The transformation of the European electricity system from centralized fossil-based generation to a decentralized renewable-based system poses challenges for the current market design with uniform national price zones. This design lacks spatially differentiated investment signals and market incentives for grid-supportive flexibility behavior. This study examines various market design options—such as bidding zone reconfigurations, capacity payments, and dynamic tariffs—and analyzes their combined effects on investment decisions, dispatch and ex-post congestion management. A multi-level electricity market model is applied to the German power system for the year 2030, incorporating market-driven investments and system operation. Results indicate that a uniform price zone leads to suboptimal investment signals and inefficient deployment of flexibility options. Capacity payments can ensure overall installed capacity levels but fail to provide regional incentives. In contrast, zonal pricing reflects structural congestion and aligns investment incentives with grid information, substantially improving flexibility deployment and reducing congestion. Overall, regional price differentiation emerges as the key driver of efficient investment and system operation, while capacity payments and dynamic tariffs only unfold additional value when combined with such locational signals.
Number 3
ISSN 2160-5890 (Online)
The Role of Finance and Income in Energy Diversification: A Club Convergence Analysis of Asia-Pacific
The Asia-Pacific region is the world’s largest energy consumer, yet energy diversification across countries remains significantly uneven despite rising demand and renewable progress. This study examines whether energy diversification is converging in the region and how financial development and economic wealth influence this process. Using data from 40 countries between 1997 and 2021, we found that countries with initially low diversification have improved faster, and regional disparities have narrowed. However, the distribution of diversification levels reveals two distinct peaks, suggesting the presence of convergence clubs. The log-t test confirms this by rejecting full convergence and identifying two clubs: Club 1 (14 countries) with low and slightly declining diversification, and Club 2 (22 countries) with high and increasing diversification. Regional-level regression results show financial development as the strongest driver of energy diversification, followed by per capita income. At the club level, financial development consistently supports diversification, but income has mixed effects negatively associated with diversification in Club 1 and weakly positive in Club 2. These findings underscore the need for club-specific strategies, with policymakers tailoring interventions to their country’s club membership, energy diversification level, and development stage.
Long-run Price Transmission of Alternative Fuels
Alternative fuels have become increasingly important in the U.S. fuel market in the last few decades. While most previous literature has focused on oil, gasoline, and biofuel prices, the studies on the topic of multiple alternative fuel prices across regions were limited. Using the fuel price data from seven U.S. districts, our study investigates the horizontal price transmission between gasoline and alternative fuels, as well as the vertical price transmission between marginal costs and alternative fuels. Our analysis reveals a deeply integrated U.S. fuel market. Specifically, a 1% rise in gasoline prices corresponds to a 0.811% increase in ethanol prices and a 1.053% increase in biodiesel prices. This positive connection is further confirmed when analyzing price returns, indicating that alternative fuel prices move in tandem with their substitutes. Additionally, the examination of vertical price transmission reveals that higher marginal cost of propane is associated with rising propane prices.
Assessing the Economic Impact of Photovoltaic Generation on Electricity Prices and Consumer Economic Benefits under Feed-in Tariff System: Evidence from Japan
In this study, the impact of photovoltaic generation on electricity prices and net consumer benefits is evaluated by accounting for the cost of a feed-in tariff system. A structural model is utilized to estimate electricity prices in a counterfactual scenario in which photovoltaics are not generated, and the results are compared with actual prices to evaluate the consumer economic benefits of photovoltaic adoption. To quantitatively estimate the consumer economic benefit, an empirical analysis is performed by using the data on electricity prices, electricity demand, and photovoltaic generation in Japan. The results indicate positive consumer economic benefits owing to the adoption of photovoltaics in recent years, particularly during the summer, which confirms the theoretical prediction that the net economic benefits from photovoltaics increase with increasing electricity demand and difference between photovoltaic generation and the demand. These results offer practical insight for implementing policies that balance renewable energy expansion with economic feasibility. By applying the insights on consumer economic benefits, policymakers could more accurately adjust the feed-in tariff to balance the cost of photovoltaic installation with the consumer burden.