Four Essays on Applied Energy Economics and Policy
Bajo Buenestado, Raul
Hartley, Peter R
Doctor of Philosophy
This thesis is divided in two parts. The first part (chapters 1 and 2) studies capacity payments in the electricity sector. The second part (chapter 3 and 4) is on gasoline retail markets. The first chapter explores welfare implications of capacity markets in the electricity sector. We propose a theoretical model with cost heterogeneous firms, for which price and quantity equilibria are obtained both with and without a capacity market. The consequences for consumers are assessed using three different measures: consumer surplus, probability of blackout and price volatility. We conclude that a capacity market is able to reduce extreme events. Under some circumstances, we show that a capacity market is also efficiency enhancing. In the second chapter, we use data from the Texas ERCOT to study the impact of capacity payments in a stylized wholesale electricity market. We find that the introduction of capacity payments has two countervailing effects. On the one hand, it increases consumers’ bills. On the other hand, it reduces price volatility and blackout probability. We find that the net impact on consumer surplus is negative both in a perfectly competitive market and in the presence of market power. In the third chapter, we use monthly data from the Spanish gasoline retail market to explore asymmetries in consumers’ responses to changes in gasoline prices and taxes. We investigate whether an increase in taxes has a more negative impact on the demand than an increase in the “pre-tax” price of gasoline. We estimate consumers’ behavioral responses using a rich set of robust models. We find evidence of asymmetric responses for the demand of unleaded fuels and agricultural diesel fuel. In the final chapter we study a game of spatial competition in prices. We focus on the linear city duopoly model to see what we can learn about the distribution of consumers, which is approximated using variation in equilibrium prices and costs. We apply our methodology to a dataset on prices of a pair of gas stations in a straight highway. Using our approximation, we are able to calculate where should be located an entrant gas station to maximize welfare.
Energy Economics; Electricity markets; Capacity investment; Gasoline markets