The economics of comprehensive community energy planning

This paper is the result of a survey of cities engaged in the Comprehensive Community Energy Program. It states the underlying themes of local energy analysis and summarizes methodology and conclusions reached in the various studies with special emphasis on economic methodologies.     

Regulatory intervention on the dynamic European gas market—neoclassical economics or transaction cost economics?

Shifts at the international gas market indicate that the transaction cost perspective provides better underpinnings for European gas regulation than the current neoclassical perspective. Three implications are that policymakers should: (1) allow alternative coordination measures to complement market exchange; (2) recognize that less than perfect competition outcomes may be optimal and (3) be more reticent in prescribing interventionist measures. Finally, the analysis provides the foundations for the empirical research required to complement this paper's theoretical approach.     

Catalysing the energy service market: The role of intermediaries

The UK market for energy service contracts is expanding, owing in part to the emergence of intermediaries for those contracts in different parts of the public sector. These intermediaries combine a legal framework for establishing contracts with an organisational framework that facilitates contract negotiation and execution. This paper examines the nature and operation of these intermediaries in more detail, including their achievements to date and their similarities and differences. It uses ideas from transaction cost economics to develop a theoretical model of the contracting decision and shows how intermediary organisations can lower the transaction costs incurred by both clients and contractors, thereby increasing the viability of contracting. The paper argues that intermediaries can play an important role in expanding the market for energy service contracts, and hence in delivering cost-effective energy efficiency improvements throughout the public sector.     

Profiting from negawatts: Reducing absolute consumption and emissions through a performance-based energy economy

Current energy and GHG emissions policies either focus directly on emissions or promote renewable production and the implementation of specific efficiency measures. Meanwhile, the fundamental structure of the energy market based on profits through energy throughput remains largely unchallenged. This policy oversight prevents the transition to an energy economy in which profits are based on energy services delivered at the lowest energy cost: a performance-based energy economy (PBEE). The PBEE applies the combined concepts of the performance economy and energy services to the energy sector. Energy Service Companies (ESCOs) are discussed as an example of PBEE practices. The implications for energy suppliers and consumers as well as the conditions for PBEE diffusion and consequences for technological change are also explored. The expected environmental, social and economic benefits are described. However, absolute consumption and emissions reductions may prove elusive due to the rebound effect. In order to forestall rebound-led increases, complementary policy measures likely to lead to absolute reductions are required.     

The impact of geography on energy infrastructure costs

Infrastructure planning for networked infrastructure such as grid electrification (or piped supply of water) has historically been a process of outward network expansion, either by utilities in response to immediate economic opportunity, or in response to a government mandate or subsidy intended to catalyze economic growth. While significant progress has been made in access to grid electricity in Asia, where population densities are greater and rural areas tend to have nucleated settlements, access to grid electricity in Sub-Saharan Africa remains low; a problem generally ascribed to differences in settlement patterns. The discussion, however, has remained qualitative, and hence it has been difficult for planners to understand the differing costs of carrying out grid expansion in one region as opposed to another. This paper describes a methodology to estimate the cost of local-level distribution systems for a least-cost network, and to compute additional information of interest to policymakers, such as the marginal cost of connecting additional households to a grid as a function of the penetration rate. We present several large datasets of household locations developed from satellite imagery, and examine them with our methodology, providing insight into the relationship between settlement pattern and the cost of rural electrification.     

The economics of energy conservation through top-up loft insulation

A social cost-benefit analysis is conducted of retrofit top-up insulation of partly insulated lofts in UK houses. For almost all lofts with less than 100 mm of insulation currently in place, retrofit top-up insulation is socially beneficial. Inefficiencies in the housing market justify a programme of government subsidies of top-up insulation. Estimates are computed of the number of households likely to respond to such a programme of subsidies. The estimated response appears highly sensitive to the size of subsidy and the time horizons of households.     

The economics of renewable energy expansion in rural Sub-Saharan Africa

Accelerating development in Sub-Saharan Africa will require massive expansion of access to electricity—currently reaching only about one third of households. This paper explores how essential economic development might be reconciled with the need to keep carbon emissions in check. We develop a geographically explicit framework and use spatial modeling and cost estimates from recent engineering studies to determine where stand-alone renewable energy generation is a cost effective alternative to centralized grid supply. Our results suggest that decentralized renewable energy will likely play an important role in expanding rural energy access. However, it will be the lowest cost option for a minority of households in Africa, even when likely cost reductions over the next 20 years are considered. Decentralized renewables are competitive mostly in remote and rural areas, while grid connected supply dominates denser areas where the majority of households reside. These findings underscore the need to decarbonize the fuel mix for centralized power generation as it expands in Africa.     

How much market do market-based instruments create? An analysis for the case of “white” certificates

Among the diverse economic instruments to foster energy efficiency (EE) and climate protection, tradable certificates have been investigated for renewable energy, and the EU directive on an emissions-trading scheme for CO₂ certificates has been approved in 2003. In contrast, tradable energy efficiency—or “white”—certificates have only lately been considered as a market-based tool to foster EE as compared with standards and labelling, for example. Theoretically, there is little doubt about the advantages. In practice, however, some fundamental problems arise. Critical issues are the design of an efficient artificial market for white certificates, its compatibility with the European emissions-trading system, the identification of a suitable target group for an EE obligation and the measurement of energy savings as compared with a reference use of energy. We use the theoretical framework of transaction cost economics to elaborate these issues. We conclude that transaction costs and investment specificity will restrict markets for white certificates in practice. Long-term contracts rather than spot trade will be the prevailing form of governance for EE investments.     

The efficient use of energy: Tracing the global flow of energy from fuel to service

The efficient use of energy is a key component of current efforts to reduce carbon emissions. There are two factors which are important when assessing the potential gains from energy efficiency technologies: the scale of energy flow and the technical potential for improvement. However, most efficiency analyses consider only the potential gains from known efficiency technologies, while ignoring the complex flow of energy through the chains of conversion devices. In response, this paper traces the global flow of energy, from fuels through to the final services, and focuses on the technical conversion devices and passive systems in each energy chain. By mapping the scale and complexity of global energy flow, the technical areas which are likely to deliver the largest efficiency gains can be identified. The result is a more consistent basis for directing future research and policy decisions in the area of energy efficiency.     

The UK market for energy service contracts in 2014–2015

This paper provides an overview of the UK market for energy service contracts in 2014 and highlights the growing role of intermediaries. Using information from secondary literature and interviews, it identifies the businesses offering energy service contracts, the sectors and organisations that are purchasing those contracts, the types of contract that are available, the areas of market growth and the reasons for that growth. The paper finds that the UK market is relatively large, highly diverse, concentrated in particular sectors and types of site and overwhelmingly focused upon established technologies with high rates of return. A major driver is the emergence of procurement frameworks for energy service contracts in the public sector. These act as intermediaries between clients and contractors, thereby lowering transaction costs and facilitating learning. The market is struggling to become established in commercial offices, largely as a result of split incentives, and is unlikely to develop further in this sector without different business models, tenancy arrangements and policy initiatives. Overall, the paper concludes that energy service contracts can play an important role in the transition to a low-carbon economy, especially when supported by intermediaries, but their potential is still limited by high transaction costs.     

Towards sustainability of energy systems: A primer on how to apply the concept of energy services to identify necessary trends and policies

Virtually all goods and services that characterize modern societies’ welfare depend on the provision of commercial energy. The core objective of this paper is to identify necessary changes in trends for achieving a transition towards more sustainable energy systems and development paths. The major conclusions of this analysis are (i) a rigorous rethinking process has to take place to identify which level of energy services per capita lead to enhancing human welfare and quality of life; (ii) a significant increase in energy conversion efficiency has to be triggered to finally provide energy services with far less input of energy than today; (iii) a continuous increase in the share of renewable energy sources and other low-emission options has to be brought about; (iv) however, as history has shown this process of technological learning has to be accompanied by proper energy price and regulatory policies. Otherwise, it is very likely that energy conservation gains due to technical efficiency improvements will be outweighed again by increases in energy service demand and, straightforward, energy consumption and CO₂ emissions.     

The impact of EU policies on energy use in and the evolution of the UK built environment

Energy use in buildings is influenced by a variety of factors in complex ways. Historically, in the UK the efficiency of energy use in buildings has not been a major consideration in their design. Now policy concern with climate change is changing this, because buildings have come to be perceived as the locus of energy use with the highest cost-effective energy savings potential. In the UK, the energy efficiency of the building stock is rather low. The paper focuses largely on energy use in the UK's existing building stock and the two main European Union Directives which affect it: the Energy Performance in Buildings Directive and the Energy Services Directive. The Directives are complex, and there are a number of supporting programmes set up by the European Commission to aid their implementation. Even so, they have been implemented in differing ways in different European countries, and implementation remains patchy. The Directives have the potential to be a major influence on the evolution of the UK's built environment, but their effect will depend on the details of the Directives’ implementation and enforcement, many of which are not yet clear.     

Solar energy: Markets, economics and policies

Solar energy has experienced phenomenal growth in recent years due to both technological improvements resulting in cost reductions and government policies supportive of renewable energy development and utilization. This study analyzes the technical, economic and policy aspects of solar energy development and deployment. While the cost of solar energy has declined rapidly in the recent past, it still remains much higher than the cost of conventional energy technologies. Like other renewable energy technologies, solar energy benefits from fiscal and regulatory incentives, including tax credits and exemptions, feed-in-tariff, preferential interest rates, renewable portfolio standards and voluntary green power programs in many countries. The emerging carbon credit markets are expected to provide additional incentives to solar energy deployment; however, the scale of incentives provided by the existing carbon market instruments, such as, the Clean Development Mechanism of the Kyoto Protocol is limited. Despite the huge technical potential, the development and large scale deployment of solar energy technologies world-wide still has to overcome a number of technical, financial, regulatory and institutional barriers. The continuation of policy supports might be necessary for several decades to maintain and enhance the growth of solar energy in both developed and developing countries.     

Quantifying the rebound effects of energy efficiency improvements and energy conserving behaviour in Sweden

Doubts have recurrently been raised on the extent to which energy efficiency can reduce the demand for energy. Improvements in efficiency may cause so-called rebound effects by reducing the prices of energy services as well as by increasing the budget for consumption of other goods and services. The magnitude of such effects is crucial to whether energy efficiency should be a strategy for environmental policy or not. This paper aims to derive a general expression of the rebound effects of household consumption in a parameterised form where available data can be tested. The paper analyses how different parameter assumptions affect the quantification of rebound effects and what may be reasonable ranges. Income effects are quantified using data from the Swedish Household Budget Survey of different goods and services split on income classes. The changes in consumption patterns with increasing income are used to establish the composition of marginal consumption. Combined with energy intensities derived from input–output analysis, this gives a model of how money saved on energy use in one sector may lead to increased energy use in other sectors. The total rebound effects of energy efficiency improvements appear to be in the range 5–15% in most cases, but these results are fairly sensitive to assumptions of energy service price elasticities. Cases with low or negative capital costs for energy efficiency improvements may also result in much higher rebound effects as the income effects become more important. Energy-conserving behaviour (reduced energy service demand) affecting direct energy use such as heating and transport gives rise to rebound effects in the order of 10–20%, depending on the household expenditure per primary energy for different fuels and energy carriers.     

Conceptualizing urban household energy use: Climbing the “Energy Services Ladder”

This article begins by defining energy services and identifying how they differ according to sector, urban and rural areas, and direct and indirect uses. It then investigates household energy services divided into three classes: lower income, middle income, and upper income. It finds that the primary energy technologies involved with low-income households involve a greater number of fuels and carriers, ranging from dung and fuelwood to liquefied petroleum gas and charcoal, but a fewer number of services. Middle-income households throughout the world tend to rely on electricity and natural gas, followed by coal, liquefied petroleum gas, and kerosene. These homes utilize energy to produce a much broader range services. The upper class or rich have access to the same energy fuels, carriers, and technologies as middle-income homes and families, but consume more energy (and more high luxury items). The study highlights how focusing on energy services reorients the direction of energy policy interventions, that energy services are neither uniform nor innate, and by noting exciting areas of potential research.     

The economics of climate change and the change of climate in economics

Economics is an unavoidable decision-making tool in the field of climate policy. At the same time, traditional economics is being challenged both empirically and theoretically by scholars in different fields. Its non-neutrality in dealing with climate-related issues—which is illustrated by the controversy over the “no-regret potential”—would thus call for an opening of economics to insights from other disciplines. Within that context, we show that an evolutionary-inspired line of thought coupled with a systemic and historical perspective of technological change provides a very insightful alternative to traditional economics. More particularly, it follows from that framework that the picture of the climate challenge ahead looks very different from what traditional economic analyses would suggest. For instance, the lock-in process makes it unlikely that traditional cost-efficient measures (such as carbon taxation or tradable emission rights) will be sufficient to bring about the required radical changes in the field of energy as they fail to address structural barriers highlighted in our approach.     

The early design model for prediction of energy and cost performance of building design options

In order to encourage the use of computer modelling in building environmental analysis, it is necessary to provide a model developed from the designer's point of view. Detailed simulation models require a high degree of expertise and familiarity, further, there is also a need for detailed information not available in the early stages of the design process. Simplified models play an important role in the early stages of a design to achieve an integrated design: firstly, they are easy to use and, secondly, they require information easily available at the start of a design. In the Early Design Model (EDM) the solar gain utilisation factor has been determined as a continuous function of thermal mass. The differences between the annual energy predictions of EDM and SERI-RES ranges from 0.1% to 4.6% for time constants ranging from 378 to 2.52 hours. The differences between the two sets of predictions on monthly basis ranges from m 3.6% to m 6.48% (EDM's predictions being larger) during the heating season, and from +2.86% to a maximum of +51% (EDM's predictions being smaller) in the remaining part of the year. In addition to energy predictions, EDM incorporates a facility which gives cost indications.     

Perspectives of energy efficient technologies penetration in the Greek domestic sector,through the analysis of Energy Performance Certificates

The building sector in Greece presents a huge energy saving potential, the largest part of which is remaining unexploited. The recently enacted legislation for the energy performance of buildings, in combination with the financial support provided by funding programmes to low income families is expected to significantly boost the deployment of energy efficient technologies in the Greek domestic sector. The exploitation of these legal and financial instruments follows a formalised process of energy audits, resulting in buildings classification and in the submission of Energy Performance Certificates (EPCs) including suggestions to improve the dwellings' energy performance. The paper aims at an ex-ante evaluation of the market trends revealed by EPCs in Greece, in order to identify the perspectives of individual technologies and to assess the degree to which the certification procedure helps in improving the energy performance of buildings. The results indicate a strong trend towards less cost-effective technologies, revealing a sub-optimal allocation of financial resources and putting into risk the path towards the achievement of EU targets for 2020.     

AHP-based risk analysis of energy performance contracting projects in Russia

Understanding and properly managing risks that could potentially affect the target- and performance-based profits of energy performance contracting (EPC) projects are essential. It is particularly important for the establishment and success of energy service companies (ESCOs) acting in the vulnerable environment of the vast but highly energy-inefficient Russian market. This study systematically explores common risk factors and causes of risk associated with EPC projects executed in three Russian sectors: (1) industrial; (2) housing and communal services; and (3) public. Several interviews with the Russian EPC experts were accomplished and a qualitative risk assessment by using an analytic hierarchy process (AHP) approach. The data were obtained from a web-based questionnaire survey conducted among Russian EPC project executors. For each focus sector, a specific preference-based ranking of the identified risk factors and causes of risk was derived. The AHP results show that causes of risk related to the financial and regulatory aspects contribute most to the riskiness of EPC projects performed in all three focus sectors in Russia, calling for the special attention of EPC policy- and business-makers. Due to sectorial particularities and different actors involved, we conclude that there is a need for elaboration of sector-specific contractual schemes for EPC projects.