Downloads / Energy economics

Energy Barometer 2016

Deane Somerville, Knowledge Team Manager, Energy Institute The 2016 Energy Barometer Report captures insights from UK energy professionals and enables them to form the energy debate, policymakers, influencers, the industry and the public. Deane Somerville has worked in the Knowledge Team at the Energy Institute for the past three years, and has been involved in the development and production of the Energy Barometer as well as other Knowledge Service products. Prior to joining the EI, he worked in environmental consulting, focusing on contaminated site remediation. Academically, his background is in Geology as well as Energy and Environmental Technology. Deane is a Graduate member of the Energy Institute.  

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Energy_Barometer_2016-Somerville.pdf 1.35 MB
21st
Sep
2016

Wind farm portfolios

We model the financial performance of portfolios of wind farms located around Great Britain in the early 2020s.  We measure the expected annual profits and their variance as the measures of performance most relevant to investors (acknowledging that system operators need to respond to short-term variations in output).   The efficient frontiers contain relatively few stations (no more than four out of a possible fifteen), and the average portfolio has an efficiency of just 0.725.  The correlation between the efficiency of a portfolio measured with respect to annual output and with respect to annual profits is just 0.103.  Careful market analysis is needed if investors are to build optimal portfolios of wind stations.  

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How-large-should-a-portfolio-of-wind-farms-be.pdf 1.4 MBWind-portfolios.pdf 391.54 KB
20th
Sep
2012

Germany´s energy transition and its effect on European electricity spot markets

Mrs Melanie Houllier, Cass Business School, City University London This paper empirically examines the economic impact of electricity generated by renewable energy sources (RES-E) in Germany on European electricity spot markets by employing a MGARCH (multivariate generalized autoregressive conditional heteroscedasticity) model with constant and time-varying correlations for daily data. Germany´s so called Energiewende (energy transition) of the summer 2011 induced a process that will shut down all its nuclear power stations by 2022 while at the same time ambitious medium and long term targets for RES-E and the reduction of greenhouse gas are being pursued. The German government has adopted a concept which is yet unique for a major industrial country. This pioneering transformation project is therefore closely watched in Europe and other parts of the world in terms of its economic viability and challenges presented, as for example the management of highly volatile generation. The interrelationship of European electricity spot prices for APX-ENDEX (UK and Netherlands), EPEX (Germany, Swiss), OMEL (Spain), Nordpool (Finland, Denmark, Norway) and Powernext (France) with wind as well as solar penetration induced by the German Read more…

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Germany´s-Energy-Transition-and-its-Effect-on-European-Electricity-Spot-Markets.pdf 1.24 MBGermany´s-energy-transition-and-European-electricity-spot-markets.pdf 587.51 KB
20th
Sep
2012

Carbon Taxation if Liquefied Coal will (not) Substitute Oil and Gas

Mr Florian Habermacher, Inst. of Intl. and Applied Econ. Research, Uni. of St.Gallen Current and conceivable near-term climate protection measures are regionally constrained. We analyse leakage effects of unilateral climate policies, separately for major fossil fuels. In a business-as-usual scenario without future technological changes, unilateral oil (or gas) consumption reductions through climate protection measures are subject to very large leakage effects over the long run: because these fuels are strongly exhaustible, our dynamic fuel-market model shows that demand in the part of the world without stringent climate policies will offset a large fraction of domestic emission reductions in the medium-run notably because the lower domestic consumption reduces the fuel prices on the global markets. This is different for coal, which is much more abundant even in the medium-term future. Because coal reserves are so large, simulations show that medium-term leakage rates are low for domestic coal reductions, as these reductions have a comparatively small effect on the coal prices in other parts of the world. In this scenario, a unilateral carbon tax on coal emissions should correspond approximately to the Read more…

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Carbon-Taxation-if-Liquefied-Coal-will-not-Substitute-Oil.pdf 473.99 KBHabermacher_Carbon-Taxation-if-Liquefied-Coal-will-not-Substitute-Oil.pdf 851.95 KB
20th
Sep
2012

Co-movements between carbon, energy and financial markets. A multivariate GARCH approach

Mr Nicolas Koch, University of Hamburg This paper jointly investigates time-variations in carbon-energy market and carbon-financial market co-movements, taking the past six years (2005-2011) of the EU ETS operation as research framework. Our first empirical question focuses on correlation asymmetries under different market uncertainty conditions and asks whether correlations between carbon-energy and carbon-financial markets are exacerbated during episodes of financial turmoil or whether we observe a decoupling of these markets. Our second empirical question centers on structural breaks and asks whether the overall level of correlation between carbon, energy and financial markets changed over time. We argue that structural changes with respect to (i) the market design and (ii) the market maturity of the relatively young carbon market should coincide with changing correlation regimes in the Phase I-to-Phase II period. We follow Silvennoinen and Teräsvirta (2005, 2009) and adopt the Double Smooth Transition Conditional Correlation (DSTCC) GARCH model that allows the conditional correlation to change smoothly across up to four regimes directly as a function of observable transition variables. We use smooth transition models because they can capture both gradual Read more…

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Co-movements-between-carbon-energy-and-financial-markets.pdf 309.44 KBKoch_Co-movements-between-carbon-energy-and-financial-markets.pdf 564.16 KB
20th
Sep
2012

The economics of gas storage investment

Ivan Olzack , Oxera Despite longer-term policies to decarbonise the economy, UK dependence on imported gas is growing, driven in large part by gas use in the power sector and reflecting the relatively low cost of gas-fired generation and the lower carbon intensity of gas relative to coal. While current global gas supplies appear abundant, the prospect of a recovery in global conomic growth, rising UK import dependence, and uncertainty over the timing of certain future gas infrastructure projects remain problematic issues for policy-makers concerned about security of supply. This paper examines the role of gas storage as a source of flexible gas, and a method by which to manage the risks to gas security. The level of storage in the UK is compared with that in other European countries with different market mechanisms. In order to assess the commercial incentives to invest, the number and type of prospective storage projects are considered in relation to the price signals provided by the market, the transparency of those price signals, and the considerable uncertainty implied by plausible gas market scenarios. The Read more…

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The economics of gas storage investment - Presentation.pdf 193.83 KB
23rd
Sep
2010

The Formation of a Domestic and International Market for Tidal Energy Technologies: the Economic Implications for the UK

Miss Michelle Gilmartin, Fraser of Allander Institute, University of Strathclyde World-wide interest in tidal power has increased in recent years, and this is particularly true in the UK, where the vast tidal energy resource around the coast is ranked among the best in the world.  An important part of the case for renewable energy is the UK-wide socio-economic opportunities that would be associated with the deployment of devices such as tidal turbines.  Domestic expenditures on research and development, production, installation and maintenance of tidal turbine devices could provide an important demand stimulus for the local, regional and national economies.  In addition, a key driver in developing the UK tidal sector is the economic gain that could flow from the export of tidal devices, technologies and expertise. In this paper, we model the potential economic impacts associated with the deployment of tidal energy in the UK.  We use a twenty-five sector computable general equilibrium model, UKENVI, to estimate the UK benefit from a domestic and export demand stimulus to the UK tidal power industry.  In doing so, we focus on the Read more…

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The Formation of a Domestic and International Market for Tidal Energy Technologies - Paper.pdf 129.08 KB
23rd
Sep
2010

Resource Adequacy and Renewable Energy in Competitive Wholesale Electricity Markets

Dr Serena Hesmondhaigh, The Brattle Group Ltd We review a range of alternative wholesale electricity market designs in the context of the challenges of ensuring generation resource adequacy in a low carbon economy.  Through this analysis, we identify “market mechanisms” that are compatible with government or regulatory constraints related to the shares of conventional and renewable energy of different kinds. The paper draws on research about markets around the world and derives conclusions for the GB electricity market. We examine six alternative market designs, from energy-only markets to designs that rely on administratively-determined capacity payments or explicit reserve requirements in possible combination with centralized capacity markets. For each of these market designs, we summarize relevant international experience and discuss the advantages and disadvantages of the various approaches. Each of these designs has advantages in certain market and regulatory environments. Some market designs have existed long enough that we are able to evaluate some of their successes and failures. More often, the market designs are still relatively new and rapidly evolving. Nevertheless, the experience to date provides some indication of how Read more…

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Resource Adequacy and Renewable Energy in Competitive Wholesale Electricity Markets - Paper.pdf 294.69 KB
23rd
Sep
2010

Can UK Electricity Markets Deliver A Low Carbon Future?

Dr John Rhys, Oxford Institute for Energy Studies The UK electricity market was designed to satisfy the technical requirement to supply a non-storable commodity – electricity – with a continuously changing consumer load pattern, relying on fossil fuel generating plant with particular cost and operating characteristics.  We question whether it is “fit for purpose” in achieving a low carbon electricity sector, dominated by plant with very different operating characteristics. A well-functioning market, and its associated regulatory framework, must inter alia induce efficient behaviour from participants, leading to optimal scheduling/ dispatch generate price signals for allocative efficiency in production and consumption internalise the costs of any continuing CO2 emissions deal adequately with the coordination requirements in transmission planning and system operation above all, provide a secure basis for the large scale and long term investments required to move the power sector to near complete decarbonisation Current market arrangements are likely to fail several of these tests, and are already under criticism in relation to capacity and generation security. The paper will discuss what is needed to induce and finance new investment Read more…

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Can UK Electricity Markets Deliver A Low Carbon Future? - Paper.pdf 208.5 KB
22nd
Sep
2010

The Likely Impact of Mechanism Change on Renewables Targets in the UK: The Reform of the RO and the Introduction of Feed-in Tariffs to the Policy Landscape

Geoffrey Wood , C EP M L P, University of Dundee Although the United Kingdom has had a specific delivery programme for RES-E since 1990, the NFFO and RO, the 2010 (10%), 2015 (15%) and proposed 30-35% RES-E target for 2020 are unlikely to be achieved. In response, the Government has reformed the RO. By introducing technology banding, the ‘reformed RO’ will allocate a higher number of ROCs/MWh to less mature higher-cost technologies that have massive deployment potential (e.g. offshore wind, wave, tidal). However, an analysis of the internal and external failures reveals a number of issues of concern: Government didn’t learn from their own actions during the NFFO-RO transition, evidenced by the high level of similarity in internal and external failures (e.g. planning, grid, policy uncertainty, price risk, mechanism complexity, excessive focus on low cost). Although the reformed RO increases subsidy levels and addresses the main external failures, by not addressing the issue of high price/financial risk and uncertainty, and increasing overall mechanism complexity, it can be seen that the major internal failures have still not been fully addressed. Read more…

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The Likely Impact of Mechanism Change on Renewables Targets in the UK - Poster.pdf 974.1 KB
22nd
Sep
2010

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