- Email: [email protected]
Editorial to the special issue “Energy markets and policy implications”
Energy Policy 88 (2016) 558–560
Contents lists available at ScienceDirect
Energy Policy journal homepage: www.elsevier.com/locate/enpol
Editorial
Editorial to the special issue “Energy markets and policy implications”
It is an undeniable fact that we are entering a new era with increased global demand for energy, dwindling fossil fuels supplies and rising concerns for induced environmental burdens and climate change effects. Other related issues involve fuel prices volatility, markets deregulation and geopolitical instabilities. This explosive mixture sets demanding prerequisites for people dealing with energy related issues: specially trained experts are necessary along with people with different backgrounds (namely from industry and universities), technicians and modelers. The challenge is not only scientific or technological but also managerial. Apart from important policy decisions in the energy sector, a global goal to sustain energy supplies, improve efficiency and develop new sustainable energy sources will demand technological innovations, capital funding and expertize in various aspects of management (i.e. energy related, human resources, supply chain, etc.). Moreover, the application of operation research methods is important in striving to resolve the conflicts between the various competing goals in pursuit of economic prosperity, environmental quality, social equity and technological efficiency. Hence, identifying the most appropriate modeling approach for the above mentioned challenging issues is relevant for both policymakers and market participants as they can then be applied for forecasting, risk management, pricing, and policy development and monitoring purposes. In this framework, the objective of the special issue is to present new research results on the theory and modern practice of modeling and management of energy systems, along with energy efficiency matters, emphasizing on their policy implications. The special issue comprises of 8 papers covering the majority of the aforementioned topics. In the first paper by Deeney et al. (2015), the influence level of the European Parliament (EP) decisions on both EU emission allowance (EUA) prices and volatility, is being examined. It is shown that EP influence is changed by the type of decision, the sentiment of the emissions markets, and the level of market attention (as measured by news coverage) in advance of the decision. The GARCH volatility findings indicate a high level of trade run-certainty around the outcome of the decisions and the potential impact on prices. Better communication by policymakers would help to reduce this. As the authors suggest, setting out a timeline of planned legislative decisions over the medium-term and what these policies will broadly aim to achieve can help to provide some improved certainty to market participants. Ideally some form of forward guidance might be given. In the following paper by Makridou et al. (2015), the energy efficiency trends of five energy-intensive industries in 23 European Union (EU) countries, is being analyzed, over the period 2000–2009. Specifically, the energy efficiency performance of http://dx.doi.org/10.1016/j.enpol.2015.10.027 0301-4215/& 2015 Elsevier Ltd. All rights reserved.
construction, electricity, manufacturing, mining and quarrying, and transport is examined. The evaluation of these sectors' performance is considered using a comprehensive set of variables related to socioeconomic and environmental factors, such as capital stock, employment, gross energy use, gross value added, and GHG emissions. The Data Envelopment Analysis (DEA)-based Malmquist Productivity Index (MPI) approach was also used to attribute the sectors' performance to either efficiency change or technology change. One of the main findings of this study is that after decomposing the MPI, it is apparent that technological change is primarily responsible for the improvements achieved in most sectors. Furthermore, the results obtained by the crossclassified model show, among other things, that the high electricity prices, energy taxes, and market share of the largest generator in the electricity market have a negative effect on industrial energy efficiency. Finally, the empirical results show that construction and transport are the most efficient sectors. Conversely, the manufacturing and mining sectors present higher inefficiencies and stronger scale effect than other sectors. Improving industrial energy efficiency can be an effective way to promote a country's economic growth, energy security, and sustainability. Understanding the factors affecting energy efficiency performance is the main goal of all energy efficiency policy design and implementation. Given the importance of determining the underlying drivers and causes of contemporary efficiency trends in formulating coherent and effective energy policies for the future, this paper certainly contributes to the understanding of this complex inter-play. In the third paper, authored by Winkel et al. (2015), the economic and environmental potential for Shore Side Electricity (SSE) in Europe, is being quantified, through detailed estimation of in-port ships' emissions and relevant energy demand, providing an insight of the expected barriers for implementation and formulating recommendations on policy actions that could accelerate the implementation of SSE in European harbors. In view of the expected growth of maritime and inland shipping within the EU borders, the emissions from waterborne transport are a key concern for the EU Commission. SSE is an option for reducing the unwanted environmental impacts of ships at berth, i.e. GHG emissions, other air pollutants (NOx, SOx, PM), and noise of ships using their auxiliary engines. The presented results indicate that the total anticipated health benefits by using SSE in EU ports are estimated to 2.94 billion € for 2020, while the potential for reduction of carbon emissions reaches 8,00,000 t of CO2. Mitigation activities should at first aim at cruisers and ferries as they present the best business cases for SSE implementation, mostly with regards to their high energy demand. Furthermore, the focus
Editorial / Energy Policy 88 (2016) 558–560
should lie in the beginning on areas in the ports were impacts are most intense, like passenger waiting areas, ports close to residential areas, cruise ships and quays. The next paper, by Bunn and Muñoz (2015) investigates the implications and costs of policies for replacing fossil fuels with an alternative renewable energy source (wind in particular), whilst maintaining resource adequacy to a constant reliability standard. The paper shows that the transition from coal to wind imposes extra costs of reserve. Alternative ways to handle the extra costs are evaluated, including capacity payments funded by customers and a reliability requirement on wind generators with capital cost or energy feed-in subsidies. Case study results are presented for Britain. The model is calibrated with 2012 data and simulation are conducted to examine the effects of progressively replacing coal with offshore wind. The model considers market prices, loss-ofload expectations (LOLE), and the financial risks of investment. The results show that the new investment if financial viable, by standard financial criteria and practices. The fifth paper by Bigerna and Bollino (2015) derives optimal zonal prices in the Italian day-ahead electricity market using estimation of a complete system of hourly demand in 2010–2011, according to a Ramsey optimal scheme. Results show that zonal prices are not optimal and that there are better solutions, i.e., adopting an appropriate price design mechanism, to increase consumer welfare. According to the authors, there are two relevant issues in the electricity market that can be solved by adopting an optimal Ramsey pricing scheme. The first issue is given by line congestion. The second issue is given by the existence of RES with zero or negligible marginal cost. As it is well known, both issues are rendering the price formation mechanism useless in transmitting efficient signals to the market. In conclusion, the authors advocate a comprehensive market reform of demand prices, which is based on the principle of price differing, according to the demand elasticity structure. To this extend, policy makers should be aware that they face active and sophisticated economic agents, who need a robust regulatory framework in the wholesale electricity market, aimed at promoting the maximization of efficiency and welfare. In the sixth paper, de Menezes et al. (2015) examine the dynamic of electricity prices, which are closely related to fuel prices and energy prices in general. The paper focuses on the European market, which has developed rapidly of the past decade, thus leading to an evolving environment for electricity prices. In this framework, the authors present empirical results on the associations between spot prices from the British, French and Nordpool markets with those in connected electricity markets and fuel input prices, using time series data beginning from the end of 2005. The obtained econometric results show that spot prices in the three markets have time-varying behavior with both stationary and non-stationary periods. Cointegration analysis is used to assess comovement between electricity spot prices and fuel inputs to generation. The results show stronger interconnection and market coupling are issues that are relevant for spot price formation. Therefore, the paper confirms that policies of electricity market integration and liberalization would be helpful towards reducing fuel price dependency. In the next paper, Oseni and Pollitt (2015) discuss issues related to trade cooperation in electricity. The authors first analyze the theory about the preconditions that might be important in facilitating wide area trading across national borders. Then, they proceed with empirical results derived from four case studies regarding the Nord Pool, Southern African Power Pool, West African Power Pool, and the Central American Power Market. The policy lessons obtained from the examination of these cases are discussed in detail. These cover issues related to preconditions for trading, institutional arrangements, as well as practicalities of timetabling.
559
The last paper, by De Silva et al. (2015) focuses on shale gas, which has become increasing important as an alternative energy source. Its development, however, is still is economically challenging compared to conventional recovery. The paper examines issues related to economic impacts as well as development costs of shale gas extraction. Policy initiatives are also proposed. The analysis is focused on Australia and Europe. In Australia the development of more natural gas resources has been given a high priority, due to straining domestic gas supplies. However, indirect fiscal costs are still high in contrast to the European context where direct development costs are more relevant. Thus, the paper highlights that incentives based on fiscal policy regimes will be needed to develop unconventional gas resources in Australia, whereas in the European context, the focus should be on reducing the direct development costs through incentivising local supply chains and increased activity levels. Energy security implications are also discussed. The authors of the above mentioned papers included in this special issue, offer their insights into a number of issues, but also provide leads to further interesting research, so we are certain that you will enjoy reading them. Closing this editorial, we should express our sincere thanks to all authors whose contributions have been essential in completing this rich and high quality special issue. We should also acknowledge the support of all reviewers who devoted considerable time to provide critical evaluations, insightful comments, and constructive suggestions for all submitted papers. Without their help it would be impossible to achieve this issue's high standards. Finally, we are grateful to the Editorial team of Energy Policy, for the acceptance of our proposal for this special issue and their continuous support and guidance throughout the editorial process and the handling of the submitted papers.
References Bigerna, S., Bollino, C.A., 2015. Ramsey prices in the Italian electricity market. Energy Policy 88, 603–612. http://dx.doi.org/10.1016/j.enpol.2015.06.037. Bunn, D.W., Muñoz, J., 2015. Supporting the externality of intermittency in policies for renewable energy. Energy Policy 88, 594–602. http://dx.doi.org/10.1016/j. enpol.2015.07.036. Deeney, P., Cummins, M., Dowling, M., Smeaton, A.F., 2015. Influences from the European Parliament on EU emissions prices. Energy Policy 88, 561–572. http: //dx.doi.org/10.1016/j.enpol.2015.06.026. de Menezes, L.M., Houllier, M.A., Tamvakis, M., 2015. Time-varying convergence in European electricity spot markets and their association with carbon and fuel prices. Energy Policy 88, 613–627. http://dx.doi.org/10.1016/j. enpol.2015.09.008. De Silva, P.N.K., Simons, S.J.R., Stevens, P., 2015. Economic impact analysis of natural gas development and the policy implications. Energy Policy 88, 639–651. http: //dx.doi.org/10.1016/j.enpol.2015.09.006. Makridou, G., Andriosopoulos, K., Doumpos, M., Zopounidis, C., 2015. Measuring the efficiency of energy-intensive industries across European countries. Energy Policy 88, 573–583. http://dx.doi.org/10.1016/j.enpol.2015.06.042. Oseni, M.O., Pollitt, Michael G., 2015. The promotion of regional integration of electricity markets: lessons for developing countries. Energy Policy 88, 628–638. http://dx.doi.org/10.1016/j.enpol.2015.09.007. Winkel, R., Weddige, U., Johnsen, D., Hoen, V., Papaefthimiou, S., 2015. Shore Side Electricity in Europe: potential and environmental benefits. Energy Policy 88, 584–593. http://dx.doi.org/10.1016/j.enpol.2015.07.013.
Kostas Andriosopoulos n ESCP Europe Business School Research Centre for Energy Management (RCEM), 527 Finchley Road, Hampstead, London NW3 7BG, UK E-mail address: [email protected]
n
Corresponding author.
560
Editorial / Energy Policy 88 (2016) 558–560
Constantin Zopounidis Technical University of Crete, School of Production Engineering and Management, University Campus, 73100 Chania, Greece Audencia School of Management, Nantes, France E-mail address: [email protected]
Spyros Papaefthimiou, Michael Doumpos Technical University of Crete, School of Production Engineering and Management, University Campus, 73100 Chania, Greece E-mail addresses: [email protected] (S. Papaefthimiou), [email protected] (M. Doumpos)
Contents lists available at ScienceDirect
Energy Policy journal homepage: www.elsevier.com/locate/enpol
Editorial
Editorial to the special issue “Energy markets and policy implications”
It is an undeniable fact that we are entering a new era with increased global demand for energy, dwindling fossil fuels supplies and rising concerns for induced environmental burdens and climate change effects. Other related issues involve fuel prices volatility, markets deregulation and geopolitical instabilities. This explosive mixture sets demanding prerequisites for people dealing with energy related issues: specially trained experts are necessary along with people with different backgrounds (namely from industry and universities), technicians and modelers. The challenge is not only scientific or technological but also managerial. Apart from important policy decisions in the energy sector, a global goal to sustain energy supplies, improve efficiency and develop new sustainable energy sources will demand technological innovations, capital funding and expertize in various aspects of management (i.e. energy related, human resources, supply chain, etc.). Moreover, the application of operation research methods is important in striving to resolve the conflicts between the various competing goals in pursuit of economic prosperity, environmental quality, social equity and technological efficiency. Hence, identifying the most appropriate modeling approach for the above mentioned challenging issues is relevant for both policymakers and market participants as they can then be applied for forecasting, risk management, pricing, and policy development and monitoring purposes. In this framework, the objective of the special issue is to present new research results on the theory and modern practice of modeling and management of energy systems, along with energy efficiency matters, emphasizing on their policy implications. The special issue comprises of 8 papers covering the majority of the aforementioned topics. In the first paper by Deeney et al. (2015), the influence level of the European Parliament (EP) decisions on both EU emission allowance (EUA) prices and volatility, is being examined. It is shown that EP influence is changed by the type of decision, the sentiment of the emissions markets, and the level of market attention (as measured by news coverage) in advance of the decision. The GARCH volatility findings indicate a high level of trade run-certainty around the outcome of the decisions and the potential impact on prices. Better communication by policymakers would help to reduce this. As the authors suggest, setting out a timeline of planned legislative decisions over the medium-term and what these policies will broadly aim to achieve can help to provide some improved certainty to market participants. Ideally some form of forward guidance might be given. In the following paper by Makridou et al. (2015), the energy efficiency trends of five energy-intensive industries in 23 European Union (EU) countries, is being analyzed, over the period 2000–2009. Specifically, the energy efficiency performance of http://dx.doi.org/10.1016/j.enpol.2015.10.027 0301-4215/& 2015 Elsevier Ltd. All rights reserved.
construction, electricity, manufacturing, mining and quarrying, and transport is examined. The evaluation of these sectors' performance is considered using a comprehensive set of variables related to socioeconomic and environmental factors, such as capital stock, employment, gross energy use, gross value added, and GHG emissions. The Data Envelopment Analysis (DEA)-based Malmquist Productivity Index (MPI) approach was also used to attribute the sectors' performance to either efficiency change or technology change. One of the main findings of this study is that after decomposing the MPI, it is apparent that technological change is primarily responsible for the improvements achieved in most sectors. Furthermore, the results obtained by the crossclassified model show, among other things, that the high electricity prices, energy taxes, and market share of the largest generator in the electricity market have a negative effect on industrial energy efficiency. Finally, the empirical results show that construction and transport are the most efficient sectors. Conversely, the manufacturing and mining sectors present higher inefficiencies and stronger scale effect than other sectors. Improving industrial energy efficiency can be an effective way to promote a country's economic growth, energy security, and sustainability. Understanding the factors affecting energy efficiency performance is the main goal of all energy efficiency policy design and implementation. Given the importance of determining the underlying drivers and causes of contemporary efficiency trends in formulating coherent and effective energy policies for the future, this paper certainly contributes to the understanding of this complex inter-play. In the third paper, authored by Winkel et al. (2015), the economic and environmental potential for Shore Side Electricity (SSE) in Europe, is being quantified, through detailed estimation of in-port ships' emissions and relevant energy demand, providing an insight of the expected barriers for implementation and formulating recommendations on policy actions that could accelerate the implementation of SSE in European harbors. In view of the expected growth of maritime and inland shipping within the EU borders, the emissions from waterborne transport are a key concern for the EU Commission. SSE is an option for reducing the unwanted environmental impacts of ships at berth, i.e. GHG emissions, other air pollutants (NOx, SOx, PM), and noise of ships using their auxiliary engines. The presented results indicate that the total anticipated health benefits by using SSE in EU ports are estimated to 2.94 billion € for 2020, while the potential for reduction of carbon emissions reaches 8,00,000 t of CO2. Mitigation activities should at first aim at cruisers and ferries as they present the best business cases for SSE implementation, mostly with regards to their high energy demand. Furthermore, the focus
Editorial / Energy Policy 88 (2016) 558–560
should lie in the beginning on areas in the ports were impacts are most intense, like passenger waiting areas, ports close to residential areas, cruise ships and quays. The next paper, by Bunn and Muñoz (2015) investigates the implications and costs of policies for replacing fossil fuels with an alternative renewable energy source (wind in particular), whilst maintaining resource adequacy to a constant reliability standard. The paper shows that the transition from coal to wind imposes extra costs of reserve. Alternative ways to handle the extra costs are evaluated, including capacity payments funded by customers and a reliability requirement on wind generators with capital cost or energy feed-in subsidies. Case study results are presented for Britain. The model is calibrated with 2012 data and simulation are conducted to examine the effects of progressively replacing coal with offshore wind. The model considers market prices, loss-ofload expectations (LOLE), and the financial risks of investment. The results show that the new investment if financial viable, by standard financial criteria and practices. The fifth paper by Bigerna and Bollino (2015) derives optimal zonal prices in the Italian day-ahead electricity market using estimation of a complete system of hourly demand in 2010–2011, according to a Ramsey optimal scheme. Results show that zonal prices are not optimal and that there are better solutions, i.e., adopting an appropriate price design mechanism, to increase consumer welfare. According to the authors, there are two relevant issues in the electricity market that can be solved by adopting an optimal Ramsey pricing scheme. The first issue is given by line congestion. The second issue is given by the existence of RES with zero or negligible marginal cost. As it is well known, both issues are rendering the price formation mechanism useless in transmitting efficient signals to the market. In conclusion, the authors advocate a comprehensive market reform of demand prices, which is based on the principle of price differing, according to the demand elasticity structure. To this extend, policy makers should be aware that they face active and sophisticated economic agents, who need a robust regulatory framework in the wholesale electricity market, aimed at promoting the maximization of efficiency and welfare. In the sixth paper, de Menezes et al. (2015) examine the dynamic of electricity prices, which are closely related to fuel prices and energy prices in general. The paper focuses on the European market, which has developed rapidly of the past decade, thus leading to an evolving environment for electricity prices. In this framework, the authors present empirical results on the associations between spot prices from the British, French and Nordpool markets with those in connected electricity markets and fuel input prices, using time series data beginning from the end of 2005. The obtained econometric results show that spot prices in the three markets have time-varying behavior with both stationary and non-stationary periods. Cointegration analysis is used to assess comovement between electricity spot prices and fuel inputs to generation. The results show stronger interconnection and market coupling are issues that are relevant for spot price formation. Therefore, the paper confirms that policies of electricity market integration and liberalization would be helpful towards reducing fuel price dependency. In the next paper, Oseni and Pollitt (2015) discuss issues related to trade cooperation in electricity. The authors first analyze the theory about the preconditions that might be important in facilitating wide area trading across national borders. Then, they proceed with empirical results derived from four case studies regarding the Nord Pool, Southern African Power Pool, West African Power Pool, and the Central American Power Market. The policy lessons obtained from the examination of these cases are discussed in detail. These cover issues related to preconditions for trading, institutional arrangements, as well as practicalities of timetabling.
559
The last paper, by De Silva et al. (2015) focuses on shale gas, which has become increasing important as an alternative energy source. Its development, however, is still is economically challenging compared to conventional recovery. The paper examines issues related to economic impacts as well as development costs of shale gas extraction. Policy initiatives are also proposed. The analysis is focused on Australia and Europe. In Australia the development of more natural gas resources has been given a high priority, due to straining domestic gas supplies. However, indirect fiscal costs are still high in contrast to the European context where direct development costs are more relevant. Thus, the paper highlights that incentives based on fiscal policy regimes will be needed to develop unconventional gas resources in Australia, whereas in the European context, the focus should be on reducing the direct development costs through incentivising local supply chains and increased activity levels. Energy security implications are also discussed. The authors of the above mentioned papers included in this special issue, offer their insights into a number of issues, but also provide leads to further interesting research, so we are certain that you will enjoy reading them. Closing this editorial, we should express our sincere thanks to all authors whose contributions have been essential in completing this rich and high quality special issue. We should also acknowledge the support of all reviewers who devoted considerable time to provide critical evaluations, insightful comments, and constructive suggestions for all submitted papers. Without their help it would be impossible to achieve this issue's high standards. Finally, we are grateful to the Editorial team of Energy Policy, for the acceptance of our proposal for this special issue and their continuous support and guidance throughout the editorial process and the handling of the submitted papers.
References Bigerna, S., Bollino, C.A., 2015. Ramsey prices in the Italian electricity market. Energy Policy 88, 603–612. http://dx.doi.org/10.1016/j.enpol.2015.06.037. Bunn, D.W., Muñoz, J., 2015. Supporting the externality of intermittency in policies for renewable energy. Energy Policy 88, 594–602. http://dx.doi.org/10.1016/j. enpol.2015.07.036. Deeney, P., Cummins, M., Dowling, M., Smeaton, A.F., 2015. Influences from the European Parliament on EU emissions prices. Energy Policy 88, 561–572. http: //dx.doi.org/10.1016/j.enpol.2015.06.026. de Menezes, L.M., Houllier, M.A., Tamvakis, M., 2015. Time-varying convergence in European electricity spot markets and their association with carbon and fuel prices. Energy Policy 88, 613–627. http://dx.doi.org/10.1016/j. enpol.2015.09.008. De Silva, P.N.K., Simons, S.J.R., Stevens, P., 2015. Economic impact analysis of natural gas development and the policy implications. Energy Policy 88, 639–651. http: //dx.doi.org/10.1016/j.enpol.2015.09.006. Makridou, G., Andriosopoulos, K., Doumpos, M., Zopounidis, C., 2015. Measuring the efficiency of energy-intensive industries across European countries. Energy Policy 88, 573–583. http://dx.doi.org/10.1016/j.enpol.2015.06.042. Oseni, M.O., Pollitt, Michael G., 2015. The promotion of regional integration of electricity markets: lessons for developing countries. Energy Policy 88, 628–638. http://dx.doi.org/10.1016/j.enpol.2015.09.007. Winkel, R., Weddige, U., Johnsen, D., Hoen, V., Papaefthimiou, S., 2015. Shore Side Electricity in Europe: potential and environmental benefits. Energy Policy 88, 584–593. http://dx.doi.org/10.1016/j.enpol.2015.07.013.
Kostas Andriosopoulos n ESCP Europe Business School Research Centre for Energy Management (RCEM), 527 Finchley Road, Hampstead, London NW3 7BG, UK E-mail address: [email protected]
n
Corresponding author.
560
Editorial / Energy Policy 88 (2016) 558–560
Constantin Zopounidis Technical University of Crete, School of Production Engineering and Management, University Campus, 73100 Chania, Greece Audencia School of Management, Nantes, France E-mail address: [email protected]
Spyros Papaefthimiou, Michael Doumpos Technical University of Crete, School of Production Engineering and Management, University Campus, 73100 Chania, Greece E-mail addresses: [email protected] (S. Papaefthimiou), [email protected] (M. Doumpos)