# Tag Info

## Hot answers tagged energy-economics

31

Yes, customers who were exposed to day-ahead wholesale market prices were paid to use electricity. It is a combination of several different factors that make the day-ahead wholesale electricity market special. Firstly, very few electricity consumers participate in it directly. So the demand side is very illiquid, with very low short-run elasticity - and it ...

12

My understanding of the recent drop in oil price is due to recent changes in US drilling. They are now the worlds largest oil producer. This article by the economist does a good job explaining. My answer (borrowed very heavily from the economist.) Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to ...

8

tl;dr: it's basic engineering: efficiencies improved between 1970 and 2010. Additionally, net USA imports increased from 0.75 trillion cubic feet in 1970 to 3.8 trillion cubic feet in 2007 I think there may be some misunderstandings. Firstly: the first chart shows domestic gas production. "Domestic" doesn't refer to residential-only use - it just means ...

6

As many have stated before me, you can't just throw electricity away if you produce too much—it has to go somewhere. If you put more power into the system than the resistant (or consumption) in the system, it is like spinning your bike faster while you bike downhill, the generators start spinning faster, and the frequency increase above 50 Hz. The second ...

6

An oil price of 0 will make any extraction of oil unprofitable and hence imply no further oil extraction. You should think about how prices carry signals. A low oil price (even if not 0) carries the signal that we, as society, do not value that oil as much. The conclusion is imminent.

6

It's lots of things, which added together means it's not going to happen. Firstly, the initial calculation of area required was just to illustrate how small the world's energy use is, compared to the amount of energy we receive in sunlight, even after compensating for the 20% efficiency of PV modules. So it wasn't actually intended as an engineering ...

5

Consumers rarely have to pay the full price of petrol / gasoline. That's true in most of the world, and the US is no exception. There are explicit subsidies and favourable tax regimes in many extraction countries; and of course there are the implicit subsidies in the unpriced pollution - oil's externalities. Those explicit and implicit subsidies have been ...

4

The price of petrol / gasoline is surely a major reason, offsetting the effect of longer distances. In many European countries it is more than twice as high as in the US, mainly because of differences in tax rates, as shown here. Given consumer rationality, the price of fuel might be expected to impact on fuel efficiency via choice between car models of ...

4

What would be economically most efficient is that for the price of oil to reflect all its costs, including all the pollution costs. A price that high would destroy a lot of demand, and incentivise all the cleaner alternatives with less need to subsidise them. Professor Jeff Sachs has spoken emphatically of the advantage of a low oil price, for the COP21 ...

4

This reflects the problem of electricity storage. With most other commodities, there is some way to store it ahead of future need, but in general this option is not so readily available with electricity. Of course storage is possible. Traditionally this has been in the form of pumped hydroelectric storage, where the "free" electricity is used to pump ...

4

Basically negative prices reflect that there is produced more electricity than the market asks for. In all other markets, this is not a problem as you can just refuse to sell, but for electricity, there has to be a balance. You can not stack up electricity in a warehouse. So to give a bit background information, let us take Nord Pool Spot as an example: ...

3

Prominent economist Greg Mankiw has been a prominent advocate of the kind of change you describe (he invites people to join "The Pigou Club", named for Arthur Pigou who first proposed these kinds of corrective taxes). You can find a nice, non-technical summary of his arguments here. In particular, Makiw deals with some of the weaknesses you identify above ...

3

Considering oil as a commodity that does not expire and can be relatively easily stored, I believe the reason for the recent price drop of oil is much more political than what it has to do with economics. Russia is a giant producer of crude oil and its governmental operation fund is tightly related the export tax of oil. By lowering the price of oil, the ...

3

The basic factors in the decline of petroleum prices is the increased production in the US in the North Dakota and Texas shale oil fields as a result of the use of hydraulic fracturing in conjunction with horizontal drilling (up to 2 miles horizontal in a single borehole. Furthermore, the Saudi Petroleum Minister chose not to reduce their output in order to ...

3

I'll go ahead and admit that I do not have any empirical evidence, and this is more of factor to consider when evaluating future movement in the oil market. As oil prices drop, some US oil producers will find continued exploration and production unprofitable. This will serve as a counter balance to the falling prices aa producers choose to reign in supply. ...

3

I don't think it's any more complicated than looking at the ratio of global oil consumption and global Gross Domestic Product. The OECD, World Bank, IMF and others produce estimates of each. There is some fuel-switching: for example, the world burns much less electricity from oil than it used to: in 1973 (the first oil crisis started around October that ...

3

Let us just assume, without any loss of generality, that it is OPEC nations who can produce oil most cheaply. That is, the cost per barrel for all OPEC nations is homogeneous and is lower than the cost per barrel for any other oil producing nation or entity. Then OPEC can continue to allow the price of oil per barrel to fall until other oil producing ...

3

It is. And it is not. Electricity markets are generally not set up for the demand-side to do much active participation at all. So the short-run demand curve as seen in, for example, Nordpool Spot, is almost perfectly inelastic. Not quite, because there are some large industrial demands that exhibit some elasticity, and are exposed to the spot market. But a ...

3

It's worth differentiating between the financial crisis of 2007-2009, and the recession that began in December 2007. The financial crisis was indeed caused by a run on wholesale funding that was precipitated by significant losses on real estate, both subprime and otherwise. As noted in the first link, stresses in wholesale funding first appeared in August ...

3

At its simplest, you just look at the cost of capital: if the household would have to borrow to pay the debt, then what's the borrowing rate? If they are currently saving, what interest rate would they forego by spending on the retrofit instead of saving? The benefits of retrofit usually extend beyond the simple savings on energy bills, though. When it's ...

3

To some extent, your suspicions are correct (notice some of the nuance you could add to your four main concluding points): Renewable adoption trends are slow. Not just slow, but there is a wide dispersion of adoption based on point of energy consumption. (e.g., Think how many gasoline vehicles there are in the world and how long it will take to replace or ...

3

I believe "Auctions of Homogeneous Goods: A Case for Pay-as-Bid" by Pycia and Woodward answers your questions theoretically. This is quite recent and their results are striking. They also briefly discuss some empirical insights. The pay-as-bid (or discriminatory) auction is a prominent format for selling homogenous goods such as treasury ...

3

Your eq (2.10) is not more general than (2.9), but corresponds to an alternative specification. A more general version would be: $$C_i(Q_i)=FC_i+a_{1,i}Q_i+a_{2,i}Q^2_i.$$ This specification allows marginal cost to be constant as in (2.9) if $a_{2,i}=0$ or nonconstant as in (2.10) for $a_{1,i}=0,a_{2,i} \neq 0.$ It is more general because it is compatible ...

2

They don't include anything. It is the pure price for 1 MWh. Edit. The producers have been paid the tariffs, which lowers their short run marginal costs quite a lot. There has not been added any taxes to the consumers at this point, however.

2

I know this is a old post, but since I found it and I know the answer I might as well share it. I would go further than the first component, but it also depends on how much of the variance is actually explained within the component. There is two approaches that I use when determining which components I am using. The rule of thumb is to use and component ...

2

Like many international markets, the crude oil market is a mix of private and public participants. From most perspectives, it really doesn't matter whether oil production is state-run or run by private leases. Both, ultimately, are combinations of public and private forces - just different blends. Both are trying to optimise the outcomes for their owners. ...

2

A problem with using energy service prices is that they might reflect competition conditions (e.g. monopoly/oligopoly, or the big six in the UK) rather than the true cost of energy to firms. A problem with using energy prices is that they might reflect demand and supply issues. For example, no one would say that the drop in oil prices from 140 to 50 was ...

2

In the particular case of nuclear power plants, yes, the risk cost can be considered as a negative externality. That's because nuclear power plant operators are explicitly limited by law in their liability for third-party costs in the event of damages to those third parties. The third-party risk they present could run into trillions (\\$/€): at Fukushima, ...

2

I think it's broadly a good idea; but as you've asked specifically for the downsides, here you are: Having a steadily increasing carbon tax can actually accelerate the rate of investment in fossil fuel extraction, thus strengthening that lobby. That's because, with forward visibility of higher future carbon prices, it's better to extract now than in a ...

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