Downloads / conference 2012

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

Market Integration, Efficiency and Interconnectors: The Irish Single Electricity Market

Mr Rabindra Nepal  The creation of a common and integrated market for electricity was and still is a major goal of the European Commission (EC). The Commission’s Directive 2003/54/EC required the member states to open the market and guarantee non-discriminatory network access to third-parties while the EU Directive 2009/72/EC placed wider emphasis on cross border-interconnections and the need to mitigate barriers to cross-border trade. As a result, electricity markets across Europe experienced liberalisation, privatisation and price deregulation so as to meet the energy policy goals and targets of sustainability, affordability and security of supply. The development of organized wholesale spot markets (i.e. the power exchanges), increased cross-border trade of electricity and more interconnections remain the major hallmarks and means of these liberalised but largely national markets aspiring to be largely integrated. In line with changing EU policy the Northern Ireland Authority for Utility Regulation (NAIRU) and the Commissions for Energy Regulation (CER) started jointly regulating the all-island Single Electricity Market (SEM) since November 1, 2007. The goal of the Irish All-Island Market (AIM) was to increase investment in new generating Read more…

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Interconnections-and-Market-Integration-in-the-Irish-Single-Electricity-Market-SEM.pdf 798.89 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

Cumulative Carbon Emissions and Climate Change

Dr John Rhys, Oxford Institute for Energy Studies Carbon dioxide (CO2) emissions are essentially cumulative in the earth\’s atmosphere.  The thesis of this paper (drawing on an earlier OIES Working Paper) is that much economic analysis and policy making in relation to the mitigation of CO2 emissions has failed to reflect fully this essential element of the science.  In particular the cumulative and irreversible nature of CO2 necessarily implies that a significantly heavier weight should attach to current as opposed to future emissions.  This is in major contrast to some conventional wisdom and also to the outcomes and expectations that can be observed from current application of market-based approaches to limiting carbon emissions.  Application of a progressive tightening  of “carbon caps” – limits on total CO2 emissions -  has tended to deliver a very different message on the relative importance of present and future emissions, with the price of current emissions being very low but with a prospect of rapid rises in the future. This inconsistency in time profiles, between a focus on costs or externalities – the social cost Read more…

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Climate-Change.-Has-the-economics-lost-contact-with-the-physics.pdf 997.17 KBCumulative-carbon-emissions-and-climate-change.pdf 228.27 KB
20th
Sep
2012

Information Assimilation in the EU Emissions Trading Scheme: A Microstructure Study

Miss Jiayuan Chen, Michael Smurfit School of University College Dublin The European Union’s Emissions Trading Scheme (ETS) is the key policy instrument of the European Commission’s Climate Change Program aimed at reducing carbon emissions to eight percent below 1990 levels by 2012.  The key asset traded under the scheme is the European Union Allowance (EUA). This article examines the extent of information assimilation in the futures market of the European Union’s ETS. Using ultra high frequency data, we examine intraday futures market behaviour around major scheduled macroeconomic and emissions information announcements during Phase 2 of the European Union’s ETS, 2008-12.  We examine December expiration contracts in 2008, 2009, 2010 and in 2011.  Our study of intra-day behaviour of the European Union’s ETS futures market relates to price volatility and spreads as well as trading volume and order imbalances. In particular, we address questions such as [1] does contemporaneous order imbalance impact market returns in the anticipated direction – do excess buy (sell) orders drive up (down) prices?; [2] do order imbalance and returns respond to announcements in a way that Read more…

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Information-Assimilation-in-the-EU-Emissions-Trading-Scheme-A-Microstructure-study.pdf 2.07 MBCHEN-Information-ssimilation-in-the-EU-Emissions-Trading-Scheme.pdf 435.9 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

Delivering the low carbon energy jigsaw

Peter Dodd , Director  of Stakeholder Relations, ETI . The UK  can meet its 2050 carbon target, but  crucially it must be: affordable, sustainable and secure. To do this we must force down costs in low carbon energy through innovation and investment.  Success depends on reducing all forms of risk, particularly regulatory.  

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ETI-low-carbon-energy-jigsaw.pdf 1011.81 KB
19th
Sep
2012

Shell Scenarios

Jeremy Bentham Vice President Global Environment .  Shell uses scenarios to explore the future.  These scenarios are not mechanical forecasts. They recognise that people hold beliefs and make choices that can lead down different paths. They reveal different possible futures that are plausible and challenge people’s assumptions.

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Shell-scenarios-12.pdf 1.55 MB
19th
Sep
2012

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