different parameter values and compare the predicted equilibrium with what companies have actually done. The model is a stochastic dynamic game involving three players and played over a ten-year period. Our results show the depreciation rate and the planning horizon have a notable effect on investment levels, whereas price elasticities seem to play a lesser role. Although the models results are rather well aligned to total industry investments, it diverges from individual levels. This may be due to the cost parameter used and/or to the open-loop information structure adopted in the computations. In any event, these results should be of methodological and practical interest to scholars and practitioners involved in strategic investment in the electricity industry.

Cooperative consumers in a deregulated electricity market — dynamic consumption strategies and price coordination

As the trend in electricity markets is strongly towards deregulation, new players, new rules and new behaviors will continue to emerge. One of the new developments on the demand side is purchases made by a coalition of consumers. It seems indeed likely that in the future this will be more common, and that coalitions of consumers will emerge when they are worthwhile. The aim of this paper is to study how such an organization of consumers can be set up in a hierarchical framework. This new approach has not been described before in the deregulated electricity markets but is clearly an important research topic. We focus our interest on electric space heating, which is an energy need especially important in the Nordic countries such as Finland. We examine the consumption strategies of individual electricity buyers within a coalition. The decision problem all consumers face is to find the optimal use of their space heating system with respect to changes in electricity prices and to their tolerance to indoor temperature variation. A mathematical model for this problem is defined. Physical parameters of sample houses were gathered from an experimental field test conducted in Helsinki during the winter of 1996. The coalition buys in the market at marginal cost. However, as marginal cost pricing may not always fulfill metering and communication needs of the members of the coalition, we consider Time-Of-Use (TOU) pricing within the coalition. Different groups of consumer behavior are constructed to simulate this coalition. The optimal marginal price is used as a reference point to estimate the nearest TOU price within the coalition.

A perspective on the restructuring of the Finnish electricity market

Abstract Although 1995 was an important year in the deregulation of the Finnish electricity industry, with the Electricity Market Act (EMA), the market in Finland has always been very liberalized. This is probably one of the most distinct features of the Finnish situation. To put the Finnish reform process in perspective, a four-dimension restructuring framework is introduced. Its dimensions are market type, ownership and horizontal and vertical integration. Some important aspects of reforms in other countries are also presented, showing the originality of the Finnish case. We give here a description of the market before and after 1995, with a highlight on the changes. Such an account of the Finnish electricity reform is not otherwise documented in the energy literature.

Life cycle inventories of electricity supply through the lens of data quality: exploring challenges and opportunities

A bstractPurposeElectricity is one of the main contributors to global environmental impacts, and its role as an energy carrier is expected to grow substantially. Consequently, reliable and accurate inventories of material and energy flows associated with electricity supply are essential in environmental assessments. This article aims to summarize existing challenges and opportunities in the modeling of life cycle inventories (LCIs) of electricity supply from a data quality perspective.MethodsWe systematically review the state-of-the-art in LCI modeling of current and future electricity supply worldwide. The analysis is structured according to the data quality characteristics proposed in ISO 14044: 2006: representativeness, completeness, consistency, reproducibility, uncertainty, data sources, and precision.Results and discussionLooking at existing LCIs through the lens of data quality, we observe difficulties in obtaining temporally and technologically representative data, while geographically representative data is still unavailable for some regions. Moreover, meta-analyses encountered issues of reproducibility combined with a lack of consistency across studies, impeding interstudy comparability. Additionally, some flows such as upstream fugitive emissions have been underestimated. The aforementioned issues have a negative impact on the quality of LCIs. Here, we provide recommendations on how several methods such as equilibrium models, regression, or parameterization can be used to improve data quality, underpinned by more powerful data formats. Open-source models, data platforms, as well as a list of key parameters to be reported are suggested to facilitate reproducibility and enhance transparency of electricity LCIs.ConclusionsThere are several methods and resources that can be used to improve LCIs of electricity supply, enabling more ambitious and powerful analyses. Nonetheless, special care should be taken concerning tradeoffs between different data quality aspects. For instance, more complex and accurate models may result in a loss of transparency and reproducibility unless additional reporting efforts are conducted. Other approaches, such as systematic parameterization do not compromise data quality and should be used to improve the consistency and reproducibility of inventories.

Fragmented Markets: Canadian Electricity Sectors' Underperformance

Electricity markets across Canada can be seen as an incoherent mosaic. If provinces endowed with large hydropower resources—British Columbia, Manitoba, Quebec, and Newfoundland and Labrador—have a largely government-owned and regulated electricity sector with low prices, other provinces—Alberta, Ontario, and New Brunswick—have restructured their sector, notably by creating an independent system operator, while Saskatchewan and the Maritime provinces of Nova Scotia and Prince Edward Island still have a vertically integrated structure, relying on high-cost thermal power plants. This patchwork of electricity markets creates a landscape with divergent price and emission levels and a large number of parallel and introverted regulatory approaches. Contrary to many regions across the world such as the European Union, no integration or harmonization reform is under consideration. This chapter provides a perspective on the evolution of electricity markets across Canada and highlights the economic and environmental costs resulting from the poor integration level.

Efficiency evolution of coal‐fired electricity generation in China, 1999‐2007

Purpose – The paper seeks to evaluate the changes in efficiency and productivity of coal‐fired electricity generation of 30 Chinese administrative regions from 1999 to 2007.Design/methodology/approach – The paper incorporates data envelopment analysis with the Malmquist index to study the progress made in this sector. The model considers both economic and environmental factors by including the variables fuel consumption, labor, capital, sulfur dioxide emissions and electricity generated. A second model is constructed without the variable sulfur dioxide emissions to evaluate economic performances without taking environmental measures into consideration.Findings – By comparing the two models, the paper identified provinces that favored economic performance over environmental performance, or vice versa. Also, it showed that the more efficient provinces tend to manage both economic and environmental efficiencies equally well, while the reverse is true for the least efficient provinces. The average total facto...

The value of unused interregional transmission

Purpose – This paper aims at assessing the actual use of interregional transmission lines and the opportunity cost of unused capacity. The 13 electric power lines connecting the province of Quebec (Canada) to its neighbours (New Brunswick, New England, New York, Ontario) are analysed for the years 2006, 2007 and 2008.Design/methodology/approach – Hourly electricity transmission data from the Quebec Open Access Same‐Time Information System (OASIS) are analysed and matched with hourly market prices in New Brunswick, New England, New York and Ontario, for the years 2006, 2007 and 2008.Findings – Capacity factors of about 50 per cent are found for these lines. Although increasing from 2006 to 2008, this finding shows that interregional lines are far from being heavily congested. Furthermore, about 25 TWh of additional profitable exports could have taken place every year, given the market conditions and the availability of transmission lines. These exports represented an opportunity cost of about