Downloads / Finance and investment

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

The role of State Investment Banks in enabling low-carbon technological change

Ms Anna  Geddes, ETH, Switzerland Prof Tobias Schmidt, ETH, Switzerland Keywords: state investment banks, innovation, public finance, technological change, renewable energy, project finance   Renewable energy technologies (RETs) are considered essential to help mankind achieve its climate change goals [1]. But there is a significant ‘financing gap’ for the projects required and many are concerned that investments for the large-scale diffusion of RETs will not materialise [2-4]. Public support and utilities’ balance sheets are constrained and, given the necessary scale of investment, private finance is required [5-8]. Meanwhile, to become competitive in the long term, further innovation is needed [1].  In recognition of this issue, some governments have appointed State Investment Banks (SIBs) to accelerate the diffusion (and innovation) of RETs. For example the UK’s GIB was founded to foster a greener and more innovative economy by mobilising private finance into low carbon projects. Studies exist on why SIBs are being created and their role in the economy [9-11], but not regarding their impact on technological change. With this work we aim to answer the following questions: How and to what extent Read more…

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Geddes-The-Role-of-State-Investment-Banks-in-Tech-Change.pdf 1.31 MBGeddes-The-role-of-State-Investment-Banks-in-tech-innov-systems.pdf 289.01 KB
21st
Sep
2016

Financing the UK Power Sector: is the Money Available?

 Dr Rob Gross, Imperial College, London Dr William Blyth, Imperial College The electricity sector needs to renew its ageing generation fleet, and shift towards capital-intensive low-carbon forms of generation. Over the past few years, various organisations and commentators have suggested that the sector may be unable to deliver, questioning whether there will be a sufficient flow of money into the sector to finance these investments. This report examines the evidence for these claims, looking at three key issues: ·     The size of the gap between required and current levels of investment, ·     The ability of energy companies to scale up their capital expenditures, ·     The ability of financial institutions to provide the necessary funds, and the mechanisms by which they might do so. Estimates of the size of the investment challenge range from the DECC / OFGEM figure of £110bn by 2020 to between £200bn to over 300bn by 2030 from organisations such as National Grid, the Committee on Climate Change and London School of Economics. These scenarios are assessed on a like-for-like annualised basis to understand the reasons for Read more…

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Blyth-Financing-the-UK-Power-Sector-BIEE.pdf 1.25 MB
18th
Sep
2014

Valuation of Interconenctor Transmission Rights – Do Auction Prices Reflect Option Values?

Ms Celine McInerney, University College Cork In electricity markets, interconnectors can be viewed as spread options on the spot prices of electricity between connected markets. Despite persistent price differentials between the Irish and British electricity markets, explicit transmission capacity auctions are undersubscribed and transmission rights acquired in auctions are not fully utilised. The aim of the work is to understand what specific factors are reducing market efficiency for transmission rights between Ireland and Britain. The valuation of transmission rights is significant for a number of reasons: (1) Efficient pricing of interconnector transmission capacity is critical for effective market coupling to achieve a single market for electricity. (2) Valuation of transmission rights is an important signal for new investment in interconnectors (3) adequate investment in interconnector transmission capacity is required to prevent wind curtailment. The valuation of transmission rights between the UK and European electricity markets assumes increased importance as the UK will become a net energy importer in coming years and as the level of intermittent renewable generation increases. The valuation of interconnector transmission rights raises both theoretical and policy Read more…

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Valuing-interconnector-transmission-rights-–-do-auction-prices-reflect-option-values.pdf 891.02 KBValuation-of-Interconnector-transmission-rights-2012-pap.pdf 200.22 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

Investigating possible bias issues arising from improper use of the internal rate of return when used for decision-making on renewable energy technology investments

Ms Tanja Groth, Aarhus University/Stirling.DK ApS The internal rate of return (IRR) is, together with net present value (NPV), the most commonly used investment decision tool for management (Ryan and Ryan, 2002). Presented as a simple percentage, it is an easily grasped concept which readily lends itself to instant investment comparisons. The IRR is often used in conjunction with net present value (NPV) calculations to estimate the benefit of a given investment decision. Simply put, the IRR is the rate at which the benefits from an investment are equal to the investment itself.  However, using the IRR calculation indiscriminately can result in errors, particularly when disregarding the implicit reinvestment assumption, ranking of mutually exclusive projects and the potential for multiple IRRs. These errors can lead to bias in the investment decision, particularly when applied to energy investment decisions where mutually exclusive projects with different investment costs and different lifetimes are compared. Almost all renewable energy technologies (RETs) share the characteristics of initial high capital costs followed by a stream of relatively low variable costs over the lifetime of the investment, Read more…

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Groth-How-the-IRR-drives-bias-in-energy-investment-decisions.pdf 497.86 KB
19th
Sep
2012

Political Shocks and Efficient Investment in Electricity Markets

Professor Felix Muesgens, Brandenburg University of Technology Investment decisions in electricity markets are driven by different factors: (expectations of) fuel price developments, investment and generating costs, demand, and the remaining power plant portfolio in the market. This paper presents a fundamental power market model captur-ing many essential features of investments in power markets. The partial equilibrium model minimizes the total costs of the electricity system. It looks both at long-run and short-run de-velopments. On the one hand, long-run investment decisions for the commissioning of new thermal power plants as well as possible early decommissioning of old thermal power plants are taken into account. On the other hand, a two-hourly dispatch of both thermal power gener-ation technologies and (pump) storage plants is calculated. The model includes 10 European countries and allows for power exchange between neighboring countries whose power net-works are connected. Different types of generation technologies are aggregated into vintage classes. Furthermore, technical requirements such as minimum load requirements are incorpo-rated. Startup and shutdown costs are integrated as well as unavailabilities of power plants. The model is formulated as a Read more…

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Political-Shocks-and-Efficient-Investment-in-Electricity-Markets.pdf 945.78 KBMuesgens-political-shocks-and-efficient-investment-pres.pdf 945.78 KB
19th
Sep
2012

The Oil Companies’ Approach To Renewable Energy

Miss Ana Penha The research for this thesis, submitted in May 2009, focuses on the reasons for oil companies investing (or not) in renewable energy. During the research stage companies representative of the oil and gas (O&G) market were analyzed. The companies were selected from rankings performed by Petroleum Intelligence Weekly and Platts. The companies are: BP, Chevron, CNPC, ConocoPhillips, Eni, ExxonMobil, Gazprom, NIOC, PDVSA, Rosneft, Saudi Aramco, Shell, StatoilHydro and Total. Of these fourteen companies, ten accepted the invitation to participate in this study and provide invaluable information. This study has one distinctive difference from other previous published studies. In the past studies about oil companies’ strategies related to climate change have compared only the so called “western” companies such as BP, Shell and ExxonMobil. Furthermore, this study analyses the biggest oil companies independently from their location. This is more significant if we take into consideration the companies with more relevance in the market in terms of O&G reserves or production, for instance Saudi Aramco, NIOC or Gazprom. To sum up, climate change, energy security and business opportunity are Read more…

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The Oil Companies’ Approach To Renewable Energy - Paper.pdf 349 KB
23rd
Sep
2010

Energy Efficiency and pace model

Nadia Ameli , UC Berkeley An economic transition is needed to a low-carbon, sustainable, and job producing model. In thatprocess, improving commercial and residential building energy efficiency is vital given than structures are the site of more than 70 percent of the electricity use1 and almost 40 percent of greenhouse gas emission2 in the United States. To trigger this change, more stringent laws are needed that reduce energy use in buildings, improveenergy efficiency and encourage use of renewable energy such as solar photovoltaic and solarthermal. Regulatory approaches have proven effective, like in United States and Europe. Many barriers exist to the reduction energy consumption: high cost of investment needed for this to happen, lack of information, uncertainly of savings and long payback time. Our research group from the University of California, Berkeley, are evolved in the development of tools that can used to overcome the financing barriers. The Energy Financing Districts were first proposed by the City of Berkeley, California in 2007 and they have received an increasing attention as a mechanism for financing residential or commercial clean energy projects.The Read more…

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Energy Efficiency and pace model - Poster.pdf 989.6 KB
22nd
Sep
2010

Climate policy uncertainty and investment behaviour: Evidence from small hydropower plants

Dr Oecon Kristin Linnerud, Cicero In the coming years, Europe will need more electric power from renewable sources to meet our greenhouse gas and renewable targets. However, market and climate policy uncertainty affecting project cash flows could make investors hesitate to build new capacity unless profitability is significant. This follows from real option theory. Whether investors behave in accordance with this theory, is an empirical question. In Norway there are many good sites for small hydropower. Having access to such a site is viewed as holding a real option to invest. Using data from 225 small hydropower projects we study the investment behaviour of the developers.  More specifically, we test whether investments did actually occur at the optimal point in time predicted by an option-based model. This is tested against the alternative hypothesis: that investments are made when the discounted value of future cash flows are equal to or exceeds investment outlays. Our investment models include two stochastic variables: wholesale electricity prices and green certificate prices. We calculate trigger levels for the sum of these prices, and compare these with Read more…

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Climate policy uncertainty and investment behaviour - Presentation.pdf 756.55 KB
22nd
Sep
2010

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