EDI Quarterly Volume 1, No. 3, December 2009
by President of Energy Delta Institute Catrinus J. Jepma
Gresham’s law and the gas market In 1558 Sir Thomas Gresham (1519-1579) sent a letter to Queen Elizabeth of England on the occasion of her accession. In this letter Gresham tried to explain the “unexampled state of badness” of England’s coinage after Henry VIII and Edward VI. English silver coins’ metallic value had become much less than before. This led Gresham to conclude “that good and bad coin cannot circulate together”. It took another 300 years before Gresham’s observation was turned into ‘Gresham’s law’ by Henry Macleod: “bad money drives good money out of circulation” (Macleod, 1858). You will wonder what Gresham’s law has to do with the gasmarket. Well, the basic principle underlying the ‘law’ has everything to do with today’s gas market. The fundamental observation made by Gresham is that if there are two different prices on one market - e.g. an official one based on convention or rule, and a price determined by market forces - then arbitrage will crowd out those commodities that are priced higher leaving the lower priced commodities circulate in the market. The same phenomenon also explained why during some periods either silver or gold coins left circulation once the official exchange rate deviated (too much) from the corresponding market-based rate. Many comparable examples can be found on other markets.
Contents 1 Editor’s note 2 European gas liberalisation and the missing link 4
Optimizing the structure of the natural gas market using an agent-based modeling framework
7 Wind energy: grid integration and impacts on the electricity market 11 Energy in motion 14 Books, reports and upcoming conferences
The simple but fundamental economic insight that on one market one cannot maintain two different prices at the same time is amongst the most powerful economic laws and has universal application.
every opportunity they can get or enforce to renegotiate contract terms in order to be able to buy the cheaper gas on the spot market.
In the gasmarkets the emergence of gas exchanges has introduced market conditions bearing some resemblance with Gresham’s case of differently priced commodities in one market: gas traded against spot market conditions on the one hand, and gas priced on the basis of long-term contracting terms (a.o. linked to oil and other primary energy prices) on the other hand. If the same commodity is offered against different conditions, Gresham’s law will apply sooner or later, especially as price differentials increase, the market gets perfect and market conditions transparant.
The latter case applies nowadays, partly due to the fact that - quite unexpectedly for many? - the share of unconventional, mainly shale gas in US gas production increased from some 30% in 2000 to about 50% nowadays (probably reaching some 60% by 2030). This rapid development at the supply side, together with much weaker than expected demand (due to the, again rather unexpected, deep credit crisis) has, for instance, expanded unutilised US LNG liquefaction and pipeline transport capacity to over 50 bcm (to possibly further expand, according to the World Energy Outlook 2009, to some 200 bcm by 2015!). No wonder LNG and spot gas prices have come down considerably.
So, if spot prices for gas are much higher than contract-based prices, traders will stretch their buying capacity of contracted gas as much as they can in order to being able to resell gas surplusses on the spot market against higher prices. This is precisely what, for instance, happened in the Netherlands during 2007, when Gasterra unexpectedly had to declare itself ‘sold out’, much to the embarassement of some traditional clients.
Although US shale gas development is still rather immature and therefore resource estimates rather uncertain, it is not unlikely that the US gas supply curve has shifted ‘to the right’ for a fairly long period in the future, by - according to the MIT ICF Hydrocarbon Supply Model - at least 500 Tcf (against $5/MMBtu prices). This may well exercise downward pressure on LNG and spot market gas prices for at least a number of years to come.
The opposite, however, will happen when spot prices are (much) lower than contracted prices, because then buyers try to get rid of their contractual obligations to buy (‘take or pay’), and will use
Keeping in mind Gresham’s law, it is hard to argue why such a development would not sooner or later have a long-term impact on contracted gas prices.
European gas market liberalisation and the missing link In 1998, the European gas market reform was introduced with the aim of completing the European internal market and enhancing the economic competitiveness of the European Union by promoting efficiency gains and affordable energy prices within the gas sector. Ten years after the introduction of the reform the question arises: did it work? Or in other words, how far are we in nowadays from a single harmonised European gas market with converged regulatory regimes which shows a beneficial impact on the economic performance of these markets? The PhD thesis “European gas market liberalisation: competition versus security of supply?” searches to answer this question while analysing the first 6 years of the reform and thereby contributes to the understanding of the evolution and redesign of the European gas reform. The thesis investigates the extent to which the evolution of regulatory regimes in European gas markets and the impact of those regulatory regimes on economic performance in the gas sector can be empirically analysed. The considerations in this article concentrate on presenting the main results of the research. In addition, we identify a missing link – namely infrastructure related transactions need safeguards - which transaction cost economics teaches us and policy makers shall take into account when redesigning and optimising European regulations. We argue, when policy designer are not sufficiently accounting for this link, then avoidable regulatory risks are introduced.
Dr. Nadine Haase Regulatory adivsor, N.V. Gasunie
The evolution of regulatory regimes within European gas markets To achieve the reform goals, the European Union followed a public policy approach that is based on the structure-conduct-performance paradigm of industrial organisation (Bain, 1968; Scherer and Ross, 1990). According to the neoclassical assumption underpinning the paradigm, a regulation-for-competition1 approach is expected to induce a more competitive industry structure, which will create incentives to change business conduct, and finally to result in efficient economic performance. Since the European Union had decided to perceive natural gas as a commodity, and to abandon the institutional logic that conceived the gas industry as public utility, a massive restructuring of the European gas market and its related governance took place. In terms of regulation-for-competition, the gas market reforms are becalmed in mid-channel. European gas market regimes have not adopted a fully-fledged liberalised market design, nor are they still organised according to the old model that favoured vertically integrated companies embedded in a monopolistic market structure. Due to the different regimes and company organisations, a common level playing field could not be achieved yet. Market harmonisation and integration were the key drivers behind the European gas reforms aiming to create a Europe-wide level playing field. However, European legal provisions give considerable leeway to
member states in establishing their own national regulatory regimes. As a consequence, the reform resulted in heterogeneous regulatory regimes across Europe. The PhD thesis analysed in detail the envisaged convergence of national regulatory regimes. The analysis took the European Union’s Directives and preference statements as a basis to determine an assumed best-practice model in terms of regulation-forcompetition and developed a methodology to measure the member states’ progress towards this best-practice. In reality, reform in the old member states seems to be becalmed. Although the gas reform has resulted in widespread application of the demanded, as well as voluntary, regulatory instruments such as regulated third party access, entry-exit tariff structures, capacity provisions to prevent capacity hoarding (the so-called use-it-or-lose-it provision) and so forth, other instruments enjoy less popularity. These include gas release programmes and the separation of the trade and network arms of integrated utilities in the form of ownership unbundling to prevent cross-subsidies and anti-competitive behaviour. By 2005, only seven of the old member states had released gas formerly contracted by the incumbent onto the market. Two years later, only 10 out of 27 European countries had implemented ownership unbundling. The attempt to empirically study the effect of these newly established regulatory regimes in Europe on performance indicators such as the natural gas prices or investments in transmission networks in form of a quantitative analysis showed severe constraints. Due to the oil indexation of wholesale gas prices and end consumer gas prices the effect of specific regime characteristics such as unbundling or third party access on prices are difficult to identify. Another example refers to investment figures in transmission and distribution systems. In the past, integrated companies did publish aggregated investment figures often not distinguishing between up- and downstream, or transmission and distribution networks. Moreover, investment figures tend to be distorted because of the lifespan of infrastructures and related cyclical investment behaviour. A quantitative analysis searching for statistically significant correlations cannot accommodate these irregularities. Both circumstances constraint the availability and validity of investment data in Europe before and after the European gas market liberalisation. The results of the qualitative case studies, the revision of the Dutch incentive regulation scheme and the UK gas storage regime, lead us to the increasing importance security of supply considerations play and how they were balanced out vis-à-vis short term efficiency considerations.
Transaction cost economics revisited: the missing link While the European Union managed to establish e.g. very sophisticated entry-exit tariff structures, the reform so far missed to establish appropriate investment regimes which sufficiently stimulate investments in cross-border and transmission infrastructure. Yet, when applying transaction cost economics to the natural gas sector, it informs us how important specific governance forms and economically reasonable returns are for infrastructure related transactions such as natural gas transport. From transaction cost theory we learn that transactions related to gas transport are asset specific. Asset or to put it more precisely sitespecificity refers to the characteristic that any transportation of gas is reliant on huge investments in transport infrastructure which cannot easily be removed or for efficiency reasons laid in parallel. For asset specific transaction holds that there is a need for sufficient safeguards necessary to be in place to cover the investment related risks. Due to this circumstance, energy companies historically vertically integrated to capture risks or ensured their returns on their investment by backing the utilisation of pipelines with long term contracts. According to the
theory, efficiency is determined by the degree to which the characteristics of a transaction match with their governance form. E.g. a gas trade transaction which is to a lesser extent related to irremovable investment with high costs is conceived to be efficient to operate under free market conditions, whereas gas transport requires more safeguards. These safeguards can be increased for instance through a “regulatory contract” which covers most of the depreciation period of the investment. What ever the specific regulatory framework says, the degree to which safeguards are attached to the transactions shall optimally be reflected in the height of returns on investments. In short, allowed returns on investments need to be risk-reflective. Liberalisation induces more risks. Vertical integrated companies are becoming more and more unbundled. Supply contracts as well as capacity utilisation contracts shorten and offer more and more flexibility. In addition, the introduction or presence of competition results in an increasing number of actors involved in the gas shipping, transportation and trade. This fact poses new challenges of collective action because behavioural uncertainty is increasing. Costumers may switch their supplier or transport route. A regulator or any other involved governmental authority may change the rules of the game in such a way that the economics of a formerly viable project or business are impacted ex post in a negative manner. What sounds rather like complex theoretical derivation can be phrased in very simple terms. The underestimation of asset specificity in conjunction too little coordination of regulatory decision making on the supranational level has lead to a situation in which cross border as well as national investment regimes are not enough developed to give sufficient incentives to invest. The European Union strives to improve the regulatory framework within the 3rd Energy Package by establishing the Agency for the Cooperation of Energy Regulators (ACER). A coordinated and stronger cooperation between the national regulators promise to improve the procedural decision making process. Yet, it does not per se ensure that the economic incentives to invest are provided by the applied cost-plus regulation and the specific investment conditions as determined by the national regulatory framework. During the first years of the reform, the discourse on regulation was dominated by setting up regulatory regimes aiming to promote competition. Cost reduction was at the forefront of the regulatory agenda of the newly established national regulators to boost short-term efficiency effects. Both qualitative case studies, the revision of the UK gas storage regime and the Dutch incentive regulation scheme, showed that the initial focus of the regulation-for-competition approach driven by cost-reflectiveness did not deliver the necessary investments in a timely manner. The missing link between cost-reflectiveness and security of supply considerations can be established by taking into account that infrastructure related transactions such as gas transport need safeguards. If translating this requirement into a liberalised European gas world, which bring forward ownership unbundled companies, safeguards necessarily translate into economically reasonable and risk reflective returns within stable and effective investment regimes. Dr. Nadine Haase has successfully defended her PhD at University of Twente on 18 June 2009 and published her PhD thesis with the Energy Delta Institute. Reference list and hard copies maybe ordered via email@example.com 1 Regulation-for-competition describes proactive regulation aiming to introduce competition into a formerly monopolistic market structure.
Optimizing the structure of the natural gas market using an agent-based modeling framework
Natural gas is one of society’s main sources of energy. Therefore, the adequate functioning of the market for natural gas is of great importance to society. This thesis is concerned with the question of how to structure the natural gas market in such a way that its adequate functioning is guaranteed. Three policy goals are usually distinguished with regard to energy markets: affordability, supply security and sustainability. In the case of natural gas, the former two are the main concern, as the sustainability of our energy system is not affected much by the structure of the natural gas market.
Portfolio manager gas E.ON Benelux
Society has two basic ways of reaching its policy objectives via the economy. The first is to become a player in the market itself by creating a publicly owned company. The second is to create a set of rules and institutions (i.e. an institutional environment) to govern the market which provides private companies with the right incentives to fulfill society’s objectives. In the European Union, liberalization constituted a move from the first to the second method. This indirect method for achieving society’s objectives can be analyzed with the concept of hierarchical optimization, where optimization on one (in this case: social) level is performed by providing constraints to the optimization processes at a lower (in this case: corporate) level. This concept is represented graphically in Figure 1. Each level’s optimization constraints are shown on the left and each level’s optimization criteria are shown on the right. The arrows signify that the constraints cascade downwards (i.e., constraints on one level are determined at the level above it), whereas optimization criteria cascade upwards (i.e., the outcome of an optimization at one level is determined by the optimization at the level below it).
Constraints propagate downwards
Regulatory authority Supply Security
Energy Company Regulatory Framework
Outcomes propagate upwards
My thesis is the result of a four year cooperation between TNO and the University of Groningen. The project originated from the idea that the process of liberalization has radically changed the functioning of the natural gas market. The complex system resulting from this process has its own dynamics which are still little understood. The modeling work performed in this study hopefully provides a first step towards a better understanding of this complex, dynamic market, both for policy makers shaping it and for companies operating in it.
Menno van Benthem
Fig. 1: The hierarchical optimization process applied to the natural gas market.
Using this conceptual model, each individual policy implemented by a regulatory authority can be analyzed in three steps. First, a policy can be translated into a set of constraints posed to energy companies. Second, the changes these constraints induce in the behavior of companies can be derived. Third, the effect of the combined behavior of all energy companies on affordability and supply security can be analyzed. Following this procedure ensures that the effects of a policy on both goals are identified, which is a prerequisite for optimizing policy.
The natural gas market is conceptualized as the organization of the natural gas value chain, which is itself a series of seven processes: exploration, production, processing, transport, storage, distribution and consumption. Affordability is simply the market price of natural gas and supply security is a set of three boundary conditions the market must not transgress. Supply must not fall below demand, the amount of gas delivered must not fall below the amount contracted, and the market price must not exceed the maximum acceptable price.
A scan of existing models was performed to see if they are capable of answering the question posed. The main shortcoming of the models analyzed is that their ‘perfect market’ assumptions prevent them from representing supply insecurity. Therefore, a new modeling framework was developed in which alternative assumptions could be made. This framework is based on the methodology of agent-based computational economics and is called ENETSIM (Energy NETwork SIMulator). Agent-based Computational Economics can be defined as “the computational study of economic processes modeled as dynamic systems of interacting agents”. The ACE approach proceeds by identifying agents, their individual behavior, and their local interactions with other agents. From their behavior and their interactions, global system behavior emerges. The basis of ENETSIM is a library of eight agents, which can be combined in different ways to form an agent network representing the natural gas market. Five actor agents represent resource operators, network operators, storage operators, traders and consumers respectively. They are connected by three types of
institutional agent: a spot market, a bilateral contract and integration (see Figure 2). When an agent network is chosen, decision algorithms for each agent and a dataset are added. The simulation model created in this way is a dynamic system evolving in discrete, single day time steps. It yields output describing both the individual behavior of agents and the affordability and supply security of the market as a whole. Models are implemented in the computer program Simulink, which is an extension of Matlab designed specifically for dynamic system simulation. A screenshot of an elementary model is provided in Figure 3. First, the functioning of this framework was explored in a series of basic models. It was concluded from the results obtained that the framework can be used fruitfully to analyze the affordability and supply security associated with different market structures. In addition, a modification of the framework was presented which enables its use in an educational game. In such a game, human players perform the role of agents. They get limited amounts of information, have to make decisions and see the effect of their behavior on their profit and on the market as a whole.
Actor agent Information
Buyer behavior Seller behavior
Fig 2: The general structure of an actor agent (left), and of an institutional agent (right): input, internal processes and output.
Fig 3: A screenshot from an actual Simulink model.
Next, the methodology was employed to study the liberalization process of the Dutch natural gas market. Two models were constructed, representing the structure of the Dutch market before and after liberalization. Liberalization was shown to have limited potential for improving affordability, while introducing some novel risks to supply security. A simplified version of the post-liberalization model is shown in Figure 4. Finally, a scenario study was performed to explore the future of the Dutch natural gas market. Three scenarios were developed,
investigating the implications of three currently observable trends: the transition to a sustainable energy system, the integration of national markets into a single European market, and the changes in company behavior in response to the liberalized environment. The impact of these developments on policy goals was shown to be substantial. While their effect on affordability is often direct and permanent, their effect on supply security depends crucially on the speed and magnitude of the changes taking place, and is mostly temporary.
Network Operator Fig 4: an agent network representing a simplified model of the liberalized market.
The main conclusions which can be drawn from this thesis are the following. First, the modeling framework created for this study has provided a way to link the design of natural gas policy to market performance via the behavior of individual companies. In addition, it combines the analysis of affordability and supply security in a single framework, and incorporates time-dependent, out-of-equilibrium phenomena. Simulations performed using this framework have revealed several tradeoffs between affordability and supply security which were absent from previous models.
additional empirically observed phenomena can be incorporated in the framework, such as mergers and acquisitions. Finally, additional performance indicators can be added to model output, starting with a measure for sustainability. Menno van Benthem is currently working as a portfolio gas manager at E.ON Benelux. Any questions about this thesis or other comments are welcome and can be directed at: firstname.lastname@example.org
This study has also demonstrated that the liberalized market is a complex system, which requires skillful management from policy makers. Fundamental changes to this system have the potential to destabilize the market and to threaten supply security. Therefore, policy makers would be well-advised to develop a more integrated vision of energy policy, taking into account the effect each policy has on all policy goals, rather than just one. The further development of the modeling framework could proceed by expanding model scope. Fixed properties can be made variable. For example, the shape of the agent network could be allowed to change during the course of a simulation. Furthermore,
Wind energy: grid integration and impacts on the electricity market Wind Energy Our society revolves around electricity. Most electricity comes from electric power stations that use coal and natural gas. These are reliable and affordable fuels, but they also have disadvantages. The supply of fossil fuels is finite and unevenly distributed across the earth. Besides, conventional power stations emit greenhouse gases. There is an urgent need for sustainable alternatives, such as wind power. In the past years, wind energy has become a more and more important source of sustainable energy. Wind turbines are also increasing in size, as Fig. 1 shows. A large onshore wind turbine now delivers enough electricity to power about 3000 Dutch households (11 GWh/year), offshore this is about 5000 households (18 GWh/year). Last year, wind energy was number one with respect to the amount of newly installed generation capacity, more than gas or coal.
Variable and Unpredictable The disadvantages of using wind and a source of electricity is that the wind is sometimes blowing and sometimes it is not and that you canâ€™t perfectly predict it. This is difficult, because the generation of electricity must equal the demand exactly at all times. Fig. 2 provides a good example of the variations of the Dutch electricity demand for each hour and day. Conventional power plants continuously adapt their generation output to the changes of the electricity demand, and
Bart Ummels Technical Project Manager, Siemens
also take care of an unexpected outage of a power plant. This way, they make sure that the generation always equal the demand. Wind energy, therefore, is not the only source of variations and unpredictability, and power plants can be suddenly outaged as well. Thus, wind energy is in fact not a fundamentally new challenge: what matters, is whether the conventional power plants can also handle the simultaneous variations of the demand and the wind.
1/3 Wind Power In my Ph.D. thesis I have done computer simulations of the Dutch electricity system with different amounts of wind power. 12 GW, of which 8 GW offshore, produces enough electricity to cover about one third of the Dutch electricity demand. The simulations show that the Dutch power stations will be able to set off the variations in demand and wind supply at any moment in the future. This is provided that actual and improved wind forecasts are taken into account: the commitment of power plants must be re-calculated over and over again using the latest wind forecast. Then it is possible to minimise forecast errors and integrate wind energy in a better way. With wind energy, some more regulation is needed from conventional power plants, but they can handle the variations of the wind very well. Even in a situation of fast rising demand, for example during the Monday morning, a storm or a sudden wind calm do not cause any problems. Our electricity supply continues to be reliable with large-scale wind power.
Ă˜ 126 m. Airbus A380
Ă˜ 12 m.
Fig. 1: The development of wind turbines in the past 25 years.
Fig. 2: Electricity demand in the Netherlands, week 2, 2007.
Surpluses The simulation results indicate that wind power requires greater flexibility from existing power plants. Sometimes larger reserves are needed, but more frequently power stations will have to decrease production in order to make room for wind-generated power. Instead of the often posed question ‘What to do when the wind does not blow?’, the question ‘What to do with all the electricity if it is very windy at night?’ is much more relevant. Especially during the night, when the demand for electricity is low, free wind energy will push coal-generated
power out of the market. Unconveniently, however, coal-fired power stations cannot be switched off just like that. An important solution for this lies in the international trade of electricity, because foreign countries can often use this surplus. Besides, expanding the ‘opening hours’ of the international electricity market is favourable for wind power. At present, electricity companies determine how much electricity they will buy or sell abroad one day ahead. Wind power can be integrated better if the time difference between trade and the wind forecast is smaller.
Fig. 3: Absolute electricity production change and relative output per technology in the Netherlands for different wind power penetration scenarios, assuming no international exchange.
Impacts on the Electricity market
Energy Storage and Generation Flexibility
In Fig. 3, the change in annual electricity output between different generation technologies is shown for the Netherlands (considering an isolated system, assuming no international exchange) with increasing wind power capacity. Nuclear, assumed as a full-load must-run technology, is not affected by wind power integration. Wind power does reduce the full-load hour equivalents of coal-fired units, CCGT CHP and CCGT (Combined Cycle Gas Turbines) since lower market prices demand a larger technical flexibility of these units. Importantly, the profits of these units also decrease during the hours that they are in operation, since wind power always replaces the most expensive unit in operation (as far as technically feasible). Because of the large share of coal-fired generation in the Dutch generation park modeled in this research, the electricity generation [TWh/y] of coal is reduced most. On a relative scale, the output of CCGT is affected most by the integration of wind power: CCGT operates only during medium- and peak-load hours, during which it is often the marginal technology and therefore the first to be replaced by wind power. Since coal and CCGT CHP have a part-load must-run status, the integration of wind power reduces their output only to a certain extent. Notably, the technical flexibility of coal, CCGT CHP and CCGT does not require additional operating hours of peak-load gas turbines for wind power integration. Overall, the use of wind power in the Dutch electricity system could lead to a reduction in production costs of EUR 1.5 billion annually. Most of these savings are obtained from saving fossil fuel use, and the remainder largely from the reduction in CO2 emissions of 19 million tons a year (estimated at a CO2 price of 25 EUR/ton). Importantly, the production cost savings because of wind power challenge the business cases for existing and future generation units. Even though technical flexibility to balance wind power fluctuations will have a higher market value as wind power develops, full load hour output and revenues of these units decrease.
In Fig. 4, the results of a cost-benefit analysis is shown for the use of flexible generation units and energy storage for wind power. The complete set of underlying simulations and assumption can be found in the thesis. It can be concluded that energy storage does not have a positive balance, even for the higher wind power penetrations. The development of PAC (offshore energy island) and UPAC (underground pumped accumulation storage) do not seem to be a costefficient solution for wind power integration due to their very large investment costs, and limited benefits. Compressed Air Energy Storage (CAES) has limited synergies with wind power integration because it is based on CCGT and therefore has high marginal cost. This means that it is the first technology to be pushed out of the market when the wind blows. Also, the storage capacity of CAES is quickly filled (i.e. 3-4 hours of storage) which is then enough for 8-10 hours of generation. From a operational cost savings perspective, the installation and use of heat boilers at CHP locations and a further development of interconnection capacity between the Netherlands and Norway seem to have the highest potential for the integration of large-scale wind power into the Dutch system. The research clearly demonstrates that energy storage is not required. Provided that existing interconnection capacity and wind power forecasts are employed, such additional buffers are unnecessary for the technical operation of the power system. The huge investment costs also make it unprofitable. The international electricity market is a promising and cheaper solution for the use of wind power. Making power stations more flexible is also better than storage. The use of heating boilers, for instance, means that combined heat and power plants operate more flexibly, which can consequently free up capacity for wind power at night. Overall, reduction of inflexible base-load generation is a key enabler for wind power integration.
Fig. 4: Cost-benefit analysis for flexible conventional units and energy storage.
Conclusions The large-scale integration of wind energy in our electricity supply is technically very well feasible. The existing power system is able to cope at any time in the future with variations in demand for electricity and supply of wind power, as long as use is made of up-to-date wind forecasts. Production cost savings because of wind power replacing fossil generation with higher fuel cost challenge the business cases for
existing and future generation units. Even though technical flexibility to balance wind power fluctuations will have a higher market value as wind power develops, full load hour output and revenues of these units decrease. Energy storage competes with international exchange and it is found that business cases for energy storage are unlikely, even at very high wind power penetration levels.
Fig. 5: Offshore wind park in Great Brittain (© Siemens Wind Power).
References B. C. Ummels. Power System Operation with Large-Scale Wind Power in Liberalised Environments. Ph.D. Thesis, Delft University of Technology, 26 February 2009, with a general summary in Dutch. To read and download from http://www.scribd.com/doc/11221291/UmmelsPhDThesis. B. C. Ummels, M. Gibescu, E. Pelgrum, W.L. Kling, & A.J. Brand. Impacts of Wind Power on Thermal Generation Unit Commitment and Dispatch. IEEE Transactions on Energy Conversion, 22(1):44–51, Maart 2007 B. C. Ummels, E. Pelgrum, and W.L. Kling, Integration of Large-Scale Wind Power and Use of Energy Storage in the Netherlands, IET Renewable Power Generation, 2(1):34–46, March 2008 B.C. Ummels, E. Pelgrum, M. Gibescu, W.L.Kling, Comparison of Integration Solutions for Wind Power in the Netherlands, IET Renewable Power Generation, vol. 3, issue 3, Sept. 2009, p. 279–292
Energy in motion “How and by whom can the consumer be urged to choose for renewable decentralized energy sources and energy efficient solutions?” The National Think Tank 2009 mapped the barriers consumers face when going down the road of energy saving. This report sketches the problems surrounding energy saving by consumers and provides concrete advice to address these problems, focussing on the areas electricity, heat, transport and decentralized generation. The European Union has agreed that by 2020 it will cut greenhouse gas emissions by 20% from 1990 levels, increase renewable energy consumption by 20%, and cut energy consumption through improved energy efficiency by 20%. In the Netherlands, consumers represent 24% of the energy demand. If the consumer takes a proportional share in energy saving, their energy demand should decrease with 280 PJ per year. This report shows that, by taking 54 measures, an average house-
National Think Tank 2009 hold can save over €1.000 per year on its energy bill. Two thirds of these measures require an investment of about €6.400 per household. According to a survey undertaken by the National Think Tank under 1.000 Dutch consumers there is a lot of support for energy saving. Consumers in the Netherlands are well aware of possible energy saving measures. However, this positive attitude towards energy saving is not reflected in the actual energy consumption, since this shrinks with just 0,01% per year, whereas 2% reduction is needed to reach the target of 20%.
Electricity: relative small potential, but via necessary continuous behavioral changes important to improve consumer awareness and attitude Electricity saving is with 15% a small but crucial part of the consumer energy saving potential. If all consumers increase their electricity
Fig. 1: Solar panels Source: Report Nationale DenkTank 2009
savings, one coal-fired power plant can be switched off. However, the consumer receives a relatively small benefit from this saving as compared to the effort it requires. But by focussing on electricity savings and changing their behaviour, the consumer can become more aware of its role within energy transition.
Heat: great potential, profitable, but expensive and complicated Due to the large share of heat demand within the total energy consumption of households, the potential of heat demand reducing measures is great. The majority of the measures available to consumers to reduce their heat demand are profitable. However, taking these measures is often complex and not natural to consumers.
The consumers willing to take actions to reduce their demand face practical obstructions and eventually drop out.
Transport: consumer is very attached to its car Quick and easy transport is a fundamental need of the consumer. For many consumers, the car is most appropriate to fill this need. For sustainable transport consumers have to give up a degree of comfort, speed and easiness. For the short distances, many consumers use a bike but for the longer distances public transport is not a good alternative for a car. Therefore efficient driving, efficient cars and electrical transport have to play a crucial role to reduce the energy consumption for consumer transport.
Decentralized electricity generation: significant potential, sometimes profitable, but expensive and complicated There are several ways in which consumers can generate electricity and meet their own heat demand. Solar panels, wind turbines, combined heat and power and high efficiency boiler can be used by the consumer to generate electricity. Research shows that the savings potential of decentralized electricity sources is about 42 PJ per year, 15% of the total savings potential. However, a large scale usage of decentralized electricity generation is being hampered by financial and legal issues and the lack of available information for the consumer. To urge the consumer towards more energy saving and investments in decentralized electricity generation, the National Think Tank has drawn up four solutions which can give guidance how energy savings can be achieved.
The themes within the four solutions will briefly be described below. The National Think Tank emphasizes that the presented solutions are a collective responsibility of the government and the business community. Only through combined maximum efforts will it be possible to achieve the consumersâ€™ energy savings share in the overall energy savings target in 2020.
Simplify processes Information about energy saving is often fragmented and confusing. Current procedures to obtain subsidies and licenses are complicated and time consuming. Simplifying procedures is therefore essential to stimulate consumers to take more energy saving measures. In this respect it is important to improve the information services. Information regarding the energy consumption as compared to others should be easily accessible for a consumer. By creating such a frame of reference for energy, the consumer will be more inclined towards energy saving.
Improve information services Simplify procedures
Make it affordable Simplify Make it visible
Make it more fun Make it natural
Stimulate investments Make green the norm Different payment for energy consumption
Fig. 2: Proposed solutions
In addition subsidy procedures should be simplified. Especially with respect to simplicity and time it takes to go through the procedure a lot can be improved for the consumer. In this respect municipalities should exchange best practices to improve the procedures.
Improve supply A lot of products and services for energy saving already exist but are not sufficiently available for the consumer. For example smart finance constructions which remove the investment barrier for energy saving products should be improved to make these products more attractive for the consumer. In addition, a knowledge exchange can be set up to provide courses on- and share best practices of energy saving and sustainable energy, since there is a shortage of skilled mechanics who can install several forms of decentralized electricity generation. Several parties can benefit from this and eventually this will lead to a better supply of sustainable energy.
Because energy is invisible and is viewed as natural, the Think Tank advices to stimulate the use of a functional display which shows the energy consumption and stimulates energy saving. There are some displays available, yet in their current form they are not expected to be used much by the consumer since it cannot be coupled with other functionalities, like a thermostat. In addition, introduce the programme â€˜Green pointsâ€™ to reward consumers with points for their purchase of sustainable products and services. These points can be exchanged for sustainable presents.
Create movement In order to urge the consumer towards more energy saving, it is necessary that energy saving becomes part of the daily routine. Research from the National Think Tank shows that energy saving should become more fun and more natural. Campaigns designed to stimulate energy saving should contain slogans and playful actions to stimulate the consumer. Design new shopping concepts which can make energy
saving products cool. In this way consumers are triggered to explore the possibilities of energy saving. To make it more natural, marketing campaigns should contain implicit product placement and in-scripted writing. This can be applied for television, but in a later stage also for other media.
Give guidance The current government policy is geared towards ‘seduce’ consumers to save energy. The National Think Tanks encourages the government to take it one step further. The government should stimulate investments in energy saving. It can obligate housing corporations to submit an energy label. This energy label shows the energy efficiency of a house
With respect to a different payment for energy, the National Think Tank suggests that the government should increase the energy taxes for consumers in such a way that the higher costs for gas and electricity will increase the attractiveness of decentralized electricity generation. Combinations exists where decentralized electricity generation is profitable given a certain level of costs for electricity and gas. To realize this, the consumer price for gas should increase with 30% and electricity price with 16%. The competitive position of the Netherlands will be unharmed since this pricing instrument only applies to consumers. The National Think Tank is convinced that with this report can serve as a start to urge the Dutch consumer towards more energy saving. The National Think Tank is a foundation which brings together every year a group of promising master- and Ph.D students from different disciplines for a period of three months to study a social problem. The theme of this year was energy saving by consumers. The full report is available at the following website: www.nationale-denktank.nl
Fig. 3: light bulb vs low-energy light bulb Source: Report Nationale DenkTank 2009
and can trigger the consumer to buy a more energy efficient house. In addition, the government should obligate housing corporations, in case of their rented houses, to mention the living expenses and differentiate between rent and expected energy costs. This will give the consumer more insight in the monthly expenses. This will stimulate tenants to choose an energy sufficient house and will stimulate the landlord to isolate houses before offering them to the market. Another measure available to the government is to obligate energy suppliers to offer just ‘green’ electricity to their customers. Offering green electricity as a standard will stimulate demand for green electricity which, in turn, will stimulate supply. The price of green certificates will increase which will make it more attractive to invest in sustainable electricity. In addition, it should be standard that newly build houses are equipped with decentralized electricity generation. An agreement between municipalities and project developers will be necessary to realize this. When the price of the house, including the decentralized electricity generation, is presented, the relative small additional investment turns out not to be a problem for potential buyers.
Books, reports and conferences Correljé, A., Jong, de, D., Jong, de, J., September 2009 (CIEP). Crossing Borders in European Gas Networks: The Missing Link. This report states that the demand for natural gas is on the rise in Europe, while its indigenous production is in decline. A pan-European market for gas is expected to develop. This development, added to the increasing political importance of Security of Supply, should lead to the stimulation of diversification and new infrastructure. A significant expansion of the current EU ‘interstate’ natural gas transmission network should be made in the coming decade. But investment in internal connections and new supply projects in Europe continue to lag while there is a clear need for more European transmission capacity. Adequacy of transmission capacity can be addressed from many different perspectives: the supplier, the trader, from the perspective of Security of Supply and the proponent of an integrated European gas market. Many cases for system expansion are made, funded either with national or community means. This study does not, to its own accord, intend to contribute to the debate around these cases. Instead it focuses on those concrete situations in which market players have not only expressed an interest, but also the willingness to pay for new cross border pipeline capacity. It addresses the main impediments to the development of the EU gas transmission network. It also offers recommendations for regulatory and coordination steps towards overcoming these problems. More information about this report is available on: http://www.clingendael.nl/publications/2009/20090900_ciep_paper_ gas_networks.pdf
Werring, L., November 2009 (CIEP Briefing Paper). Negotiating a Robust Climate Policy. Overcoming National Interests for the Common Good. What outcome can we expect from the Copenhagen negotiations? The Copenhagen climate conference must be seen as the litmus test for the extent to which the world is prepared to take a major ‘energy transition’ to a future low-carbon world seriously. It will depend crucially on the position of some key players in the Copenhagen negotiations as to whether a global climate change middle ground will be found al all, and whether such a middle ground will begin to bring about the changes to the global energy system that are suggested by the climate scientists. L. Werring identifies these key players as the nations who have the largest share in greenhouse gas emissions and those that are expected to be the main emitters in the future: the European Union, the United States, Japan, China, India, Russia and Saudi Arabia. He analyses these key players by identifying their formal position, their climate policy and most importantly their underlying drivers. Some recommendations regarding Copenhagen and beyond are made
Stern, J., September 2009 Oxford Institute for Energy Studies. Continental European Long-Term Gas Trading: is a transition away from oil product-linked pricing inevitable and imminent? The global economic and financial crisis, which began in late 2008, has significantly depressed European energy and gas demand. Substantial new LNG supply is coming on stream during 2009-10, some of which is seeking markets in Europe. This has caused a substantial short term supply surplus which is increasing the pressure for change in the pricesetting mechanism of European long term gas contracts. This paper reviews the developments in 2008 and 2009 and states that a transition away from formal contractual oil product price linkage is inevitable and arguably has already begun with a great degree of spot gas pricing indexation in some long term contracts. This is due to the economic recession, in combination with significant increase LNG supply, and international crude oil prices in excess of $50/bbl with an expectation of future increases. More information about this paper is available at: http://www.oxfordenergy.org/pdfs/NG34.pdf
Stern, J., October 2009. Future Gas Production in Russia: is the concern about lack of investment justified? Oxford Institute for Energy Studies. The global recession has lead to reduced gas demand levels in Russia, CIS countries and Europe and completely changed the short term outlook for Russian gas supply. Concerns about Gazprom’s ability to deliver volumes contracted to European buyers has been replaced by the latter asking for relief from their contractual obligations to take these volumes. It can be argued that Gazprom has been “lucky” that economic recession has relieved anticipated supply pressures for at least the next three years, giving it more time to develop the Bovanenko field. But it is illogical to accuse Gazprom of “not investing” in new supply without a detailed discussion of the different supply and demand elements of the Russian gas matrix and how these may evolve over the next decade. Indeed had Gazprom been ready to produce Bovanenko gas before 2011, as the western consensus dictated it should, it would now be in far greater financial difficulty. The paper is available at: http://www.oxfordenergy.org/pdfs/NG35.pdf.
More information about this paper is available at: http://www.clingendael.nl/publications/2009/20091100_ciep_paper_ werring_copenhagen.pdf
Upcoming conferences January 26-28: The European Gas Conference Vienna, Austria Website: www.theenergyexchange.co.uk/eurogas10 January 28-29 Gas Transport & Storage Summit 2010 D端sseldorf, Germany Website: http://www.gtsevent.com/ February 2-3: European Gas Storage Budapest, Hungary Contact person: Stacey Knox Website: http://www.platts.com/ConferenceDetail. aspx?xmlpath=2010/pc062/index.xml
Website: http://www.jacobfleming.com/jacob-fleming-group/conferences/oil-gas/EuropeanGas2010#who_sho_att February 23-24: European Carbon Capture and Storage London, United Kingdom Contact: Stacey Knox Website: http://www.platts.com/ConferenceDetail. aspx?xmlpath=2010/pc065/index.xml March 5-6: MIT Energy Conference Boston, United States of America Website: http://www.mitenergyconference.com/ March 22-23: 9th Turkish International Oil and Gas Conference and Exhibition Ankara, Turkey http://www.turoge.com/2010e/home.html
February 18-19: European Gas Forum 2010 Madrid, Spain
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