Explaining credit default swap spreads by means of realized jumps and volatilities in the energy market

This paper studies the relationship between credit default swap (CDS) spreads for the Energy sector and oil futures dynamics. Using data on light sweet crude oil futures from 2004 to 2013, which contains a crisis period, we examine the importance of volatility and jumps extracted from the futures in explaining CDS spread changes. The analysis is performed at an index level and by rating group; as well as for the pre-crisis, crisis and post-crisis periods. Our findings are consistent with Merton's theoretical framework. At an index level, futures jumps are important when explaining CDS spread changes, with negative jumps having higher impact during the crisis. The continuous volatility part is significant and positive, indicating that futures volatility conveys relevant information for the CDS market. As for the analysis per rating group, negative jumps have an increasing importance as the credit rating deteriorates and during the crisis period, while the results for positive jumps and futures volatility are mixed. Overall, the relation between the CDS market and the futures market is stronger during volatile periods and strengthened after the Global Financial Crisis.     

Informational rents in oil and gas concession auctions in Brazil

This article aims to estimate the informational rents earned by winning bidders in oil and gas exploration and production auctions in Brazil. We estimate the distributions of bids and bidders' private valuations using a nonparametric structural model and assuming independence and asymmetry between participants. Petrobras, the Brazilian state-owned petroleum giant and former oil sector monopolist, was considered a competitor that was distinct from other competitors. Thus, we investigate a database based on information from all auctions held between 1999 and 2008. The results suggest that Petrobras earned significantly higher information rents than other competitors. Such rents ranged from 15% to 63%, depending on the number and type of competitors.     

Dynamics of risk management tools and auctions in the second phase of the Brazilian Electricity Market reform

In 2004, the reform of the Brazilian Electricity Market underwent a thorough revision. One of its causes was the electricity rationing that began in June 2001 and lasted until February 2002. Among other measures, the 2004 revision devised new mechanisms intended to reduce risks associated to contracts settled in electricity auctions and those related to investments in new generation plants. As 4 years have passed since the onset of the reform's revision, sufficiently enough data are now available for an analysis of the post-revision dynamics of the Brazilian Electricity Market. This is the purpose of the present paper. We focus on the dynamics of the different types of electricity auctions and on the so-called Mechanism for Compensation of Surpluses and Deficits, both created in the wake of the 2004 revision. The ultimate goal is to understand the behavior of the agents involved in auctions – notably buyers and sellers of electricity – and propose remedial actions to eliminate existing loopholes in the present regulatory framework. To achieve this goal, four steps were necessary. Firstly, a data base to support the analysis was built. Then, the main drivers of the dynamics of the risk management tools were identified. Finally, consequences of the implemented changes were discussed and corrections for observed pitfalls proposed.     

The impact of Energy Performance Certificates on the rental and capital values of commercial property assets

This paper focuses on the effect of energy performance ratings on appraised capital values, rental values and equivalent yields of UK commercial property assets. The study is based on a cross-section of 708 commercial property assets. Incorporating a range of potential confounding factors such as unexpired lease term, vacancy rate and tenant credit risk, we use hedonic regression procedures to estimate the effect of EPC rating on rental and capital values. The study finds no evidence of a significant relationship between environmental and/or energy performance and rental and capital values. A small subset of 24 BREEAM-rated assets is also tested for significant price effects but a statistically significant effect is only confirmed for equivalent yields. Similarly, there was no evidence that the EPC rating had any effect on Market Rent or Market Value with only minor effects of EPC ratings on equivalent yields. The preliminary conclusion is that energy labelling is not yet having the effects on Market Values and Market Rents that would be expected if high EPC ratings were associated with substantial cost savings that are fully reflected in capital values and/or were readily available and taken into account by prospective tenants and buyers.     

Wood-fuel biomass from the Madeira River: A sustainable option for electricity production in the Amazon region

The universal provision of electricity remains far from achieved in the Brazilian Amazon, given the geographical obstacles, the dispersion of its inhabitants, the indistinctness of appropriate technologies, and the economic obstacles. Governmental action was taken in 2003 with the creation of the Light for All Program (PLpT), with the goal of bringing electricity to all rural consumers by 2010. In addition, the National Electric Power Agency, ANEEL (Agência Nacional de Energia Elétrica), which is responsible in Brazil for the electrical sector regulation, has issued a determination of compulsory access to electricity by 2015. This study describes research conducted on the Madeira River, in the Brazilian Amazon, where the electric needs of the communities and small towns along the river can be satisfied through the gasification system, using as a renewable feedstock the wood-fuel biomass deposited on the riverbed, derived from natural processes, which the Ministry of Transport is already legally obligated to remove in order to provide safe navigation along the river. The study concludes by comparing the competitiveness of this system to diesel thermoelectric plants, along with its advantages in reducing the emission of greenhouse gases. Our results should help future studies in others areas with similar phenomena.     

Thermoeconomic optimization method as design tool in gas–steam combined plant realization

In modern power plants design, not only high performances but also low capital investments have to be assured so that the final product proposed on the market could be competitive. Starting from this concept, in this work, we have realized a tool for a thermoeconomic evaluation and optimization of thermal power plants which could give solutions to problems connected with the design of real systems.

The model, using three programs and a set of cost correlations (obtained from collaboration with Nuovo Pignone–General Electric), can estimate the realization costs of a combined power plant as a function of the constructive and operation parameters. A test to verify the capacity of our model has been performed by simulating an existing plant. The results seem very good, and this tool will be soon used also in the industry.     

Acceptance of renewable energy innovation in Brazil—case study of wind energy

The paper presents some outputs of renewable energy power plants in Brazil, focusing in the case of wind energy. The information data are mainly acquired from a project developed by the authors with financial resources of Electric Energy National Agengy (ANEEL), United Nations Development Program (PNUD) and Ministry of Science and Technology (MCT). It was used as the socio environmental impacts to evaluate the acceptance aspect, using as examples some case studies implemented in Brazil and the previous experience of the authors.     

The effect of trade between China and the UK on national and global carbon dioxide emissions

We estimate the amount of carbon dioxide embodied in bi-lateral trade between the UK and China in 2004. Developing and applying the method of Shui and Harriss [2006. The role of CO₂ embodiment in US–China trade. Energy Policy 34, 4063–4068], the most recently available data on trade and CO₂ emissions have been updated and adjusted to calculate the CO₂ emissions embodied in the commodities traded between China and the UK. It was found that through trade with China, the UK reduced its CO₂ emissions by approximately 11% in 2004, compared with a non-trade scenario in which the same type and volume of goods are produced in the UK. In addition, due to the greater carbon-intensity and relatively less efficient production processes of Chinese industry, China–UK trade resulted in an additional 117 Mt of CO₂ to global CO₂ emissions in the same one year period, compared with a non-trade scenario in which the same type and volume of goods are produced in the UK. This represents an additional 19% to the reported national CO₂ emissions of the UK (555 Mt/y in 2004) and 0.4% of global emissions. These findings suggest that, through international trade, very significant environmental impacts can be shifted from one country to another, and that international trade can (but does not necessarily) result in globally increased greenhouse gas emissions. These results are additional to the environmental consequences of transporting goods, which are not robustly quantified here.     

Risk spillovers in oil-related CDS,stock and credit markets

This paper examines risk transmission and migration among six US measures of credit and market risk during the full period 2004–2011 period and the 2009–2011 recovery subperiod, with a focus on four sectors related to the highly volatile oil price. There are more long-run equilibrium risk relationships and short-run causal relationships among the four oil-related Credit Default Swaps (CDS) indexes, the (expected equity volatility) VIX index and the (swaption expected volatility) SMOVE index for the full period than for the recovery subperiod. The auto sector CDS spread is the most error-correcting in the long run and also leads in the risk discovery process in the short run. On the other hand, the CDS spread of the highly regulated, natural monopoly utility sector does not error correct. The four oil-related CDS spread indexes are responsive to VIX in the short- and long-run, while no index is sensitive to SMOVE which, in turn, unilaterally assembles risk migration from VIX. The 2007–2008 Great Recession seems to have led to “localization” and less migration of credit and market risk in the oil-related sectors.     

Thermo-economic analysis of a direct supercritical CO2 electric power generation system using geothermal heat

A comprehensive thermo-economic model combining a geothermal heat mining system and a direct supercritical CO₂ turbine expansion electric power generation system was proposed in this paper. Assisted by this integrated model, thermo-economic and optimization analyses for the key design parameters of the whole system including the geothermal well pattern and operational conditions were performed to obtain a minimal levelized cost of electricity (LCOE). Specifically, in geothermal heat extraction simulation, an integrated wellbore-reservoir system model (T2Well/ECO2N) was used to generate a database for creating a fast, predictive, and compatible geothermal heat mining model by employing a response surface methodology. A parametric study was conducted to demonstrate the impact of turbine discharge pressure, injection and production well distance, CO₂ injection flowrate, CO₂ injection temperature, and monitored production well bottom pressure on LCOE, system thermal efficiency, and capital cost. It was found that for a 100 MW_e power plant, a minimal LCOE of $0.177/kWh was achieved for a 20-year steady operation without considering CO₂ sequestration credit. In addition, when CO₂ sequestration credit is $1.00/t, an LCOE breakeven point compared to a conventional geothermal power plant is achieved and a breakpoint for generating electric power generation at no cost was achieved for a sequestration credit of $2.05/t.     

Natural gas power generation in Brazil: New window of opportunity?

This survey analyses the need as well as the attractiveness of private investment in natural gas thermal power generation under the Brazilian new power sector reform. Providing a scenario analysis from 2004 to 2014, this paper focuses on the investor perspective, and concludes that investments in natural gas thermal power plants in Brazil are not feasible, without financial subsidies stimulating investors. The more wary of risk both government and society are, and the more averse to risk the investor is, the higher the probability of higher capacity payment to provide incentives to investors. The alternative would be a lower capacity payment combined with higher thermal power tariffs; meaning that generators would receive much more payment when operating, despite assuming higher risks. Additionally, the improvement in safety supply cost is estimated and a sensibility analysis on the actual variables is performed.     

Wind energy in Brazil—present and future

In Brazil, the power generation is predominantly hydroelectric, corresponding approximately to 91.4% of the installed capacity. The energy crisis in the Brazilian electric sector meant the end of the centralized generation and the launching of a decentralized generation approach aiming to add to the existing plants through small- and medium power capacity. Such a condition matches the wind energy characteristic profile. In northeastern Brazil is one of the most promising areas for wind exploitation, where the largest wind speed occurs exactly when the rate of flow in Sao Francisco river, which accounts for all the power energy supply of the northeast region, is low. Thus, during this critical period, the wind farms can produce electrical energy, saving the Sao Francisco waters and on top of that with no environmental risk, thus contributing to the overall reduction of CO₂ emission in the atmosphere. Because of those factors, the National Electrical Energy Agency (ANEEL), the Brazilian regulatory authority, has approved 77 projects for construction of wind farms, attracting foreign investment, besides the installation of wind turbine industries. The increasing use of the wind energy is prevailing over the absence of a specific legislation for the sector, but the National Congress has already taken some measures such as the act bill no. 2905/2000 and the temporary measure no. 14/2001.     

The potential contribution of thermo power plants in the Brazilian electric sector

This paper aims at analyzing particularities of the Brazilian electric system and at evaluating the potential contribution of thermal power plants targeting at its higher reliability. In special, the aim is at analyzing the insertion of thermal power production in the present context in which hydroplants start to be built in the Amazon area with small reservoir capacity. An assessment of the behavior of the energy inflows and of the regularization capacity of the Brazilian hydro power system emphazises the need for having a good quality thermal power expansion. The power production from sugarcane residues is specially considered due to the existing untapped potential (about 4 times higher than the installed capacity, considering the current availability of biomass) and the existing window opportunity due to the expansion of sugarcane industry in Brazil (mostly for ethanol production).     

CO2 sequestration in Ontario, Canada. Part II: cost estimation

As the Kyoto target set for Canada is to reduce GHG emission by 6% of the 1990 level by 2008–2012, several options are being considered to achieve this target. One of the possible options in Ontario is geological sequestration of captured CO₂ in saline aquifers, where CO₂ is expected to be stored for long geological periods, from 100 to several thousand years depending on the size, property and location of the reservoir. The preferred concept is to inject CO₂ into a porous and permeable reservoir covered with a cap rock located at least 800 m beneath the earth's surface where CO₂ can be stored under supercritical conditions. This paper evaluates the capital and operating cost for CO₂ sequestration in southwestern Ontario from a 500 MW coal fired power plant. The main focus is on the cost of sequestration (CO₂ transport and injection), and thus, the cost of capturing and pressurizing the CO₂ from the plant flue gas is not considered here.

A significant amount of capital investment is necessary to transfer CO₂ from a 500 MW fossil fuel power plant to the injection location and to store it underground. Major components of the cost include: cost of pipeline, cost of drilling injection wells and installing platforms, since the more plausible injection area is under Lake Erie. Many uncertainties are associated with cost estimation; several are identified and their impacts are considered in this paper. The estimated cost of sequestration of 14,000 ton/day of CO₂ at approximately 110 bar in southwestern Ontario is between 7.5 and 14 US$/ton of CO₂ stored.     

Assessing incentive policies for integrating centralized solar power generation in the Brazilian electric power system

This study assesses the impacts of promoting, through auctions, centralized solar power generation (concentrated solar power – CSP, and photovoltaic solar panels – PV) on the Brazilian power system. Four types of CSP plants with parabolic troughs were simulated at two sites, Bom Jesus da Lapa and Campo Grande, and PV plants were simulated at two other sites, Recife and Rio de Janeiro. The main parameters obtained for each plant were expanded to other suitable sites in the country (totaling 17.2 GW in 2040), as inputs in an optimization model for evaluating the impacts of the introduction of centralized solar power on the expansion of the electricity grid up to 2040. This scenario would be about USD$ 185 billion more expensive than a business as usual scenario, where expansion solely relies on least-cost options. Hence, for the country to incentivize the expansion of centralized solar power, specific auctions for solar energy should be adopted, as well as complementary policies to promote investments in R&D and the use of hybrid systems based on solar and fuels in CSP plants.     

How many Enrons? Mark-ups in the stated capital cost of independent power producers' (IPPs') power projects in developing countries

I analyze the determinants of the stated capital cost of IPPs' power projects which significantly influences their price of power. I show that IPPs face a strong incentive to overstate their capital cost and argue that effective competition or regulatory scrutiny will limit the extent of the same. I analyze the stated capital costs of combined cycle gas turbine (CCGT) IPP projects in eight developing countries which became operational during 1990–2006 and find that the stated capital cost of projects selected without competitive bidding is 44–56% higher than those selected with competitive bidding, even after controlling for the effect of cost differences among projects. The extent to which the stated capital costs of projects selected without competitive bidding are higher compared those selected with competitive bidding, is a lower bound on the extent to which they are overstated. My results indicate the drawbacks associated with a policy of promoting private sector participation without an adequate focus on improving competition or regulation.     

Variability in large‐scale wind power generation

The paper demonstrates the characteristics of wind power variability and net load variability in multiple power systems based on real data from multiple years. Demonstrated characteristics include probability distribution for different ramp durations, seasonal and diurnal variability and low net load events. The comparison shows regions with low variability (Sweden, Spain and Germany), medium variability (Portugal, Ireland, Finland and Denmark) and regions with higher variability (Quebec, Bonneville Power Administration and Electric Reliability Council of Texas in North America; Gansu, Jilin and Liaoning in China; and Norway and offshore wind power in Denmark). For regions with low variability, the maximum 1 h wind ramps are below 10% of nominal capacity, and for regions with high variability, they may be close to 30%. Wind power variability is mainly explained by the extent of geographical spread, but also higher capacity factor causes higher variability. It was also shown how wind power ramps are autocorrelated and dependent on the operating output level. When wind power was concentrated in smaller area, there were outliers with high changes in wind output, which were not present in large areas with well‐dispersed wind power. Copyright © 2015 John Wiley & Sons, Ltd.     

Economic determinants of oil futures volatility: A term structure perspective

To assess the economic determinants of oil futures volatility, we firstly develop and estimate a multi-factor oil futures pricing model with stochastic volatility that is able to disentangle long-term, medium-term and short-term variations in commodity markets volatility. The volatility estimates reveal that in line with theory, the volatility factors are unspanned, persistent and carry negative market price of risk, while crude oil markets are becoming more integrated with financial markets. After 2004, short-term volatility is driven by industrial production, term and credit spreads, the S&P 500 and the US dollar index, along with the traditional drivers including hedging pressure and VIX. Medium-term volatility is consistently related to open interest and credit spreads, while after 2004 oil sector variables such as inventory and consumption also impact this part of the term structure. Interest rates mostly matter for long-term futures price volatility.     

Conceptual design of large scale water electrolysis plant using solid polymer electrolyte technology

In an energy conscious environment, the key to the applicability of water electrolysis as a means for generation of hydrogen in bulk quantities is the achievement of high efficiencies (i.e. over 90%) at high enough current densities to keep the capital costs within economic bounds. The solid polymer electrolyte (SPE) water electrolysis technology developed by the General Electric Company is now demonstrating these efficiencies at current densities up to 500 A ft⁻², and the results of recent laboratory testing show a potential for increasing this to 2000 A ft⁻² within the next 10 years. This capability now makes water electrolysis one of the most promising methods for generating hydrogen from nuclear, solar or other non-fossil fuel energy sources.

The performance and life test results are shown including laboratory cells on which future performance projections are based. The design and development status of a scaled-up electrolysis cell suitable for large-sized hydrogen generation plants is described. Estimated capital costs and operating costs are projected from which the resultant hydrogen costs are calculated.     

Projections of US GHG reductions from nuclear power new capacity based on historic levels of investment

Historical rates of capital investment in nuclear plant construction were used as a guide to estimate the potential rate of future capacity introduction. The total linear rate of capital expenditure over the entire period of historical construction from 1964 to 1990 was determined to equal $11.5 billion/yr, and that for the period of peak construction from 1973 to 1985 was computed as $17.9 billion/yr, all in 2004$. These values were used with a variety of current capital cost estimates for nuclear construction to obtain several scenarios for possible future nuclear capacity additions. These values were used to obtain the effect of projected nuclear generating capacity on GHG emissions assuming nuclear would directly replace coal-fired generation. It was concluded that actual reductions in emissions would not be experienced until 2038, yet growth in emissions from electrical production would be slowed through that period. Due to the significant time to introduce large-scale changes in the utility sector, nuclear energy cannot have a dramatic short-term effect on emissions. Nuclear power, however, can have a major positive longer term impact, particularly under more favorable cost and investment conditions.