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The law and economics of negative electricity prices and climate change


School of Social Sciences

About the Project

Investments in renewable energy have actively been encouraged in many countries. However, the despatch of renewable energy generation, such as wind or solar, and its interaction with hydro generation, tends to increase the incidence of negative prices in electricity markets (EIA 2017). Prices for wholesale electricity, predominantly in bilateral spot markets in the US Pacific Northwest, are sometimes negative because certain generators, such as nuclear, hydroelectric, or wind, are unwilling or unable to cut output temporarily when demand is weak (EIA 2012). Various reasons have discernibly encouraged generators to operate continuously even if supply outstrips demand, such as technical or cost recovery factors in the case of nuclear plants; compliance with environmental regulations (e.g. the control of water flow maintaining fish populations) in the case of hydroelectric plants; the Production Tax Credit (“PTC”) attracting payments for sold electricity in the case of renewable energy generators (mostly wind); and maintenance or fuel-cost penalties on shut-down or start-up decisions in the case of large steam turbine plants (usually fossil fuel).

In other words, part of the supply inflexibility resulting in negative prices is due to the provision of the PTC for renewable energy generation. There is evidence, in fact, that wind plants claiming the Investment Tax Credit (“ITC”) are incentivised to generate at least 10% less electricity than those claiming the PTC (Aldy et al 2019). However, there is also evidence in four of the largest US electricity markets that marginal emissions tend to be higher (not lower) when electricity prices are negative. In other words, an output subsidy, such as the PTC, effectively encourages electricity production, but could be less efficient than a Pigouvian tax for the control of carbon. Moreover, the price level and its duration over time are some of the most important signals for capacity investments. Unprofitably low prices could discourage additions to capacity or cause profound distortions in investment decisions. These issues are at the heart of the energy transition (from fossil fuels to renewables) and climate change.

The PhD project we are proposing, decidedly an interdisciplinary initiative, seeks to assess the social welfare implications (Sunstein 2017) of the generation capacity mix in light of the tendency for negative electricity prices. We envision the construction and operation of a policy simulation tool, in particular, an optimisation model, reflecting the technical, commercial, and regulatory characteristics of electric power markets (Gabriel et al 2013). Such an optimisation tool could shed light on various cognate topics, such as inter-temporal or locational pricing, strategic behaviour amongst competitors (Hakam and Macatangay 2018), poorly designed legislation or regulation (Macatangay and Rieu-Clarke 2018; Clarvis et al 2014), or climate change (Maran et al 2014), especially the crucial role of policies promoting renewables or pricing carbon.

For informal enquiries about the project, contact Dr Rafael Emmanuel Macatangay ()
For general enquiries about the University of Dundee, contact


QUALIFICATIONS
Applicants must have obtained a 2.1 UK honours degree or higher in a relevant discipline, or equivalent for degrees obtained outside the UK. Applicants should normally have a good taught Masters degree (e.g. an average of B or higher) or equivalent in a relevant discipline from a recognised university.

English language requirement: IELTS (Academic) score must be at least 6.5 (with not less than 5.5 in each of the four components). Other, equivalent qualifications will be accepted. Full details of the University’s English language requirements are available online: http://www.dundee.ac.uk/guides/english-language-requirements.


APPLICATION PROCESS

Step 1: Email Dr Rafael Emmanuel Macatangay () to (1) send a copy of your CV and (2) discuss your potential application and any practicalities (e.g. suitable start date).

Step 2: After discussion with Dr Macatangay, formal applications can be made via UCAS Postgraduate. When applying, please follow the instructions below:

Apply for the Doctor of Philosophy (PhD) degree in the Centre for Energy, Petroleum and Mineral Law and Policy: https://digital.ucas.com/coursedisplay/courses/d62f054d-7fcd-a6b9-5cdf-ef709bccc45e. Select the start date and study mode (full-time/part-time) agreed with the lead supervisor.

In the ‘provider questions’ section of the application form:
- Write the project title and ‘FindAPhD.com’ in the ‘if your application is in response to an advertisement’ box;
- Write the lead supervisor’s name and give brief details of your previous contact with them in the ‘previous contact with the University of Dundee’ box.

In the ‘personal statement’ section of the application form, outline your suitability for the project selected.

Funding Notes

There is no funding attached to this project. The successful applicant will be expected to provide the funding for tuition fees and living expenses, via external sponsorship or self-funding.

References

Aldy J, Gerarden T, Sweeney R (2019) “Investment versus output subsidies: implications of alternative incentives for wind energy” Harvard University Kennedy School of Government manuscript.

Clarvis M, Allan A, Hannah D (2014) “Water, resilience and the law: From general concepts and governance design principles to actionable mechanisms” Environmental Science & Policy 43: 98–110

EIA (2012) “Negative prices in wholesale electricity markets indicate supply inflexibilities” February 23rd. https://www.eia.gov/todayinenergy/detail.php?id=5110.

EIA (2017) “Rising solar generation in California coincides with negative wholesale electricity prices” April 7th

Gabriel S, Conejo A, J Fuller, Hobbs B, Ruiz C (2013) Complementarity modeling in energy markets. Springer, New York Heidelberg Dordrecht London

Hakam D, Macatangay R (2018) “Optimising Indonesia’s electricity market structure: evidence of Sumatra and Java-Bali power system” Proceedings of the 19th International Conference on Industrial Technology. Lyon, France: IEEE https://doi.org/10.1109/ICIT.2018.8352360

Macatangay R, Rieu-Clarke A (2018) “The role of valuation and bargaining in optimising transboundary watercourse treaty regimes” International Environmental Agreements: Politics, Law and Economics https://doi.org/10.1007/s10784-018-9396-y

Maran A, Volonterio M, Gaudard L (2014) “Climate change impacts on hydropower in an alpine catchment” Environmental Science & Policy 43: 15-25

Sunstein C (2017) “Cost-benefit analysis and arbitrariness review” Harvard Environmental Law Review 41: 1-41

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