Downloads / conference 2012

An empirical study of the information premium on electricity markets

Mr Richard Biegler-König, University of Duisburg-Essen The electricity market is special – it features a homogeneous good with prices driven by the technical restriction of the merit order. The most striking distinction to other commodities (and financial assets) is the non-storability of electricity. Hence, the relationship between spot and forward prices cannot be explained by standard no-arbitrage arguments and thus, the classical spot-forward (i.e. the forward equals the expected spot under a risk-neutral measure and the historical filtration) is invalid. There exists an information asymmetry between spot and forward. To illustrate the effect on prices consider the announcement of a power plant to be closed down for, say, maintenance reasons in the future. Obviously, this will result in higher forward prices. Still, this information will have no effect on current spot prices as no arbitrage possibilities arise, i.e. we cannot buy the underlying now and sell in the future. Thus, in our paper we complement the historical filtration as generated by the spot process with additional future information. This is done by means of the mathematical theory of the initial Read more…

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Information-Premium-and-the-German-Atom-Moratorium.pdf 1.07 MBBiegler-König-An-empirical-study-of-the-information-premium-on-electricity-markets.pdf 1.17 MB
19th
Sep
2012

Macroeconomic costs and benefits for the EU as a first mover in climate change mitigation: a computable general equilibrium analysis

Professor Pantelis Capros, National Technical University of Athens The paper uses the GEM-E3 global computable general equilibrium model to analyse the costs and benefits for the EU as a first mover in a global effort for reducing greenhouse gas emissions until 2050. The model includes induced technology progress effects and global trade of new clean energy technologies and quantified various global energy and economy projections until 2050. The main issue addressed is whether the EU could get first-mover advantages from developing the new technologies in a context of early unilateral action for emission reduction, as planned for by the EU Roadmap to 2050, assuming that the rest of the world undertake such actions later. First mover advantage is meant as the possible trade and growth benefits stemming from technological leadership in technologies required to implement transition to a low carbon emitting economy. The EU energy scenarios corresponding to emission reduction are based on PRIMES energy model projections which is used linked with the GEM-E3 general equilbrium model. The robustness of the  results is analysed through a series of sensitivity analysis Read more…

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Macroeconomic-costs-and-benefits-for-the-EU-as-a-first-mover-in-climate-change-mitigation.pdf 695.15 KBMacroeconomic_costs_and_benefits_for_the_EU_in_climate_change_mitigation.pdf 1.13 MB
19th
Sep
2012

Managing Low Carbon Technology Options in the Electricity Sector: A Case Study of Guangdong Province in China

Dr Xi Liang, University of Exeter The aim of this paper is to develop a decision-analytical framework for analysing technical options available in a power generation system. Guangdong province is the largest province in China in terms of gross domestic product (GDP) and permanent residents. Being one of the most developed regions in China, it has been nominated by the central government of China to pilot low-carbon development. By applying the proposed approach, we evaluate possible technical options which Guangdong province can use to facilitate its low carbon development and attempt to generate an optimal portfolio to achieve its economic and carbon intensity reduction targets up to 2020 and 2050. The study integrates five key technical options in potential new energy generation portfolios to satisfy 200 TWh incremental annual electricity demand in Guangdong from 2016-2020, including (a) natural gas combined cycle; (b) offshore wind; (c) unabated coal; (d) coal with carbon capture and storage (CCS); (e) nuclear. To simulate a wide spectrum of uncertainties, we assume the global research, development & deployment rate, GDP growth rate, fossil-fuel price, carbon price Read more…

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Managing-Low-Carbon-Technology-Options-in-the-Electricity-Sector-A-Case-Study-of-Guangdong-Province-in-China.pdf 579.66 KB
19th
Sep
2012

The impact of future heat demand pathways on the economics of low carbon heating systems

Mr Robert Sansom, Imperial College The demand for heat will have a fundamental influence on all the associated assets required from supply to delivery through to end-user consumption.  Thus it is important to understand heat demand and how it might change in the future as it will have a direct impact on the economics of low carbon heating systems.  Heat demand forecasts are frequently presented in annualised format and although this is helpful for macro economic analysis, without further refinement it is not possible to determine the assets required to meet short term variations in heat demand.  For example, electrification of heat will have a direct impact on peak electricity and the capacity requirements of the assets to meet this demand. To address this, a model was constructed which uses actual metered space and water heat demand data collected from residential properties.  These are then converted to an annual half hourly national heat and electricity demand profile based on annual heat demand scenarios as well as assumptions for heat electrification and the efficiency of electrical heating systems.  Space heating is Read more…

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The-impact-of-future-heat-demand-pathways-on-the-economics-of-low-carbon-heating-systems.pdf 1.61 MBSansom_Impact_of_heat_pathways_on_economics_low_carbon_heating_Sept-2012.pdf 974.31 KB
19th
Sep
2012

Estimating Direct and Indirect Rebound Effects for UK Households

Dr Mona Chitnis, University of Surrey Policymakers expect improved energy efficiency to play a key role in reducing GHG emissions. However, the energy and emissions savings from such improvements may be less than simple calculations suggest, owing to a variety of mechanisms that go under the heading of rebound effects. Direct rebound effects result from increased demand for cheaper energy services: for example, insulation lowers heating costs and encourages households to heat their homes for longer and/or to higher temperatures. Indirect rebound effects result from re-spending the resulting cost savings on other goods and services: for example clothes that are manufactured in China and shipped to the UK. Energy efficiency improvements, such as cavity wall insulation, lead to both types of effect, while conservation measures such as lowering the thermostat lead only to indirect effects. In combination, they can be significant. In this paper, we simulate a number of energy efficiency improvements and conservation measures by UK households and estimate the resulting direct and indirect rebound effects. The measures considered include insulation improvements, energy efficient lighting, fuel-efficient cars and walking/cycling Read more…

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Living-up-to-expectations-estimating-direct-and-indirect-rebound-effects-for-uk-households.pdf 608.69 KBChitnis-Estimating-Direct-And-Indirect-Rebound-Effects-For-UK-Householdsfinal.pdf 406.94 KB
19th
Sep
2012

A review of current and future costs and benefits of demand response for electricity for the UK

Mr Peter Bradley, University of Surrey Demand response can play a key role in bringing about a low carbon electricity system and more efficient allocation and use of electricity which will have both economic and environmental benefits.    To ensure demand response, there is a need for infrastructure as well as the right institutional environment to ensure participation.  Electricity market reforms can play a role in ensuring the right institutional arrangements to help encourage demand response and to reduce barriers to demand response.   For regulators to have confidence in regulatory changes required to accommodate demand response for electricity, they must know the economic case for demand response   This is the subject of the current paper.  The paper firstly reviews and clearly outlines the different forms of demand response that exist and then goes on to assess the economic case for demand response through synthesis of five of the most relevant papers/reports assessing potential current and future costs and benefits of demands response in the UK.  Quantification of all costs and benefits relating to various forms of demand response was not possible, Read more…

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A-review-of-the-costs-and-benefits-of-demand-response-for-Electricity-in-the-UK.pdf 777.08 KBBradley_A_review_of_the_costs__benefits_of_demand_response.pdf 418.32 KB
19th
Sep
2012

Green Deal and the Energy Company Obligation – will it work?

Mr Jan Rosenow, Oxford University, Environmental Change Institute The current UK energy efficiency policy context is very fluid with a number of new policies due to be introduced in 2012 and 2013, including “The Green Deal” and “The Energy Company Obligation”. These mark a substantial change from the existing policy regime in a number of ways, notably the explicit aim of supporting higher cost energy efficiency technologies in housing and an attempt to engage new sources of private sector finance. However, there are concerns that the pace of change may be too fast, that policies have been insufficiently piloted and that the supply chain and the home owners will respond to the extent expected. This paper provides a critical analysis of the proposed policy changes both in terms of the institutional changes and the implications of a new finance mechanism for energy efficiency policy, as well as the overall impact on carbon reduction. While recognising the innovative nature of the new policies put forward by Government, the paper highlights some weaknesses in the proposals. First, there is a risk that Read more…

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Green-Deal-and-Energy-Company-Obligation-pres-final.pdf 768.7 KBThe-Green-Deal-and-the-Energy-Company-Obligation-.pdf 614.22 KB
19th
Sep
2012

A nuclear renaissance for Europe?

Professor Gordon MacKerron, SPRU, University of Sussex The conference agenda asks, among other things, where Europe will get its long-term energy supplies, and from which technologies.  For some five years now, there has been an expectation of a ‘renaissance’ in nuclear power.  There is a degree of reality in this renaissance in parts of Asia, especially, at least until the last year, in China.  But this paper asks how far such a renaissance may be expected in Europe, after considering the ‘backwash’ effects of the Fukushima accident as well as the underlying economic and financial issues. For this purpose the paper will consider separately the ‘western’ European countries and the countries formerly under Soviet influence.  In the former, there have been move towards liberalisation in electricity industries, which – all else equal – tends to introduce obstacles to financing nuclear power, as financial risks are shifted upstream to investors.  In the ‘eastern’ countries, liberalisation is sometimes less advanced and there is, in their political culture, a stronger pre-disposition to nuclear power than in western countries.  These favourable factors make a Read more…

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A-nuclear-renaissance-for-Europe.pdf 391.83 KBnuclear-renaissance-for-Europe_.pdf 97.54 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

Is there still merit in the merit order stack? The impact of dynamic constraints on optimal plant mix

Dr Iain Staffell, Imperial College London The UK faces ever more challenging questions in terms of its energy policy: • What are the consequences of adding 30 GW of wind to a 60 GW system? • What value should we place on increased interconnection with our neighbours? • How will capital-intensive new build fare in a more volatile marketplace? • Can a market that pays only for energy deliver sufficient peaking plant? A growing literature examines the impact of wind generation on electricity markets.  The first papers considered the impact on prices, given the existing mix of generating capacity: intermittent generation acts as negative demand and raises the volatility of prices, while the so-called merit order effect showed that adding wind capacity would tend to reduce the average level of prices.  A second generation of studies considered the long-run impact of renewable generation on the optimal capacity mix and what this would do for prices. Almost all of these studies, however, use the so-called merit order stack approach, in which power plants are ordered by their variable costs, and selected Read more…

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Staffell-Merit-in-the-Merit-Order-Stack1.pdf 376.9 KBStaffell-Merit-in-the-Merit-Order-Stack.pdf 303.09 KB
19th
Sep
2012

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