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A New Zealand Electricity Market Model: Assessment of the effect of climate change on electricity production and consumption

Author

Listed:
  • Evans, Lewis
  • lu, Yinjia (Andrea)
  • Guthrie, Graeme

Abstract

In this paper we introduce a model of an electricity market and use it to explore the effect of climate change on electricity prices and output. It has multiple generation fuels uncertain fuel availability and storage options. The model is formulated in continuous time which mimics the many short trading periods common to electricity spot markets. It properly incorporates forward-looking generation decision making. It is calibrated to the New Zealand Electricity Market and is used to estimate the effects of changes that may arise in characteristics of fuels - water and gas - as a consequence of climate change and climate change policies. It does so under the polar cases of a competitive market structure and monopoly. The results illustrate the importance of allowing for volatility and including management of storage in electricity market models. They suggest that reductions in average hydro fuel availability will reduce welfare significantly that increases in the volatility of hydro fuel availability will also affect welfare but to a very small extent and that the value of reservoir expansion is sensitive to the distribution of hydro fuel availability. The effects of a carbon tax are reported.

Suggested Citation

  • Evans, Lewis & lu, Yinjia (Andrea) & Guthrie, Graeme, 2010. "A New Zealand Electricity Market Model: Assessment of the effect of climate change on electricity production and consumption," Working Paper Series 19161, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    • Handle: RePEc:vuw:vuwcsr:19161
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    File URL: https://ir.wgtn.ac.nz/handle/123456789/19161
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    References listed on IDEAS

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    1. Cox, John C. & Ingersoll Junior, Jonathan E. & Ross, Stephen A., 2007. "A theory of the term structure of interest rates," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 47(2), April.
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    4. Lewis Evans & Graeme Guthrie, 2006. "Incentive Regulation of Prices When Costs are Sunk," Journal of Regulatory Economics, Springer, vol. 29(3), pages 239-264, May.
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    8. Guthrie, Graeme, 2009. "Real Options in Theory and Practice," OUP Catalogue, Oxford University Press, number 9780195380637.
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    Cited by:

    1. is not listed on IDEAS
    2. Lewis Evans & Seamus Hogan & Peter Jackson, 2012. "A critique of Wolak's evaluation of the NZ electricity market: Afterword," New Zealand Economic Papers, Taylor & Francis Journals, vol. 46(1), pages 51-52, December.
    3. repec:vuw:vuwscr:19216 is not listed on IDEAS
    4. Lewis Evans & Seamus Hogan & Peter Jackson, 2012. "A critique of Wolak's evaluation of the NZ electricity market: Introduction and overview," New Zealand Economic Papers, Taylor & Francis Journals, vol. 46(1), pages 1-10, November.
    5. Lewis Evans & Seamus Hogan & Peter Jackson, 2012. "A critique of Wolak's evaluation of the NZ electricity market: Introduction and overview," New Zealand Economic Papers, Taylor & Francis Journals, vol. 46(1), pages 1-10, November.
    6. repec:vuw:vuwscr:19239 is not listed on IDEAS
    7. de Braganca, Gabriel Fiuza & Daglish, Toby, 2012. "Can market power in the electricity spot market translate into market power in the hedge market?," Working Paper Series 4130, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    8. de Braganca, Gabriel Fiuza & Daglish, Toby, 2012. "Can market power in the electricity spot market translate into market power in the hedge market?," Working Paper Series 19239, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.

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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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