The course provides an introduction to energy and environmental economics, with a focus on the electricity and natural gas industries. First, it describes the structural elements of energy markets and their effects on firm performance and on social welfare. Then, motivations and specific mechanisms of public intervention are discussed: priority is given to the regulation of natural monopolies as well as to environmental policies. A description of the main objectives of recent European energy directives completes this part of the course. Finally, the functioning of competitive wholesale markets is discussed, with particular reference to power exchanges and to the trading of natural gas.
1. Market structure and the energy sectors
Production costs: economies of scale, natural monopolies, sunk costs, learning effects, economies of scope.
Energy demand, price elasticity and other characteristics.
Monopoly and perfect competition. Firm behavior and welfare effects.
Market concentration, barriers to entry/exit, complementarities with other sectors, regulation.
2. Regulation of natural monopolies
Price regulation with perfect information.
Price regulation with asymmetric information.
Performance-based regulation in practice.
3. Environmental economics*
Welfare economics and the environment.
Economic instruments applied to environmental policy.
4. Wholesale energy markets*
Trading of electricity and natural gas: power exchanges and natural gas hubs.
Market power and basic principles of competition policy.
*The contents of this part of the course are coordinated with those presented in the course Energetica Generale.