IDEAS home Printed from https://ideas.repec.org/a/aen/journl/ej37-1-pineau.html
   My bibliography  Save this article

Integrating Thermal and Hydro Electricity Markets: Economic and Environmental Costs of not Harmonizing Pricing Rules

Author

Listed:
  • Etienne Billette de Villemeur and Pierre-Olivier Pineau

Abstract

The electricity sector is the largest source of greenhouse gases (GHG) emissions in the world, and reducing these emissions can often be costly. However, because electricity markets remain integrated at a shallow level (with different pricing regulations), many gains from deeper integration (adoption of marginal cost pricing everywhere) are yet to be realized. This paper assesses the benefits of deep integration between a "hydro" jurisdiction and a "thermal" one. It also underscores the inefficiency of trade when pricing rules differ. Our detailed hourly model, calibrated with real data from the provinces of Ontario and Quebec, Canada, estimates price, consumption, emissions and welfare changes associated with fully integrating electricity markets, under transmission constraints. A negative abatement cost of $37/tonne of CO2 was found (for more than 1 million tonnes), clearly illustrating the untapped potential of wealth creation in carbon reduction initiatives. Furthermore, given the inefficiency of shallow integration between markets, we found that removing interconnections between markets offers a relatively affordable CO2-reduction opportunity, at $21.5/tonne.

Suggested Citation

  • Etienne Billette de Villemeur and Pierre-Olivier Pineau, 2016. "Integrating Thermal and Hydro Electricity Markets: Economic and Environmental Costs of not Harmonizing Pricing Rules," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    • Handle: RePEc:aen:journl:ej37-1-pineau
    as

    Download full text from publisher

    File URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=2678
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Zareipour, Hamidreza & Bhattacharya, Kankar & Canizares, Claudio A., 2007. "Electricity market price volatility: The case of Ontario," Energy Policy, Elsevier, vol. 35(9), pages 4739-4748, September.
    2. Richard Green & Nicholas Vasilakos, 2012. "Storing Wind for a Rainy Day: What Kind of Electricity Does Denmark Export?," The Energy Journal, , vol. 33(3), pages 1-22, July.
    3. Tol, Richard S. J., 2005. "The marginal damage costs of carbon dioxide emissions: an assessment of the uncertainties," Energy Policy, Elsevier, vol. 33(16), pages 2064-2074, November.
    4. Billette de Villemeur, Etienne & Pineau, Pierre-Olivier, 2012. "Regulation and electricity market integration: When trade introduces inefficiencies," Energy Economics, Elsevier, vol. 34(2), pages 529-535.
    5. Finon, Dominique & Romano, Elliot, 2009. "Electricity market integration: Redistribution effect versus resource reallocation," Energy Policy, Elsevier, vol. 37(8), pages 2977-2985, August.
    6. Billette de Villemeur, Etienne & Vinella, Annalisa, 2011. "Long-term contracting in hydro-thermal electricity generation: Welfare and environmental impact," Utilities Policy, Elsevier, vol. 19(1), pages 20-32, January.
    7. Billette de Villemeur, Etienne & Pineau, Pierre-Olivier, 2010. "Environmentally damaging electricity trade," Energy Policy, Elsevier, vol. 38(3), pages 1548-1558, March.
    8. Førsund, Finn R. & Singh, Balbir & Jensen, Trond & Larsen, Cato, 2008. "Phasing in wind-power in Norway: Network congestion and crowding-out of hydropower," Energy Policy, Elsevier, vol. 36(9), pages 3514-3520, September.
    9. Lijesen, Mark G., 2007. "The real-time price elasticity of electricity," Energy Economics, Elsevier, vol. 29(2), pages 249-258, March.
    10. Rangel, Luiz Fernando, 2008. "Competition policy and regulation in hydro-dominated electricity markets," Energy Policy, Elsevier, vol. 36(4), pages 1292-1302, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sébastien Debia, David Benatia, and Pierre-Olivier Pineau, 2018. "Evaluating an Interconnection Project: Do Strategic Interactions Matter?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    2. Muhumuza Ezra Rubanda & Livingstone Senyonga & Mohammed Ngoma & Muyiwa S. Adaramola, 2022. "Electricity Trading in Energy Market Integration: A Theoretical Review," Energies, MDPI, vol. 16(1), pages 1-31, December.
    3. Walter Cont & Diego Barril & Agustín Carbó, 2021. "Electricity trade in South America: An analysis based on the gravity equation," Asociación Argentina de Economía Política: Working Papers 4456, Asociación Argentina de Economía Política.
    4. Chenavaz, Régis Y. & Dimitrov, Stanko & Figge, Frank, 2021. "When does eco-efficiency rebound or backfire? An analytical model," European Journal of Operational Research, Elsevier, vol. 290(2), pages 687-700.
    5. Genc, Talat S. & Thille, Henry & ElMawazini, Khaled, 2020. "Dynamic competition in electricity markets under uncertainty," Energy Economics, Elsevier, vol. 90(C).
    6. Genc, Talat S., 2024. "Energy Transition and the role of new natural gas turbines for power production: The case of GT11N2 M generators," Energy Economics, Elsevier, vol. 131(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oseni, Musiliu O. & Pollitt, Michael G., 2016. "The promotion of regional integration of electricity markets: Lessons for developing countries," Energy Policy, Elsevier, vol. 88(C), pages 628-638.
    2. Amor, Mourad Ben & Pineau, Pierre-Olivier & Gaudreault, Caroline & Samson, Réjean, 2011. "Electricity trade and GHG emissions: Assessment of Quebec's hydropower in the Northeastern American market (2006-2008)," Energy Policy, Elsevier, vol. 39(3), pages 1711-1721, March.
    3. Anuta, Oghenetejiri Harold & Taylor, Phil & Jones, Darren & McEntee, Tony & Wade, Neal, 2014. "An international review of the implications of regulatory and electricity market structures on the emergence of grid scale electricity storage," Renewable and Sustainable Energy Reviews, Elsevier, vol. 38(C), pages 489-508.
    4. Billette de Villemeur, Etienne & Pineau, Pierre-Olivier, 2010. "Environmentally damaging electricity trade," Energy Policy, Elsevier, vol. 38(3), pages 1548-1558, March.
    5. Musiliu O. Oseni & Michael Pollitt, 2014. "Institutional arrangements for the promotion of regional integration of electricity markets: International Experience," Cambridge Working Papers in Economics 1428, Faculty of Economics, University of Cambridge.
    6. Billette de Villemeur, Etienne & Vinella, Annalisa, 2011. "Long-term contracting in hydro-thermal electricity generation: Welfare and environmental impact," Utilities Policy, Elsevier, vol. 19(1), pages 20-32, January.
    7. Arina Nikandrova & Jevgenijs Steinbuks, 2017. "Contracting for the second best in dysfunctional electricity markets," Journal of Regulatory Economics, Springer, vol. 51(1), pages 41-71, February.
    8. Jing Liang & Yueming Qiu & Bo Xing, 2021. "Social Versus Private Benefits of Energy Efficiency Under Time-of-Use and Increasing Block Pricing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(1), pages 43-75, January.
    9. Sapio, Alessandro & Spagnolo, Nicola, 2020. "The effect of a new power cable on energy prices volatility spillovers," Energy Policy, Elsevier, vol. 144(C).
    10. Halil Burak Sakal, 2021. "Turkey’s energy trade relations with Europe: The role of institutions and energy market," Energy & Environment, , vol. 32(7), pages 1243-1274, November.
    11. Zeng, Ming & Yang, Yongqi & Fan, Qiannan & Liu, Yingxin & Zou, Zhuojun, 2015. "Coordination between clean energy generation and thermal power generation under the policy of “direct power-purchase for large users” in China," Utilities Policy, Elsevier, vol. 33(C), pages 10-22.
    12. Angelica Gianfreda, 2010. "Volatility and Volume Effects in European Electricity Spot Markets," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 39(1‐2), pages 47-63, February.
    13. Valentina Bosetti & Jeffrey Frankel, 2014. "Sustainable Cooperation In Global Climate Policy: Specific Formulas And Emission Targets," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-34.
    14. Pycroft, Jonathan & Vergano, Lucia & Hope, Chris & Paci, Daniele & Ciscar, Juan Carlos, 2011. "A tale of tails: Uncertainty and the social cost of carbon dioxide," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-29.
    15. Jin, Ruiyang & Zhou, Yuke & Lu, Chao & Song, Jie, 2022. "Deep reinforcement learning-based strategy for charging station participating in demand response," Applied Energy, Elsevier, vol. 328(C).
    16. Liu, Xuewei & Yuan, Zengwei & Xu, Yuan & Jiang, Songyan, 2017. "Greening cement in China: A cost-effective roadmap," Applied Energy, Elsevier, vol. 189(C), pages 233-244.
    17. Söderholm, Patrik & Pettersson, Fredrik, 2008. "Climate policy and the social cost of power generation: Impacts of the Swedish national emissions target," Energy Policy, Elsevier, vol. 36(11), pages 4154-4158, November.
    18. Steve Newbold & Charles Griffiths & Christopher C. Moore & Ann Wolverton & Elizabeth Kopits, 2010. "The "Social Cost of Carbon" Made Simple," NCEE Working Paper Series 201007, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2010.
    19. Yagi, Chihiro & Takeuchi, Kenji, 2024. "Electricity storage or transmission? Comparing social welfare between electricity arbitrages," Energy Economics, Elsevier, vol. 140(C).
    20. Richard Tol, 2012. "On the Uncertainty About the Total Economic Impact of Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(1), pages 97-116, September.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aen:journl:ej37-1-pineau. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David Williams (email available below). General contact details of provider: https://edirc.repec.org/data/iaeeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.