Research
Selected Publications
Guo, Bowei*, (2023), "The Spillover Effect of Peak Pricing", Journal of Environmental Economics and Management, Volume 121, September, 102845.
Abstract: Understanding consumer behaviours is important in designing dynamic tariffs, which are usually considered the first-best solution when the conventional flat tariff does not reflect the varying cost of electricity generation. I estimate households’ own- and cross-price elasticities using dataset from a smart metering project, and investigate which household specific characteristics determine the impact of peak prices on electricity consumption. I find peak prices (17:00-20:00) reduce peak and post-peak consumption (20:00-23:00), indicating a spillover effect of peak prices. The underlying mechanisms that could be generating the spillover effect have been further discussed and investigated. Finally, I estimate dynamic tariffs’ distributional and welfare effects, and demonstrate that the spillover effect is crucial in determining the cost effectiveness of a smart metering programme.
Guo, Bowei, and David Newbery*, (2023), "The Cost of Carbon Leakage: Britain's Carbon Price Support and Cross-border Electricity Trade", The Energy Journal, 44 (1), p. 9-31.
Abstract: Carbon taxes create global benefits unless offset by increased emissions elsewhere. An additional carbon tax in one country may cause leakage through imports and will also increase costs by creating a wedge between economic marginal costs in different markets, causing an offsetting deadweight loss. We estimate the global benefit, carbon leakage and deadweight cost of the British Carbon Price Support (CPS) on GB’s cross-border electricity trade with France and The Netherlands. Over 2015-2020 the unilateral CPS created €72±20 m/yr deadweight loss, about 31% of the initial economic value created by the interconnector, or 2.5% of the global emissions benefit of the CPS at €2.9±0.1 bn/yr. About 16.3±3.5% of the CO2 emissions reduction is undone by France and The Netherlands, the monetary loss of which is about €584±127 m/yr.
Liu, Yang, Zhigao Jiang, and Bowei Guo*, (2022), "Assessing China's Provincial Electricity Spot Market Pilot Operations: Lessons from Guangdong Province", Energy Policy, Volume 164, May, 112917.
Abstract: Aiming at improving the efficiency of power generation, China announced its plan to reform the electricity wholesale market. A focal point of the wholesale market reform is to introduce a stable and reliable electricity spot market. Using Guangdong’s spot market pilot operations as a case study, this article is the first to use rich ex-post market data to assess the efficacy of China's electricity spot market. To investigate the stability of the spot market, we estimate the relationship between prices and demand. We find the electricity supply curve is much steeper when demand approaches the capacity limit, suggesting the need to invest more thermal capacity to stabilize spot market prices (SMPs). To investigate the reliability of the spot market, we first estimate the market distortion caused by a price floor on SMPs, and we then examine whether local market power exists. The price floor on SMPs resulted in a welfare transfer from consumers to producers, the monetary value of which equals to 1.3% of the tradable value of the day-ahead market. We also find evidence of local market power in the east of Guangdong, suggesting the need to invest in more power lines connecting the west to the east.
Guo, Bowei*, and Melvyn Weeks, (2022), "Dynamic Tariffs, Demand Response, and Regulation in Retail Electricity Markets", Energy Economics, Volume 106, February, 105774.
Abstract: Greater penetration of renewables in electricity generation will result in high variability in residual demand (demand net of renewable generation); this will further challenge the stability and flexibility of power systems. One possible solution is demand response, which is usually achieved through dynamic tariffs that offer consumers financial incentives to shift or reduce peak load to off-peak periods. We construct a two-stage dynamic game to model the retail market, in which the retailer sets dynamic tariffs to maximize profit, and consumers respond to the prices. Using the Irish smart metering data as model inputs, we find that in our baseline scenario, the dynamic tariff would generate for the retailer an additional €7.35 of annual profit from a representative Irish household. With market regulations, the dynamic tariff will benefit consumers and retailers alike. We also find that the interaction between demand-side management stimuli and market regulation can further reduce consumer-level electricity demand, increase retail profit, and lower consumers’ electricity bills.
Guo, Bowei, and David Newbery*, (2021), "The Cost of Uncoupling GB Interconnectors", Energy Policy, Volume 158, November, 112569.
Abstract: The UK left the EU Integrated Electricity Market on 31/12/20 and with it access to Single Day Ahead Coupling that clears local and cross-border trades jointly – interconnectors are implicitly auctioned. The new Trade and Cooperation Agreement requires a replacement “Multi-region loose volume coupling” to be introduced before April 2022. Until then, interconnector capacity is allocated by an explicit day-ahead auction before the EU auction with nomination after the EU results are known. The article measures the risks posed by taking positions in each market separately and the resulting costs of uncoupling of GB's interconnector trade. It compares four forecasts of price differences under two sequencing of markets and explicit auction, determining traders' risk discounts for each. The current timing leads to lower mistakes on the direction of flows, arguing for retaining current timing. Competitive traders locking in their positions after the explicit auction (overstating costs as subsequent trading out of unprofitable positions is ignored) limit the total loss of interconnector revenue from uncoupling to €31 million/yr. The social cost of uncoupling is €28 million/yr, considerably below earlier estimates in the literature. Experience since uncoupling validates this finding.
Guo, Bowei*, and Giorgio Castagneto Gissey, (2021), "Cost Pass-through in the British Wholesale Electricity Market", Energy Economics, Volume 102, October, 105497.
Abstract: Cost pass-through (CPT) rates give a useful perspective of market competition. This article studies how input costs of electricity generation are passed through to the wholesale price in Great Britain between 2015 and 2018. Our empirical results fail to reject the null hypothesis of 100% CPT rates for gas costs and EUA prices (and coal costs for most hours), suggesting a competitive British wholesale electricity market in most hours. We observe a higher CPT rate for coal costs in peak and off-peak periods. This is due to coal plants usually bidding at rates somewhat lower than marginal costs during off-peak periods in order to dispatch at their minimum load to avoid the costs of shutting down and starting back up. Instead, during peak periods the rate of capacity utilisation is high and marginal coal plants tend to exercise their market power, resulting in a higher CPT rate for coal costs. We extend the argument by assessing coal plants’ bidding and find evidence of coal plants exercising market power in hours with high residual demand, generating extreme prices.
Chyong, Kong Chyong, Bowei Guo, and David Newbery*, (2020), "The Impact of a Carbon Tax on the CO2 Emissions Reduction of Wind", The Energy Journal, 41 (1), p. 1-32.
Abstract: Energy policy aims to reduce emissions at least long-run cost while ensuring reliability. Its effecacy depends on the cost of emissions reduced. Britain introduced an additional carbon tax (the Carbon Price Support, CPS) for fuels used to generate electricity that by 2015 added ₤18/t CO2, dramatically reducing the coal share from 41% in 2013 to 6% in 2018. Policies have both short and long-run impacts. Both need to be estimated to measure carbon savings. The paper shows how to measure the Marginal Displacement Factor (MDF, tonnes CO2 /MWh) for wind. The short-run (SR) MDF is estimated econometrically while the long-run (LR) MDF is calculated from a unit commitment model of the GB system in 2015. We examine counter-factual fuel and carbon price scenarios. The CPS lowered the SR-MDF by 7% in 2015 but raised the LR-MDF (for a 25% increase in wind capacity) by 18%. We discuss reasons for the modest differences in the SR- and LR-MDFs.
郑新业, 吴施美, 郭伯威*. 碳减排成本代际均等化: 理论与证据.《经济研究》, 2023年第2期, 107-123.
——Zheng, Xinye, Shimei Wu, and Bowei Guo*, (2023), "Intertemporal Parity of Carbon Emission Reduction Costs: Theory and Evidence", Economic Research Journal (the top Chinese economics journal), (2), 107-123.
内容提要：碳中和目标下减排任务的远近统筹是中国实现经济高质量发展的重要议题。本文基于霍特林法则，以代际贴现效用之和最大化为目标，减排总量为约束，构建代际减排模型。研究发现减排代际均等化是使社会总效用最大化的必要条件，即减排的边际效用、净收益（影子价格）以及碳排放价格的现值在不同时期均应相等。进一步分析了温升目标、贴现率、技术进步等相关参数变化对减排路径以及碳定价的影响。最后，以中国为研究对象，探究了为实现碳中和的最优减排路径，提出应当在前期少减排，将更多的减排任务留给后期，从而将碳中和目标伴生的经济损失控制在国内生产总值（gross domestic product，GDP）的 0.2%-0.4%，并基于此探讨了不同减排轨迹下的产业结构调整路径。
Work in Progress
"Market Inefficiency in a Semi-decentralised Market" with Jiayin Hou, Michael Pollitt and Feng Song.
"Time is Money: the Social Benefits of Time-of-Use Tariffs" with Ao Sun and Feng Song.
"Marginal Emissions and Its Policy Implications: a study based on real-life data from China" with Jiayin Hou, Ao Sun and Feng Song.
"Preference Heterogeneity and Willingness to Accept for Low Carbon Alternatives: Evidence from China" with Yuanyuan Tang.
"Cost Pass-through in a Semi-decentralised Market" with Yu'an Wang.