Research
Job Market Paper
Residental Solar Photovoltaic and Distributional Effects: Net Metering vs. Other Policies
This paper investigates the impact of the net metering policy on residential solar photovoltaic adoption and its distributional effects across different wealth groups. The findings show that net metering accounts for 79.21% of residential solar capacity from 2012 to 2022, along with a regressive effect where households in the lowest 20% wealth group contribute a net 11.15% of the total subsidy, while the highest 20% wealth group receives a net 10.38% of subsidy. Replacing the net metering policy with feed-in premiums or the upfront subsidy only improves the redistribution by less than 1%. Moreover, compared to the net metering policy, feed-in premiums encourage larger PV installations, and upfront subsidy promotes smaller capacities. Consequently, feed-in premiums export 13.37% more electricity to the grid, and the average installation cost is 11.93% higher when an upfront subsidy applies. This implies that a simple policy replacement may not address issues such as inequality and rising grid costs with net metering.
Working Papers
Flexibility in Power System: Market Design Matters, with Bert Willems
The growing share of renewable energy requires sufficient investment in power system flexibility. In this paper, we frame a three-stage peak-load pricing model consisting of investment, commitment, and production, considering that electricity generation is costly to adjust on short notice. The results demonstrate the importance of increasing time granularity in electricity markets with efficient state-contingent prices. Adapting the idea of real options theory that waiting is valuable, flexible firms avoid producing in the low-demand state and earn a premium to recoup investment costs. On top of that, this paper discusses the efficiency of alternative market designs in the investment of flexible assets. In the absence of an efficient real-time market, day-ahead forward price results in under-investment in flexible technologies and over-investment in inflexible ones. This distortion, in theory, can be corrected by a time-varying options market with technology-specific payment while any centralized auction fails to achieve optimum. Finally, this work briefly illustrates the effect of demand flexibility, showing that an increase in demand response does not necessarily reduce the reliance on production flexibility if rationing is done randomly.
Papers in Progress
Electricity Forward Premium: Renewable Integration and Skewness Preference, with Ronald Huisman and Bert Willems
This paper presents new components that explain the risk premium priced in electricity forward and futures contracts. These components relate to the inclusion of renewable power sources in electricity markets. We build upon the equilibrium pricing model presented by Bessembinder and Lemmon (2002), which comes from a time wherein intermittent renewable power supply was negligible. We extend their framework by including intermittent supply from zero marginal costs renewable power sources such as wind and solar and by assuming that agents consider mean-variance-skewness preferences instead of mean-variance only. Beyond variance and skewness of wholesale spot prices as components found before, we show that components that relate to the covariance and coskewness between renewable supply and spot prices explain the power forward risk premium as well. We find empirical evidence that these new components are statistically significant and improve the explanatory power of empirical regressions. Our results suggest the importance of considering the asymmetry of renewable supply shocks in explaining electricity forward premiums.