Discussing Energy Economics on the Internet

Markets Good for Security of Supply

Posted in Europe,Price Spikes,Regulation by Cheryl Morgan on the September 19th, 2008

EU Energy Policy has a long post summarizing the results of the CESSA research program looking into security of supply. Most of it can be boiled down to “markets are good, and bigger markets are better than small ones.” How that will go down in the wake of the financial market meltdown is unclear. In particular the report warns governments against removing price signals by capping prices so as to avoid upsetting consumers by exposing them to short term price spikes. There are, of course, other ways to protect consumers from price spikes, but that would involve *gasp* derivatives!

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On/Off – And Not Just the Deal

Posted in France,Nuclear,UK by Cheryl Morgan on the September 19th, 2008

There have been a few rumblings this week that the EdF/BE deal is back on again. This has been going on for so long that I would not have even mentioned it were it not for the fact that the whole rationale for an EdF takeover is their expertise in running nuclear power stations, and Platts has just reported that 17 of their 58 nukes, representing some 29% of capacity, are currently offline for various reasons.

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Which Way Will the Wind Blow?

Posted in Modeling,Renewables,Wind by Cheryl Morgan on the September 18th, 2008

Variability in the availability of renewable generation is often cited as an issue for grid managers, but the obvious thing to do in that case is forecast it. Generation market simulation software often includes the ability to model seasonal and annual variation in water availability for hydros. Presumably wind (and solar) will acquire they own modeling methods. The PJM is apparently looking at the possibilities for build a wind forecasting model. Other people are doubtless doing the same. Does anyone know of any papers on this sort of thing?

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Tightening the EU Carbon Market

Posted in Emissions Trading,Environmental Markets by Cheryl Morgan on the September 17th, 2008

Carbon offsetting has received a lot of bad press of late, in part because there have been some really awful offsetting schemes out there, and in part because crusading journalists hate the idea that the middle classes could actually assuage their guilt without obvious dreadful suffering. To fill the gap, a new means of climate change activism has appeared. Sandbag is a UK-based campaign that aims to reduce the amount of CO2 emissions in the EU buy buying up carbon emissions permits and destroying them. That way the number of emissions permits available on the market will decrease, pushing up the price of the remaining permits, and encouraging companies to do something about their emissions.

Sandbag is currently charging around $50 for its basic level of membership, for which it will buy and destroy a single 1-tonne permit. According to the EU, there are currently 2298.5 million permits in the market, but then there are almost 500 million people in Europe. If everyone bought a permit, that would make a big hole in the market.

There is an interesting interview with Sandbag’s founder, Bryony Worthington, in The Guardian.

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Science Frontiers

Posted in Renewables by Cheryl Morgan on the September 17th, 2008

With the rapid increase in wind and solar generation has come a great deal of concern about the intermittent nature of the power that such systems provide. Consequently a great deal of research is going into systems that might allow that power to be stored more effectively. One of the current front-runners is the molten salt battery, which actually stores heat rather than electricity. A possible new technology that stores electricity is a capacitor made from sheets of graphene. Capacitors have the advantage of being usable on a small scale in electric vehicles and even electronic devices as well.

For real cutting edge research, however, Nature has an article about the feasibility of building orbital death rays satellites to beam solar power to earth.

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Sex and Drugs and Energy Regulation

Posted in Oil,Regulation by Cheryl Morgan on the September 11th, 2008

Most of us who work in energy economics have had dealings with government regulators at some point or other during our careers. Mostly, in my experience, such people have taken their jobs very seriously. Obviously I have led a very sheltered existence.

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UK Court Acts to Save Planet from Coal

Posted in Coal,UK by Cheryl Morgan on the September 11th, 2008

Concern about global warming has penetrated most of the world by now. Here in California our local utility, PG&E, sponsors TV ads encouraging us to help save the planet by saving energy. But in the UK some Greenpeace activists have gone several steps further, and have received court backing for what they did.

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California Not So Spiky

Posted in California,Price Spikes by Cheryl Morgan on the September 10th, 2008

A casual glance at this report from Platts could make you very worried about the state of the California electricity market. Hitting the price cap 465 times in June? Why, where are 720 hours in the whole month!

Fortunately that’s not quite what they mean. To start with these are prices from the Real Time market. They are almost certainly 5 minute prices, not hourly prices. The hourly price is an average of the 5 minute prices. In addition a quick check of CalISO‘s web site shows that what they actually reported was 465 prices over $250/MWh, not 465 prices hitting the $399.99/MWh price cap. According to the OASIS data, hourly real time prices in both the NP15 and SP15 zones exceeded $250/MWh only 30 times in June.

Then again, that’s once a day, which is quite a lot. It is probably about time for some politician to complain that the market is failing because it is not encouraging new build.

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Regulating Capital Adequacy

Posted in Regulation,Risk Management by Cheryl Morgan on the September 9th, 2008

Over at the EU Energy Policy blog Bert Willems and Emmanuel De Corte of Tilburg University suggest that the EU should regulate market power in the generation sector by setting limits on capital adequacy as well as looking at market concentration. Being aware of capital adequacy issues is generally a good thing for regulators, if only because most of the major disasters in energy markets have been caused by melt-downs in trading. Also such an awareness might dissuade them from encouraging very small companies to enter retail markets, with predictable results. On the other hand, getting a reliable measure of capital adequacy is not easy. The authors say:

we would allow firms to use their own risk analysis, and base the regulation on a general ‘Value at Risk’- measure, similarly to what is used in the banking sector

While VaR is a well known and commonly accepted methodology, its implementation is very complex. That’s particularly the case in the energy industry where price distributions have such extreme kurtosis. Consequently such a regulation could easily lead to endless disputes about whether the VaR numbers coming out of companies were in any way comparable; and indeed whether the regulation provided an incentive for companies to distort their risk reporting, thereby putting their financial security in danger. Possibly the authors have addressed these issues in their paper, but it is behind a pay wall.

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Europe Invests in Africa

Posted in Africa,Electricity Transmission,Europe,Gas Transmission/Storage,Renewables by Cheryl Morgan on the September 9th, 2008

EurActive reports on a major European Union initiative to invest in the African energy sector. The €600 million will go to a variety of projects including renewable generation, power pools and infrastructure projects. A further major announcement is expected soon on the subject of the proposed Trans-Saharan Gas Pipeline. This is intended to bring up to 30 billion cubic metres of Nigerian natural gas across more than 4,300km of desert to EU markets via Algeria. It would also, of course, significantly reduce Europe’s dependence on Russia for gas supplies.

The primary source of all these handouts is something called the European Development Fund, which is of course abbreviated to EDF. Any resemblance to a French energy company is entirely coincidental, if somewhat amusing.

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