Forward contracts in electricity markets: The Australian experience

Forward contracts play a vital role in all electricity markets, and yet the details of the market for forward contracts are often opaque. In this paper we review the existing literature on forward contracts and explore the contracting process as it operates in Australia. The paper is based on interviews with participants in Australia's National Electricity Market (NEM). The interviews were designed to understand the contracting process and the practice of risk management in the Australian energy-only pool market. This survey reveals some significant gaps between the assumptions made in the academic literature and actual practice in the Australian market place.     

Demand response in U.S. electricity markets: Empirical evidence

Empirical evidence concerning demand response (DR) resources is needed in order to establish baseline conditions, develop standardized methods to assess DR availability and performance, and to build confidence among policymakers, utilities, system operators, and stakeholders that DR resources do offer a viable, cost-effective alternative to supply-side investments. This paper summarizes the existing contribution of DR resources in U.S. electric power markets. In 2008, customers enrolled in existing wholesale and retail DR programs were capable of providing ∼38,000 MW of potential peak load reductions in the United States. Participants in organized wholesale market DR programs, though, have historically overestimated their likely performance during declared curtailments events, but appear to be getting better as they and their agents gain experience. In places with less developed organized wholesale market DR programs, utilities are learning how to create more flexible DR resources by adapting legacy load management programs to fit into existing wholesale market constructs. Overall, the development of open and organized wholesale markets coupled with direct policy support by the Federal Energy Regulatory Commission has facilitated new entry by curtailment service providers, which has likely expanded the demand response industry and led to product and service innovation.     

Interactions between energy security and climate change: A focus on developing countries

We briefly consider the tensions between climate change and energy security policy imperatives, and highlight some concepts that may bring additional clarity to decision-making at the nexus of the two areas. We focus on developing countries and use the case of the Medupi supercritical coal plant in South Africa. The justification for the plant's construction stemmed from an Integrated Resource Planning process informed by South Africa's national utility. Often, as in the case of South Africa, there are tensions not easily captured in quantitative algorithms between, inter alia, a lack of access to electricity by millions of people (and associated welfare losses) and greenhouse gas emissions from electricity generation. It is difficult to identify any formal processes that have prioritised climate change considerations over those of energy access. Thus, it becomes imperative to have a clear understanding of the consequences of this reality when considering power system expansion. We find that the processes often employed do not provide an entirely satisfactory precedent for future planning analyses, and the justifications do not adequately reflect the complexity of the decision space. Finally, we highlight some options by which these tools might be enhanced in areas including explicit and formal consideration of risk.     

Nuclear power,climate change and energy security: Exploring British public attitudes

Public attitudes towards nuclear power in the UK have historically been deeply divided, but as concern about climate change and energy security has exerted an increasing influence on British energy policy, nuclear power has been reframed as a low-carbon technology. Previous research has suggested that a significant proportion of people may ‘reluctantly accept’ nuclear power as a means of addressing the greater threat of climate change. Drawing on the results of a national British survey (n=1822), the current study found that attitudes towards nuclear remain divided, with only a minority expressing unconditional acceptance. In general, people who expressed greater concern about climate change and energy security and possessed higher environmental values were less likely to favour nuclear power. However, when nuclear power was given an explicit ‘reluctant acceptance’ framing – allowing people to express their dislike for nuclear power alongside their conditional support – concerns about climate change and energy security became positive predictors of support for nuclear power. These findings suggest that concern about climate change and energy security will only increase acceptance of nuclear power under limited circumstances—specifically once other (preferred) options have been exhausted.     

Smart grids: Another step towards competition,energy security and climate change objectives

The deployment of smart grids in electricity systems has given rise to much interdisciplinary research. The new technology is seen as an additional instrument available to States to achieve targets for promoting competition, increasing the safety of electricity systems and combating climate change. But the boom in smart grids also raises many economic questions. Public policies will need to be adapted, firstly to make allowance for the potential gains from smart grids and the associated information flow, and secondly to regulate the new networks and act as an incentive for investors. The new competitive offerings and end-user pricing systems will contribute to improving allocative and productive efficiency, while minimizing the risks of market power. With real-time data on output and consumption, generators and consumers will be able to adapt to market conditions. Lastly smart grids will boost the development of renewable energy sources and new technologies, by assisting their integration and optimal use.     

Bioenergy expansion in the EU: Cost-effective climate change mitigation, employment creation and reduced dependency on imported fuels

Presently, the European Union (EU) is promoting bioenergy. The aim of this paper is to study the prospects for using domestic biomass resources in Europe and specifically to investigate whether different policy objectives underlying the promotion of bioenergy (cost-effective climate change mitigation, employment creation and reduced dependency on imported fuels) agree on which bioenergy options that should be used. We model bioenergy use from a cost-effectiveness perspective with a linear regionalized energy- and transport-system model and perform supplementary analysis. It is found that the different policy objectives do not agree on the order of priority among bioenergy options. Maximizing climate benefits cost-effectively is in conflict with maximizing employment creation. The former perspective proposes the use of lignocellulosic biomass in the stationary sector, while the latter requires biofuels for transport based on traditional agricultural crops. Further, from a security-of-supply perspective, the appeal of a given bioenergy option depends on how oil and gas import dependencies are weighed relative to each other. Consequently, there are tradeoffs that need to be addressed by policymakers promoting the use of bioenergy. Also, the importance of bioenergy in relation to employment creation and fuel import dependency reduction needs to be further addressed.     

Forecast of electricity consumption in Cyprus up to the year 2030: The potential impact of climate change

This paper provides a forecast of electricity consumption in Cyprus up to the year 2030, based on econometric analysis of energy use as a function of macroeconomic variables, prices and weather conditions. If past trends continue electricity use is expected to triple in the coming 20–25 years, with the residential and commercial sectors increasing their already high shares in total consumption. Besides this reference scenario it was attempted to assess the impact of climate change on electricity use. According to official projections, the average temperature in the Eastern Mediterranean is expected to rise by about 1 °C by the year 2030. Using our econometrically estimated model, we calculated that electricity consumption in Cyprus may be about 2.9% higher in 2030 than in the reference scenario. This might lead to a welfare loss of 15 million Euros in 2020 and 45 million Euros in 2030; for the entire period 2008–2030 the present value of costs may exceed 200 million Euros (all expressed in constant Euros of 2007). Moreover, we assessed the additional peak electricity load requirements in the future because of climate change: extra load may amount to 65–75 Megawatts (MW) in the year 2020 and 85–95 MW in 2030.     

Energy security under de-carbonization scenarios: An assessment framework and evaluation under different technology and policy choices

How would a low-carbon energy transformation affect energy security? This paper proposes a framework to evaluate energy security under long-term energy scenarios generated by integrated assessment models. Energy security is defined as low vulnerability of vital energy systems, delineated along geographic and sectoral boundaries. The proposed framework considers vulnerability as a combination of risks associated with inter-regional energy trade and resilience reflected in energy intensity and diversity of energy sources and technologies. We apply this framework to 43 scenarios generated by the MESSAGE model as part of the Global Energy Assessment, including one baseline scenario and 42 ‘low-carbon’ scenarios where the global mean temperature increase is limited to 2°C over the pre-industrial level. By and large, low-carbon scenarios are associated with lower energy trade and higher diversity of energy options, especially in the transport sector. A few risks do emerge under low-carbon scenarios in the latter half of the century. They include potentially high trade in natural gas and hydrogen and low diversity of electricity sources. Trade is typically lower in scenarios which emphasize demand-side policies as well as non-tradable energy sources (nuclear and renewables) while diversity is higher in scenarios which limit the penetration of intermittent renewables.     

Diversity and security in UK electricity generation: The influence of low-carbon objectives

We explore the relationship between low-carbon objectives and the strategic security of electricity in the context of the UK electricity system. We consider diversity of fuel source mix to represent one dimension of security—robustness against interruptions of any one source—and apply two different diversity indices to the range of electricity system scenarios produced by the UK government and independent researchers. Our results show that low-carbon objectives are uniformly associated with greater long-term diversity in UK electricity generation. With reference to data on wind generation we also consider the impact of source variability on a second dimension of security—the reliability of generation availability. We conclude that this does not undermine our fundamental conclusion that low-carbon scenarios are associated with greater strategic security of supply in UK electricity. We discuss reasons for this result, explore sensitivities, and briefly discuss possible policy instruments associated with diversity and their limitations.     

Integrating climate change mitigation and adaptation: Refining theory for a mathematical framework to quantify private and public cost-effectiveness,and C emissions for energy and development projects

This work builds on a bottom-up market greenhouse gas (GHG) mitigation approach to determine the mitigation potential of specific activities by introducing two new concepts: the “adaptation potential” (defined as the difference between the sum of costs and benefits of adaptation, over a specified interval), and; “no behest” opportunities (defined as when the benefits of an activity equal or exceed both the costs to the private investor and the society, excluding the benefits of avoided climate change). “No behest” activities are contrasted with “no regrets” opportunities, whose benefits are equal to, or exceed costs to society, excluding the benefits of avoided climate change. The word “behest” conveys the value of requiring little further incentive or regulation to motivate private investors to take advantage of existing economic opportunities. Therefore, “no behest” opportunities are similar to “no regrets” opportunities, but with a greater relevance to private investments that both mitigate and adapt by including the real market benefits and costs of cleaner development options. This work utilises several mathematical methods to remove information asymmetries between market decision-making and what is both economically and environmentally efficient. These methods can be used for both contextually based bottom-up and top-down scenarios in either an adaptation and mitigation framework. The outputs are a quantified change in profitability and parallel GHG emissions of specific activity baselines that are suitable for carbon (C) liability assessment, investment and government emission targets in the current and projected policy environments. These methods can also be used to determine “no behest” activities which have lower private barriers to implementation than “no regrets” activities.     

Building and interconnecting hydrogen networks: Insights from the electricity and gas experience in Europe

This paper aims to investigate the transition to a new energy system based on hydrogen in the European liberalized framework. After analyzing the literature on the hydrogen infrastructure needs in Europe, we estimate the size and scope of the transition challenge. We take the theoretical framework of network economics to analyze early hydrogen infrastructure needs. Therefore, several concepts are applied to hydrogen economics such as demand club effects, scale economies on large infrastructures, scope economies, and positive socio-economical externalities. Based on the examples of the electricity and natural gas industry formation in Europe, we argue for public intervention in order to create conditions to reach more rapidly the critical size of the network and to prompt network externalities, allowing for the market diffusion of and, thus, an effective transition to the new energy system.     

Making,breaking, and (partially) remaking markets: State regulation and photovoltaic electricity in New Jersey

This paper describes the development of the U.S. state of New Jersey’s policy to accelerate the growth of photovoltaic electricity generating capacity over the past ten years. It provides insights that may be of use to scholars and policy-makers who seek to understand how markets for photovoltaics and other renewable energy technologies may be created and sustained, and it adds to the growing set of detailed historical case studies on these issues. Aggressive state policy measures have put New Jersey second to California among the U.S. states in installed photovoltaic capacity. That growth was achieved in a series of stages. New Jersey initially experienced a boom and bust as generous up-front rebates catalyzed rapid growth in demand and exhausted the program’s budget. A shift in 2007 to a policy that emphasized Solar Renewable Energy Certificates failed to sustain the growth in capacity. In response, the state began to require regulated transmission and distribution utilities to provide up-front financing for photovoltaic systems. This approach has restarted the momentum of the market, but it shifts the policy’s costs into the future, while empowering a new set of players with uncertain interests over the long term.     

Energy for sustainable development in Malaysia: Energy policy and alternative energy

Energy is often known as the catalyst for development. Globally, the per capita consumption of energy is often used as a barometer to measure the level of economic development in a particular country. Realizing the importance of energy as a vital component in economic and social development, the government of Malaysia has been continuously reviewing its energy policy to ensure long-term reliability and security of energy supply. Concentrated efforts are being undertaken to ensure the sustainability of energy resources, both depletable and renewable. The aim of this paper is to describe the various energy policies adopted in Malaysia to ensure long-term reliability and security of energy supply. The role of both, non-renewable and renewable sources of energy in the current Five-Fuel Diversification Strategy energy mix will also be discussed. Apart from that, this paper will also describe the various alternative energy and the implementation of energy efficiency program in Malaysia.     

Energy and water tradeoffs in enhancing food security: A selective international assessment

Rice is the major staple food in most Asian countries. However, with rapidly growing populations, sustained high productivity and yields through improving water productivity is critically important. Increasingly complex energy–agriculture relationships require an in-depth understanding of water and energy tradeoffs. This study contributes to energy and food policies by analysing the complex energy, water and economics dynamics across a selection of major rice growing countries.The results show that tradeoffs exist between yield and energy inputs with high yield attributed to higher levels of energy input. The selected developed countries show higher energy productivity, relative to all other energy inputs, compared to the selected developing counties, owing to enhanced mechanisation, on-farm technology and improved farm management. Among all countries, China has the highest water productivity due to water-saving irrigation practices. These practices offer opportunities for developed and developing countries to increase water productivity at the same time taking advantage of economic and energy benefits of reduced pumping.Sustained production from agriculture is vital to food security. Improved irrigation practices can offset environmental footprints in the short run but their large-scale implementation remains an issue. In the long run, investments are needed to buffer the negative impacts of food production on the environment. Investments to boost water productivity and improved energy use efficiency in crop production are two pathways to reduce energy dependency, enhanced natural resource sustainability and ensuring future food security.     

Auction approaches of long-term contracts to ensure generation investment in electricity markets: Lessons from the Brazilian and Chilean experiences

The implementation of auctions of long-term electricity contracts is arising as an alternative to ensure generation investment and therefore achieve a reliable electricity supply. The aim is to reconcile generation adequacy with efficient energy purchase, correct risk allocation among investors and consumers, and the politico-economic environment of the country. In this paper, a generic proposal for a long-term electricity contracts approach is made, including practical design concepts for implementation. This proposal is empirically derived from the auctions implemented in Brazil and Chile during the last 6 years. The study is focused on practices and lessons which are especially useful for regulators and policy makers that want to facilitate the financing of new desirable power plants in risky environments and also efficiently allocate supply contracts among investors at competitive prices. Although this mechanism is generally seen as a significant improvement in market regulation, there are questions and concerns on auction performance that require careful design and which are identified in this paper. In addition, the experiences and proposal described can serve to derive further mechanisms in order to promote the entrance of particular generation technologies, e.g. renewables, in the developed world and therefore achieve a clean electricity supply.     

The diffusion of renewable electricity in the presence of climate policy and technology learning: The case of Sweden

The overall objective of this paper is to analyze the impact of climate policy and technology learning on future investments in the Swedish power sector. Methodologically we assess the lifetime engineering costs of different power generation technologies in Sweden, and analyze the impact of carbon pricing on the competitive cost position of these technologies under varying rate-of-return requirements. We also argue that technological learning in the Swedish power sector – not the least in the case of wind power – is strongly related to the presence of international learning and R&D spillovers, and for this reason capacity expansions abroad have important influences of the future cost of power generation in Sweden. The results suggest that renewable power will benefit from existing EU climate policy measures, but overall additional policy instruments (e.g., green certificate schemes) are also needed to stimulate the diffusion of renewable power. Moreover, under a recent European Commission scenario and using estimated learning rates for wind power and the combined cycle gas turbine (CCGT), wind power gains considerable competitive ground due to international technology learning impacts. These latter results are, however, very sensitive to the assumed learning-by-doing rates for wind power and CCGT, respectively.     

Addressing competitiveness and leakage concerns in climate policy: An analysis of border adjustment measures in the US and the EU

The implementation of climate policies in the US and EU in light of uncertainties about future international climate policy has shifted attention to two interrelated concerns, namely competitiveness and carbon leakage. Although various policy measures are available to address these concerns, there has been much discussion about one such measure in particular: the use of offsetting measures at the border. This article compares policy discussions in the US and the EU on how to address competitiveness and carbon leakage concerns, with a focus on the role of import-related border adjustment measures. It analyses the kinds of measures that so far have been put forward with a view to addressing competitiveness and carbon leakage; compares the approaches to the problems in the US and the EU; and provides a preliminary discussion of international cooperation on border adjustment measures. It concludes that two kinds of cooperation are needed between the EU and the US – not only cooperation through formal international negotiations, but also cooperation through international learning processes, in which the EU and the US learn from each other about design and implementation issues as they develop their respective cap-and-trade systems.     

Energy and transport in comparison: Immaterialisation,dematerialisation and decarbonisation in the EU15 between 1970 and 2000

This article compares the development of transport and energy use with a focus on carbon dioxide (CO₂) emissions in the EU15 countries between 1960 and 2000, and separately by each individual EU country between 1970 and 2000. Based on a review on the literature, immaterialisation can be defined as the reduction of energy intensity and transport intensity; dematerialisation can be defined as the reduction in carbon intensity of energy production and the carbon intensity of transport; decarbonisation can be defined as the reduction in (total and transport) carbon intensity of the whole economy. Although there is a clear pattern of reduction in energy intensity of the economy and carbon intensity of energy production, a similar pattern cannot be found in transport. Neither the transport intensity of the economy nor the carbon intensity of transport has been reduced. In particular, freight transport intensity has grown between 1985 and 2000. Data presented by country have shown even more variation. The EU15 countries were aggregated into six groups by cluster analysis to establish the different patterns on each of the three measures. It is concluded that the EU15 countries will have problems in achieving the EU White Paper target of decoupling transport growth from economic growth and the Kyoto target of reducing total CO₂ emissions by 8% from the 1990 level between 2008 and 2012. However, there are some weak signals suggesting a more sustainable passenger transport system.