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Diaz, G., Munoz, F. D., & Moreno, R. (2020). Equilibrium Analysis of a Tax on Carbon Emissions with Pass-through Restrictions and Side-payment Rules. Energy J., 41(2), 93–122.
Abstract: Chile was the first country in Latin America to impose a tax on carbon-emitting electricity generators. However, the current regulation does not allow firms to include emission charges as costs for the dispatch and pricing of electricity in real time. The regulation also includes side-payment rules to reduce the economic losses of some carbon-emitting generating units. In this paper we develop an equilibrium model with endogenous investments in generation capacity to quantify the long-run economic inefficiencies of an emissions policy with such features in a competitive setting. We benchmark this policy against a standard tax on carbon emissions and a cap-and-trade program. Our results indicate that a carbon tax with such features can, at best, yield some reductions in carbon emissions at a much higher cost than standard emission policies. These findings highlight the critical importance of promoting short-run efficiency by pricing carbon emissions in the spot market in order to incentivize efficient investments in generating capacity in the long run.
Keywords: Carbon tax; Equilibrium modeling; Market design
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Fernandez, M., Munoz, F. D., & Moreno, R. (2020). Analysis of imperfect competition in natural gas supply contracts for electric power generation: A closed-loop approach. Energy Econ., 87, 15 pp.
Abstract: The supply of natural gas is generally based on contracts that are signed prior to the use of this fuel for power generation. Scarcity of natural gas in systems where a share of electricity demand is supplied with gas turbines does not necessarily imply demand rationing, because most gas turbines can still operate with diesel when natural gas is not available. However, scarcity conditions can lead to electricity price spikes, with welfare effects for consumers and generation firms. We develop a closed-loop equilibrium model to evaluate if generation firms have incentives to contract or import the socially-optimal volumes of natural gas to generate electricity. We consider a perfectly-competitive electricity market, where all firms act as price-takers in the short term, but assume that only a small number of firms own gas turbines and procure natural gas from, for instance, foreign suppliers in liquefied form. We illustrate an application of our model using a network reduction of the electric power system in Chile, considering two strategic firms that make annual decisions about natural gas imports in discrete quantities. We also assume that strategic firms compete in the electricity market with a set of competitive firms do not make strategic decisions about natural gas imports (i.e., a competitive fringe). Our results indicate that strategic firms could have incentives to sign natural gas contracts for volumes that are much lower than the socially-optimal ones, which leads to supernormal profits for these firms in the electricity market. Yet, this effect is rather sensitive to the price of natural gas. A high price of natural gas eliminates the incentives of generation firms to exercise market power through natural gas contracts. (C) 2020 Elsevier B.V. All rights reserved.
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Moreno, R., Bezerra, B., Rudnick, H., Suazo-Martinez, C., Carvalho, M., Navarro, A., et al. (2020). Distribution Network Rate Making in Latin America. IEEE Power Energy Mag., 18(3), 33–48.
Abstract: Following the trend observed in developed economies, various Latin American governments are committed to reducing greenhouse gas emissions, particularly in the power sector. In countries such as Chile, Peru, Colombia, Brazil, and Mexico, various regulatory policies have been issued to meet renewable-generation integration targets and satisfy the increasing demand from consumers for supply quality. Meanwhile, the integration of distributed generation (DG) in rural and urban areas as well as the increasing need to integrate electric vehicles (EVs) in urban areas are driving important reforms in the distribution sector.
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Munoz, F. D., Suazo-Martinez, C., Pereira, E., & Moreno, R. (2021). Electricity market design for low-carbon and flexible systems: Room for improvement in Chile. Energy Policy, 148(B), 111997.
Abstract: Chile was the first country that privatized all generation, transmission, and distribution services, and introduced competition in the generation segment. Nearly four decades after its creation, many features of the original electricity market design remain unchanged. In this paper, we provide a brief history of the Chilean electricity market and explain its main limitations going forward. Some of these include the use of a cost-based mechanism for spot transactions based on a merit-order curve, low temporal granularity of spot prices, missing forward markets to settle deviations from day-ahead commitments, inefficient pricing of greenhouse gas emissions due to administrative rules, and a capacity mechanism that does not reflect a clear resource adequacy target. Many of these limitations are also present in other electricity markets in Latin America that, when privatized, mirrored many features of the electricity market design in Chile. Failing to address these limitations will provide distorted incentives for the efficient entry and operation of resources that could impart flexibility to the system, increasing the cost of decarbonizing the power sector.
Keywords: Market design; Electricity; Flexibility; Decarbonization
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Pichel, A., Moreno, R., Figueroa, M., Campos, J. L., Mendez, R., Mosquera-Corral, A., et al. (2019). How to cope with NOB activity and pig manure inhibition in a partial nitritation-anammox process? Sep. Purif. Technol., 212, 396–404.
Abstract: The treatment of pig manure can be performed by anaerobic digestion to diminish the organic matter content and produce biogas, and the resulting digestate has to be subsequently treated for the removal of nitrogenous compounds. The partial nitritation-anammox (PN-AMX) process constitutes an interesting alternative. In the present study, three different short experiments were initially performed to study the influence of nitrite oxidizing bacteria (NOB) present in the inoculum and the pig manure composition over the start-up of the PN-AMX process. The presence of NOB in the inoculum showed to be more crucial than the available anammox activity for a good performance of the PN-AMX process. Batch activity experiments showed a reduction of at least 44.4% in the maximum specific anammox activity due to the pig manure, probably owed to its conductivity (between 6 and 8 mS/cm). In the subsequent long-term operation of the PN-AMX process with non-diluted pre-treated pig manure, the NOB were successfully limited for DO concentrations of 0.1 mg O-2/L, and a nitrogen removal rate (NRR) of 0.1 g N/(L.d) was achieved despite the presence of significant NOB activity in the start-up. A strict control of the DO concentration, with an optimal range of 0.07-0.10 mg O-2/L, was fundamental to balance the removal of nitrogen by PN-AMX and prevent NOB activity. The presence of organic matter, with a ratio sCOD/N in the influent between 0.18 and 1.14 g/g, did not hinder the PN-AMX process, and the contribution of heterotrophic denitrification to the removal of nitrogen was less than 10%.
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Reus, L., Munoz, F. D., & Moreno, R. (2018). Retail consumers and risk in centralized energy auctions for indexed long-term contracts in Chile. Energy Policy, 114, 566–577.
Abstract: Centralized energy auctions for long-term contracts are commonly-used mechanisms to ensure supply adequacy, to promote competition, and to protect retail customers from price spikes in Latin America. In Chile, the law mandates that all distribution companies must hold long-term contracts – which are awarded on a competitive centralized auction – to cover 100% of the projected demand from three to fifteen years into the future. These contracts can be indexed to a series of financial parameters, including fossil fuel prices at reference locations. Drawing from portfolio theory, we use a simple example to illustrate the difficulties of selecting, through the current clearing mechanism that focuses on average costs and individual characteristics of the offers, a portfolio of long-term energy contracts that could simultaneously minimize the expected future cost of energy and limit the risk exposure of retail customers. In particular, we show that if the objective of the regulator is to limit the risk to regulated consumers, it could be optimal to include contracts that would not be selected based on individual characteristics of the offers and a least-cost auction objective, but that could significantly reduce the price variance of the overall portfolio due to diversification effects between indexing parameters.
Keywords: Price risk; Energy auctions; Portfolio optimization
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