Using an Econometric Approach (VAR model), I will be studying the implications of Scottish independence on the Electricity market and its consumers in Scotland. In other words this dissertation studies whether it’s better for Scotland to function within the UK framework or function independently from an Economic perspective. To answer this, an Econometric Model alone would not be sufficient due to the limitation of data problem, thus results would not be 100% accurate. To overcome this, I will be discussing some of the possible alternatives and scenarios that might occur if the Independence Occurs, and what repercussion each scenario might have.
Table of Contents
CHAPTER ONE
Introduction:
CHAPTER TWO
2. Literature Review:
2.1 Overview of the current UK Electricity Market:
2.2 Previous Studies on the Implications of Scottish Independent on the Electricity Market:
CHAPTER THREE
3. Methodology:
3.1 Choosing an Optimal Lag Length:
3.2 Stationarity of Data Diagnosis:
3.3 Causality Tests and Block Significance:
3.4 Impulse Response:
CHAPTER FOUR
4. Results:
4.1 Unit Root Test Results:
4.2 Granger Casuality in VAR models:
4.3 Impulse Response Function:
CHAPTER FIVE
5. Discussion and Policy Implications:
CHAPTER SIX
6. Conclusion:
Objectives and Research Themes
The primary objective of this dissertation is to analyze the economic implications of Scottish independence on the electricity market and consumers in Scotland, specifically evaluating whether remaining within the UK framework or functioning independently is more advantageous. The study employs an econometric Vector Auto-Regressive (VAR) model to examine relationships between electricity consumption, supply, renewable generation, and price variables.
- Impact of Scottish independence on electricity market dynamics and consumer pricing.
- Comparative analysis of integrated UK electricity markets versus hypothetical independent Scottish market scenarios.
- Investigation of the role of Renewables Obligation Certificates (ROCs) in energy pricing.
- Evaluation of potential security of supply and infrastructure investment challenges post-independence.
Excerpt from the Book
2.1 Overview of the current UK Electricity Market:
The Current UK electricity market is a fully Liberalized and privatized market; the process of Liberalization of Electricity markets started in the mid-1980. The Energy Act of 1983, made the supply market open beyond the existing 12 areas present at the time (Bourn, 2006). The Energy Act facilitated the creation of a wholesale market where electricity generators can sell electricity in spot markets to match demand and supply (99/02050 Electricity market liberalization and environmental performance: Norway and the UK, 1999).
Even though Liberalization took place in 1980, a single integrated market in the UK was introduced 20 years later in 2005, when (BETTA) or the British Electricity Trading Transmission Arrangements was established. Before 2005 Scotland had its own separate electricity market which was dominated by two electricity firms, Scottish Power, and Southern Energy. The two companies controlled generation, transmission, and supply. They controlled around 74 percent of supply to domestic consumers in Scotland, and around 76 percent of the generation capacity (Gov.uk, 2017). The presence of only two firms in the market, barriers to entry where many and small producers could not compete in the market due to high costs of production (Sioshansi and Pfaffenberger, 2006). All of this led to the monopolization of the Scottish Electricity market, which ultimately led to limiting wholesale competition, eliminating choices offered to the consumer, and increased prices.
Summary of Chapters
CHAPTER ONE: Introduces the background of energy integration in the UK and the motivation for studying the impacts of potential Scottish independence on electricity generation and transmission.
CHAPTER TWO: Provides a historical overview of the UK electricity market, including the transition to a fully liberalized market via the BETTA agreement, and reviews existing literature on independence scenarios.
CHAPTER THREE: Details the methodology for building VAR models to study the relationships between electricity consumption, supply, renewable generation, and prices, including lag length selection and stationarity testing.
CHAPTER FOUR: Presents the results of unit root tests, Granger causality tests, and impulse response functions for both the UK and Scottish electricity market models.
CHAPTER FIVE: Discusses the policy implications of independence, particularly focusing on the loss of cost pooling benefits and potential impacts on consumer energy bills.
CHAPTER SIX: Summarizes the study's findings regarding market interconnectedness and the challenges an independent Scotland would face in establishing energy security and economic robustness.
Keywords
Scottish Independence, Electricity Market, Econometric Approach, VAR Model, UK Electricity, Energy Policy, Renewables Obligation Certificates, ROCs, Market Liberalization, Consumer Prices, Security of Supply, Energy Infrastructure, Power Flow, Energy Integration, Transmission Network
Frequently Asked Questions
What is the core focus of this dissertation?
The dissertation investigates the potential economic impacts of Scottish independence on the electricity market and Scottish consumers, utilizing econometric modeling to compare integration within the UK versus an independent state scenario.
What are the primary themes addressed in the work?
The work covers market liberalization, electricity generation and supply, price volatility, renewable energy policies, and the effects of losing current UK-wide infrastructure and cost-sharing agreements.
What is the central research question?
The core research question is whether it is more economically advantageous for Scotland to operate within the existing UK electricity framework or to function as an independent entity.
Which scientific methods are applied in the study?
The author uses a Vector Auto-Regressive (VAR) model to analyze yearly data spanning from 1970 to 2017, conducting unit root tests, Granger causality tests, and impulse response analysis.
What topics are covered in the main body?
The main body covers the historical context of the UK electricity market, the methodology of the econometric models, a detailed results analysis, and a discussion of the policy implications and hypothetical scenarios post-independence.
Which keywords best characterize this research?
Key terms include Scottish Independence, Electricity Market, VAR Model, Energy Policy, Renewables Obligation Certificates (ROCs), and Energy Integration.
How does the BETTA agreement affect the analysis?
The BETTA (British Electricity Trading Transmission Arrangements) agreement is identified as a cornerstone of the current integrated market; the analysis explores how its potential withdrawal under independence would affect costs and supply security.
What does the study conclude regarding independence?
The conclusion suggests that independence poses significant challenges for Scotland, as it would likely lead to increased energy costs due to the loss of pooled network investment and require the development of new, costly energy partnerships.
- Quote paper
- Abdullah Khalis (Author), 2017, The Implications of Scottish Independence on the Scottish Electricity Market and Renewables (An Econometric Approach), Munich, GRIN Verlag, https://www.grin.com/document/429406
