Chiara Lo Prete joined the John and Willie Leone Family Department of Energy and Mineral Engineering as an Assistant Professor of Energy Economics in July 2014. Dr. Lo Prete studies the design and operations of electricity markets using quantitative methods at the intersection of economics, operations research and statistics. Current research focuses on cross-product manipulation in wholesale electricity markets, impact of state environmental policies on regional electricity markets, and market design to accommodate increasing renewable energy penetration. Her interdisciplinary work involves collaborations with scientists in Energy and Mineral Engineering, Economics, Industrial Engineering, Computer Science and Statistics at Penn State and other academic institutions. Before joining Penn State, Dr. Lo Prete was a Ziff Environmental Fellow at Harvard University from 2012 to 2014. She earned a B.A. in Economics (summa cum laude) from LUISS University (Italy), a M.A. in Energy Economics from the Scuola Mattei (Italy), and a M.S. and Ph.D. in Geography and Environmental Engineering from The Johns Hopkins University.
1. Equilibrium Market Models for Cross-Product Manipulation
Virtual transactions are financial positions that allow market participants to exploit arbitrage opportunities arising when day-ahead electricity prices are predictably higher or lower than expected real-time prices. Unprofitable virtual transactions may be used to move day-ahead prices in a direction that enhances the value of related positions, like financial transmission rights (FTRs). This constitutes cross-product manipulation, and has emerged as a policy concern of the Federal Energy Regulatory Commission in recent years. Absent control over real-time prices, what economic conditions enable a financial market participant to manipulate day-ahead electricity prices? Lo Prete, Guo and Shanbhag (2017) develop a three-stage equilibrium model to study cross-product manipulation in FTR and two-settlement energy markets, and evaluate its effects on price convergence and other market outcomes. Our model accounts for demand uncertainty, the likelihood of congestion in both day-ahead and real-time, and transmission capacity constraints at all stages in the game. A schematic of our model is presented below. Numerical results in a two-node setting show that day-ahead price manipulation through virtual transactions to profit from FTR positions is sustained only when generators and traders compete in a Cournot game in the day-ahead market. In contrast, this type of manipulation fails when the FTR holder is the only one acting strategically, and generation capacity and credit requirement constraints for other participants are not binding. Lo Prete and Guo (2018) extend this model by including loop flows and intertemporal constraints (like unit commitment and ramping constraints) that limit a unit's ability to adjust power output from one hour to the next. Related research examines loss-based equilibrium manipulation under asymmetric information in a setting that allows for closed-form analytical solutions, but does not account for physical constraints of electricity networks (Lo Prete, Liu and Wang, 2018), and empirical implications of cross-product manipulation in the MISO electricity market (Gemignani and Lo Prete).
2. California's Cap-and-Trade Program and Carbon Emission Leakage: An Empirical Analysis
California has pledged to reduce its greenhouse gas (GHG) emissions to 1990 levels by 2020, and to 40% below 1990 levels by 2030. These ambitious goals are being accomplished through several complementary policies, including a multi-sector cap-and-trade program that covers about 80% of the state’s GHG emissions and applies to in-state electricity generation and imports. There is concern that the cap-and-trade program may result in a reduction of electricity generation in California and a generation expansion in the rest of the Western Interconnection, which is not subject to the environmental regulation. In turn, this may lead to overall emission increases, if power generation in the unregulated regions is more emission intensive than in California. While the potential for emission leakage from regional cap-and-trade programs has often been examined ex ante, econometric estimates of leakage are less common. Lo Prete, Tyagi and Hohl (2018) empirically investigate the leakage effects of California’s cap-and-trade program by analyzing power plant operations in the Western Electric Coordinating Council (WECC). We apply a differences-in-differences estimator, in combination with matching methods, to a rich plant-level dataset from 2009 to 2016. We complement our regression results with the analysis of scheduled imports and available capacity on major transmission interfaces connecting the California ISO to the rest of the grid. Preliminary estimates suggest that declining natural gas generation in California was met by increased utilization of coal steam turbines and natural gas combined cycle plants in the Northwestern U.S. after the introduction of the cap-and-trade program.
- A. Kleit, C. Lo Prete, S. Blumsack and N. Guo. (2018). “Weather or not? Welfare impacts of natural gas pipeline expansion in the Northeastern U.S.” Energy Systems. Advance online publication, https://doi.org/10.1007/s12667-018-0292-x.
- C. Lo Prete and B.F. Hobbs (2016). “A cooperative game theoretic analysis of incentives for microgrids in regulated electricity markets”. Applied Energy 169, pp. 524-541.
- C. Lo Prete and B.F. Hobbs (2015). “Market power in power markets: an analysis of residual demand curves in California’s day-ahead energy market in 1998-2000”. The Energy Journal 36(2), pp. 191-218.
- S. Cano-Andrade, M.R. von Spakovsky, A. Fuentes, C. Lo Prete and L. Mili (2015). “Upper level of a sustainability assessment framework for power system planning”. Journal of Energy Resources Technology 137(4), pp. 1-11.
- C. Lo Prete and C.S. Norman (2013). “Rockets and feathers in CO2-power markets? New evidence from the second phase of the EU ETS”. Energy Economics 36, pp. 312-321.
- C. Lo Prete, B.F. Hobbs, C.S. Norman, S. Cano-Andrade, A. Fuentes, M.R. von Spakovsky and L. Mili (2012). “Sustainability and reliability assessment of microgrids in a regional electricity market”. Energy 41, pp. 192-202.
Refereed conference papers
- Y. Shan, C. Lo Prete, G. Kesidis and D.J. Miller (2017). “A simulation framework for uneconomic virtual bidding in day-ahead electricity markets”. Proceedings of the 2017 American Control Conference (ACC), Seattle, WA, May-24-26.
- C. Lo Prete and B.F. Hobbs (2013). “Modeling the interaction between microgrids and electric utilities: a regulator’s perspective”. Proceedings of the Fourth IEEE International Conference on Smart Grid Communications, Vancouver, October 21-24.
- S. Cano-Andrade, M.R. von Spakovsky, A. Fuentes, C. Lo Prete, B.F. Hobbs and L. Mili (2012). “Multi-objective optimization for the sustainable-resilient synthesis/design/operation of a power network coupled to distributed power producers via microgrids”. Proceedings of ASME International Mechanical Engineering Congress and Exposition, vol. 6, Energy: Sustainable Technologies, Houston, TX, November 9-15.