Electricity Investment in Liberalised Markets

The study looks at the dynamics of investment in power generation in liberalised electricity markets. It surveys the theoretical arguments and practical experience to date, with the aim of drawing out key messages, in particular in relation to the impact on the environment and on the expansion of the electricity system in developing countries.

Research contact Malcolm Keay

close this window

Investment Under Uncertain Emissions Policy for Electricity Generating Firms

Given the relationship between fossil fuel combustion and gaseous and particulate emissions, much attention has been focused on environmental policy for the electricity generating industry. Because of the tradeoff between emissions regulation and electricity generation objectives, however, the establishment of environmental policy is not a simple matter and is often wrought with issues of credibility and uncertainty. This paper seeks to model the effects of such policy uncertainty on the irreversible capacity investment decisions (timing and plant-type) of electricity generating firms through real options analysis. Research thus far shows theoretically that uncertain environmental policy leads to a delay and reduction in “clean” generating options. Lindsay Tuthill will be continuing this project as part of her ongoing DPhil research and will be supervised by Malcolm Keay.

Research contact Lindsay Tuthill

close this window

Emissions Policy, Technological Change and Efficiency in US Electricity Generation: The Case of the Clean Air Act's Tradable Sulfur Permits

Title IV of the Clean Air Act Amendments of 1990 in the United States established a tradable permit scheme for sulfur dioxide (SO 2 ) emissions. Given its political success, academic justification, and economic efficiency achievements, the allowance trading scheme has become a favorite emissions regulation option among policy makers, as evidenced by the onset of the EU's Greenhouse Gas Emissions Trading Scheme in January 2005. That being true, it is imperative that we understand the effects such policies have on firm efficiency and technological change in order to make informed judgments about possible future carbon dioxide regulation in the US. To this end, this paper analyzes the technical efficiency and technological change effects of Title IV's SO 2 allowance scheme on US electricity generating firms using panel data covering the years 1990-2000. Lindsay Tuthill will be examining theses issues as part of her ongoing DPhil research and will be supervised by Malcolm Keay.

Research contact Lindsay Tuthill

close this window

Environmental costs of restructuring the electricity sector in Mexico

The aim of this research is to simulate if the policy change “electricity reform”, which implies changes in ownership and competition, would affect the costs of externalities in Mexico. Electricity reform is defined in two ways. First is as a radical liberalization. The second is more realistic: to allow competition in the fossil fuel generation market, but keeping hydro and nuclear generation capacity in public hands. Externalities are defined as the unwanted emission of gases produced while electricity is generated. Two effects are analyzed. First is if the expected improvement in electricity firms’ productivity and efficiency leads to a higher level of emissions. Second is if liberalization changes current technology mix towards a more/less polluting mix. A computable general equilibrium model is used to simulate these effects.

This project is part of Mr Fuentes' on-going PhD research.

Research contact: Rolando Fuentes

close this window