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Markets for Water and Energy

Paper Session

Saturday, Jan. 4, 2025 12:30 PM - 2:15 PM (PST)

Hilton San Francisco Union Square, Union Square 5
Hosted By: Transportation and Public Utilities Group
  • Chair: Kelly Neill, University of Sydney

Valuing California’s Water and Its Reallocation

Will Rafey
,
University of California-Los Angeles

Abstract

This paper extends and applies new methods to value water across competing uses in California, the world's fifth largest economy. The empirical strategy combines detailed microdata on farms, cities, dams, and riverine and groundwater ecosystems with water rights, the hydrological flow network, and historical records of water availability, abundance and scarcity, in order to isolate sources of inefficiency within the hydrological network, assess distributional implications of water access under current property rights, and evaluate alternative mechanisms for water reallocation.

Using electricity futures to inform the opportunity costs of water releases in hydroelectric schemes

Gordon Leslie
,
Monash University
Kelly Neill
,
University of Sydney

Abstract

Major hydroelectricity facilities have large dams that store potential energy. These facilities usually have market power in the energy market, but also have market power concerning alternate uses of the water, such as releasing water for environmental or drinking water purposes above any regulated requirement. Identifying the opportunity cost of using water to generate electricity from first principles requires solving or approximating a stochastic dynamic programming problem with a vast state space -- a highly technical and specialized problem. The hydroelectric operators therefore have a significant information advantage over jurisdictions seeking to purchase additional environmental and drinking water. In this paper we estimate a predictor function for the opportunity cost of water that best rationalizes the energy market behavior of a major hydroelectric dam in Australia. We report this opportunity cost as a function of dam levels and the prices of energy in futures markets. Our estimates of opportunity costs are invariant are significantly lower than the opportunity costs claimed by the hydro scheme operator, suggesting that their claimed value of water exceeds how they internally value it in their energy market operations.

Liquid Markets: An Empirical Analysis of a Water Exchange

Yunmi Kong
,
Rice University

Abstract

This paper empirically analyzes the performance of one of the world’s most developed water exchanges, which operates as a primitive limit order market. Upon modeling participants’ choice of order price and order type, I identify their latent value distributions from observed orders and trades. The model flexibly allows for dynamics, risk aversion, and default behavior. Counterfactual simulations suggest the observed exchange attains substantially lower trade surplus than the benchmark of periodic uniform-price market clearing. Droughts exacerbate the gap in surplus per unit traded between the observed exchange and the benchmark. I assess the role of volume frictions, price shading, and temporal dispersion in explaining the gap.

Portfolio Selection with Transaction Costs: Evidence from California’s Renewable Energy Transition

Akshaya Jha
,
Carnegie Mellon University
Frank Wolak
,
Stanford University

Abstract

TBC

Discussant(s)
Eric Edwards
,
University of California-Davis
David Rapson
,
University of California-Davis
Ignacia Mercadel
,
University of Florida
Erin Mansur
,
Dartmouth University
JEL Classifications
  • Q0 - General
  • L1 - Market Structure, Firm Strategy, and Market Performance