(Press-News.org) Forward markets—over-the-counter marketplaces that set the price of a financial instrument or asset—are used to trade a variety of instruments, including securities and commodities. In a new study, researchers measured the extent to which forward prices and spot prices (the current market price at which a given asset can be bought or sold for immediate delivery) agreed in markets with transaction costs in California, studying time periods before and after the state introduced financial trading to its wholesale electricity market in 2011.
The study found that allowing trading in this market led to a reduction in the implicit cost of trading day-ahead/real-time price differences, the volatility of these price differences, and the volatility of real-time prices. In addition, operating costs and fuel use fell on days after the introduction of purely financial participation.
The study, by researchers at Carnegie Mellon University (CMU) and Stanford University, is published in American Economic Journal: Economic Policy.
“Our results have important implications for the design of wholesale electricity markets with large shares of intermittent renewable resources,” says Akshaya Jha, assistant professor of economics and public policy at CMU’s Heinz College, who led the study.
Forward markets are believed to aggregate information about future spot prices and reduce the cost of producing the commodity. But it has been difficult to link increases in forward market liquidity to reductions in production costs due to the long time period over which most commodities are produced and traded. To examine changes in forward-spot price convergence after the implementation of financial trading, researchers measured the 24-dimensional vector of hourly average day-ahead prices at a location in the transmission network versus the 24-dimensional vector of hourly average real-time prices at the same location.
Using this model, they computed two measures of implied transaction costs using hourly, location-specific data on day-ahead and real-time prices from April 1, 2009, to November 30, 2012, before and after financial trading began at most pricing locations in California. The California Independent System Operator introduced financial participation on February 1, 2011, to reduce differences between day-ahead and real-time prices at more than 4,000 locations in the state’s transmission network.
The study found that both measures fell substantially after California introduced purely financial participation. In addition, both measures fell more at locations where trading was restricted prior to the introduction of financial trading. This suggests that allowing financial trading resulted in day-ahead prices that better reflect real-time conditions.
The study’s findings also suggest that physical market outcomes improved as a consequence of the better information encapsulated in day-ahead prices after financial trading. Namely, they show that residualized fuel cost per megawatt hour (MWh) of gas-fired output and input fuel use per MWh of gas-fired output fell after financial trading was introduced on days when the complexity of the real-time market-clearing problem was high but not on days when complexity was low–again, indicative of the importance of improved day-ahead information. The results remained similar regardless of whether complexity was measured using daily total demand, the daily standard deviation across locations and hours in real-time prices, or the total number of daily starts. The study’s authors estimated that fuel costs per MWh fell 2% after the introduction of financial trading on high-demand days relative to low-demand days. This would result in an average $16.6 million reduction in annual total fuel costs.
As the share of electricity demand in a region grows, system operators are often required to impose more operating constraints on day-ahead and real-time markets to maintain the balance between supply and demand throughout the day. Controllable generation resources with positive startup costs are also likely to fluctuate more frequently because intermittent renewables can start and stop producing with very little notice. Rising transmission network constraints are also likely to bind as the percentage of electricity production from wind and solar resources distributed across the grid increases.
“The location-specific bids and offers submitted by purely financial participants can reduce day-ahead/real-time price differences caused by uncertainty in intermittent renewable output,” explains Frank Wolak, professor of economics at Stanford University, who coauthored the study. “These financial bids and offers can also ensure that the least-cost combination of controllable resources is available to compensate for fluctuations in real-time output from intermittent renewables on high-complexity days.”
END
Allowing financial trading in California’s wholesale electricity market significantly reduced volatility of prices, electricity production costs, carbon emissions
2023-05-22
ELSE PRESS RELEASES FROM THIS DATE:
Unpacking consumer research: identifying trends, emerging topics, and key insights
2023-05-22
Researchers from Newcastle Business School, The University of Newcastle, and UNSW Business School, University of New South Wales, published a new paper in the Journal of Consumer Psychology that provides a comprehensive review of consumer research journals from both marketing and non-marketing disciplines.
By identifying gaps in the literature, the paper offers guidance for those seeking to further progress consumer research.
The article, recently published in the Journal of Consumer Psychology, “’Inside’ ...
Why consumers forgo front-row seats: Sacrificing experience quality for togetherness
2023-05-22
Researchers from, Texas A&M University’s Mays Business School, Harvard University’s Harvard Business School, and University of Maryland’s Robert H. Smith School of Business, published a new paper in the Journal of Consumer Psychology that provides novel insights about how consumers make trade-offs between experience quality and togetherness.
The paper offers sheds new light on the choices people make when presented with the option of improving an activity separately (with first-class airline tickets, for ...
How intermittent feedback drives consumer impatience
2023-05-22
Researchers from Fudan University’s School of Management published a new paper in the Journal of Consumer Psychology that provides original insights about the impact different types of feedback consumers have on consumers’ psychological state.
Specifically, the research examines “piecemeal” feedback informing consumers of their progress or performance during each step of an online process such as making a purchase, playing a computer game, or customizing a product. The work compares intermittent feedback with “lump sum” feedback offered at the end of a ...
Study points out errors in illustrations of one of the most famous scientific experiments
2023-05-22
Illustrations of scientific experiments play a fundamental role in both science education and the dissemination of scientific knowledge to the general public. Confirming the adage that “a picture is worth a thousand words,” these depictions of famous experiments remain in the minds of those who study them and become definitive versions of the scientific process. Archimedes in the bath discovering the law of buoyancy; Newton refracting sunlight with a prism and defining the principles of modern optics; Mendel cultivating peas and laying the foundations of genetics – these are just a few well-known ...
For urban children with asthma, where they live is strongest predictor of exacerbations
2023-05-22
ATS 2023, Washington, DC – For children with asthma residing in urban areas, the neighborhood they live in is a stronger predictor of whether they will have exacerbations (asthma attacks) than their family’s income or their parents’ level of educational attainment, according to research published at the ATS 2023 International Conference.
“Research has shown that social determinants of health underlie significant health disparities among children with asthma,” said the study’s corresponding author Emily Skeen, MD, pediatric pulmonary fellow, University of Colorado at Children’s Hospital Colorado, Aurora. ...
Public aware of and accept use of bacteria-killing viruses as alternative to antibiotics, study shows
2023-05-22
The public are in favour of the development of bacteria-killing viruses as an alternative to antibiotics – and more efforts to educate will make them significantly more likely to use the treatment, a new study shows.
The antimicrobial resistance (AMR) crisis means previously treatable infections can kill. This has revitalised the development of antibiotic alternatives, such as phage therapy, which was first explored over a century ago but abandoned in many countries in favour of antibiotics.
The study shows public acceptance of phage therapy is already ...
How a drought affects trees depends on what’s been holding them back
2023-05-22
(Santa Barbara, Calif.) — Droughts can be good for trees. Certain trees, that is.
Contrary to expectation, sometimes a record-breaking drought can increase tree growth. Why and where this happens is the subject of a new paper in Global Change Biology.
A team of scientists led by Joan Dudney at UC Santa Barbara examined the drought response of endangered whitebark pine over the past century. They found that in cold, harsh environments — often at high altitudes and latitudes — drought ...
RIT and URMC researchers study maternal nutrition and oral health for clues to childhood tooth decay
2023-05-22
Researchers from Rochester Institute of Technology and the University of Rochester Medical Center are taking a closer look at nutritional factors during pregnancy and in infancy associated with severe tooth decay in young children.
Brenda Abu, assistant professor in RIT’s Wegmans School of Health and Nutrition and a researcher in maternal and child health, is collaborating on a study to investigate the Oral Microbiome in Early Infancy (OMEI) and Nutrition. Perinatal oral health expert Dr. Jin Xiao, associate professor at the Eastman Institute for Oral Health, is leading a large project funded by the National ...
Two small businesses added to Sandia National Laboratories’ Mentor-Protégé program
2023-05-22
ALBUQUERQUE, N.M. — Sandia National Laboratories grew its Mentor-Protégé program from three companies to five with the addition of Dynamic Structures and Materials, LLC of Franklin, Tennessee, and Compunetics Inc., of Monroeville, Pennsylvania. The program not only helps small businesses develop and grow, but also helps foster long-term relationships that help Sandia achieve its mission.
As one of 17 DOE national laboratories, Sandia’s mission includes: anticipating and resolving emerging national security challenges and innovating and ...
Scientists at Wake Forest University School of Medicine discover metabolic sensor may play role in Alzheimer’s disease
2023-05-22
WINSTON-SALEM, N.C. – May 22, 2023 – It’s well-known that people with Type 2 diabetes are at an increased risk of developing Alzheimer’s disease, but the reason why isn’t fully understood and is an area of current research.
Now, scientists at Wake Forest University School of Medicine have uncovered a novel mechanism that shows increased sugar intake and elevations in blood glucose are sufficient to cause amyloid plaque buildup in the brain, which increases the risk of Alzheimer’s disease. Amyloid plaque is made up of toxic proteins in the brain.
The study findings appear online ...