Join us this Thursday, February 27th, at 3:00 PM for the next TREE Seminar with Happy Hour to follow!
Date & Time: Thursday, February 27th, 3:00-4:15 PM
*Please note that the seminar time has changed.*
Please join us for the next Triangle Resources and Environmental Economics (TREE) Seminar. The TREE Seminar Series, an ongoing forum co-sponsored by RTI International, Duke University, and the Center for Environmental and Resource Economic Policy (CEnREP), brings researchers from around the country to the Triangle to discuss a variety of economic and policy-based solutions to many of today’s most pressing environmental challenges. All students, faculty, and staff are welcome to attend. This week features the following presentation:
Dr. Fiona Burlig, Assistant Professor at the Harris School of Public Policy, University of Chicago
“Out-of-merit Costs and Blackouts: Evidence from the Indian Wholesale Electricity Market”
Abstract: Rolling blackouts are a common feature of electricity markets in developing countries. If distribution utilities are price sensitive, providing less electricity when the marginal costs of generation are high—that is, if wholesale electricity demand is elastic—, then supply-side distortions that raise wholesale prices will reduce the quantity of electricity that ultimately reaches consumers. In this paper, we document two key facts about the Indian electricity market. First, demand for electricity in the wholesale market is downward sloping and substantially more elastic than in Western markets. Second, we demonstrate that power plant outages are an important contributor to out-of-merit generation. We show that the timing of these outages in the full market, where 90 percent of electricity is provided via long-term contracts, is unresponsive to demand shifters. However, plants participating on the spot market increase their quantity in response to these same shifters, suggesting that incentives can play an important role in outage decisions. We conduct a simple back-of-the-envelope exercise in which we add capacity under outage into the spot market supply curve, to simulate a shift to market incentives, and find that relatively small changes in outages among low-marginal cost plants can lead to decreases in the wholesale price and increases in quantity supplied. These changes in quantities would be enough to reduce Indian utilities’ claimed shortages by 15 percent, suggesting that there may be room for market mechanisms to improve outcomes in the Indian wholesale power sector.
Immediately following the seminar, all are welcome to join Dr. Burlig for a Happy Hour at Mez Contemporary Mexican in Durham!
The TREE Seminar Series is presented by RTI International, Duke University, and the Center for Environmental and Resource Economic Policy (CEnREP).