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The Role of Continuous Intraday Electricity Markets: The Integration of Large-Share Wind Power Generation in Denmark

Fatih Karanfil and Yuanjing Li

Year: 2017
Volume: Volume 38
Number: Number 2
DOI: 10.5547/01956574.38.2.fkar
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Abstract:
This paper suggests an innovative idea to examine the functionality of an intraday electricity market by testing causality among its fundamental components. Using Danish and Nordic data, it investigates the main drivers of the price difference between the intraday and day-ahead markets, and causality between wind forecast errors and their counterparts. Our results show that the wind and conventional generation forecast errors significantly cause the intraday price to differ from the day-ahead price, and that the relative intraday price decreases with the unexpected amount of wind generation. Cross-border electricity exchanges are found to be important to handle wind forecast errors. Additionally, some zonal differences with respect to both causality and impulse responses are detected. This paper provides the first evidence on the persuasive functioning of the intraday market in the case of Denmark, whereby intermittent production deviations are effectively reduced, and wind forecast errors are jointly handled through the responses from demand, conventional generation, and intraday international electricity trade.



Cooperate or Compete? Insights from Simulating a Global Oil Market with No Residual Supplier

Bertrand Rioux, Abdullah Al Jarboua, Fatih Karanfil, Axel Pierru, Shahd Al Rashed, and Colin Ward

Year: 2022
Volume: Volume 43
Number: Number 2
DOI: 10.5547/01956574.43.2.brio
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Abstract:
Structural changes in the oil market, such as the rise of tight oil, are impacting conventional market dynamics and incentives for producers to cooperate. What if OPEC stopped organizing residual production collectively? We develop an equilibrium model to simulate a competitive world oil market from 2020 to 2030. It includes detailed conventional and unconventional oil supplies and financial investment constraints. Our competitive market scenarios indicate that oil prices first decline and tend to recover to reference residual supplier scenario levels by 2030. In a competitive oil market, a reduction in the financial resources made available to the global upstream oil sector leads to increased revenues for low-cost producers such as Saudi Arabia. Compared to the competitive scenario, Saudi Arabia does not benefit from acting alone as a residual supplier, but, under some assumptions, it benefits from being part of a larger group that works collectively as a residual supplier.



Energy Transition in Oil-Dependent Economies: Public Discount Rates for Investment Project Evaluation

Fatih Karanfil and Axel Pierru

Year: 2024
Volume: Volume 45
Number: Special Issue
DOI:
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Abstract:
Selecting welfare-enhancing projects necessitates determining the present value of cash flows from a public policy perspective. For an oil-exporting economy, the domestic energy transition often implies displacing oil from domestic consumption. Economic dependence on oil affects the public discount rate for oil price-related cash flows in two opposite ways: On the one hand, it renders the economy more volatile, which lowers the risk-free discount rate; on the other hand, it increases the correlation between consumption and the oil price, which results in a higher risk premium. To study these opposite forces, we first derive the public discount rate for an oil price-related investment project. Our framework considers economic uncertainty, an oil price-related risk premium, and allows for valuing oil at its opportunity cost. We illustrate our methodology using data from a panel of 26 oil-exporting countries. The results indicate that a risk-free discount rate of 3.1% is appropriate for our panel. However, to discount oil price-related cash flows, a risk premium of 1.4% needs to be added to the risk-free rate, which yields a risk-adjusted real discount rate of 4.5%. We find significant disparities between country-specific public discount rates. Additionally, for each country, we assess the present value of reducing domestic oil consumption by a barrel per day from 2023 to 2040, breaking down the different effects. Oil-exporting countries can use our estimates for making investment or policy decisions.





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