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Energy Journal Issue

The Energy Journal
Volume 33, Number 3

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Storing Wind for a Rainy Day: What Kind of Electricity Does Denmark Export?

Richard Green and Nicholas Vasilakos

DOI: http://dx.doi.org/10.5547/01956574.33.3.1
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Physical laws mean that it is generally impossible to identify which power stations are exporting to another country, but economic logic offers strong clues. On windy days, Denmark tends to export electricity to its neighbours, and to import power on calm days. Storing electricity in this way thus allows the country to deal with the intermittency of wind generation. We show that this kind of behaviour is theoretically optimal when a region with wind and thermal generation can trade with one based on hydro power. However, annual trends in Denmark's trade follow its output of thermal generation and are inversely related to Nordic production of hydro power and the amount of water available to Scandinavian generators, with no correlation with wind generation. We estimate the cost of volatility in Denmark's wind output to equal between 4% and 8% of its market value. Keywords: Electricity, Wind generation, Hydro generation, Storage, International trade

Linear and Non-linear Causality between CO2 Emissions and Economic Growth

Marco R. Barassi and Nicola Spagnolo

DOI: http://dx.doi.org/10.5547/01956574.33.3.2
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In this paper we investigate the casual effects between per capita economic growth and carbon dioxide emissions. The focus on the causal analysis in both mean and variance differentiate this study from other contributions to the literature. The analysis is conducted for six countries. We find substantial evidence of feedback in the causality in mean and volatility spillovers between emissions and output growth in the six countries under examination Keywords: CO2 Emissions, Growth, Multivariate GARCH, Volatility http://dx.doi.org/10.5547/01956574.33.3.2

Degrees of Coordination in Market Coupling and Counter-Trading

Giorgia Oggioni and Yves Smeers

DOI: http://dx.doi.org/10.5547/01956574.33.3.3
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Cross-border trade remains a contentious issue in the restructuring of the European electricity market. This paper analyzes the cross-border trade problem through a set of models that represent different degrees of coordination both between the energy and the transmission markets and among national Transmission System Operators (TSOs). We first present a nodal price-like organization of the system, where Power Exchanges (PXs) and Transmission System Operators are integrated to operate the energy and transmission markets. This system is not implemented in Europe but its success elsewhere makes it the natural reference for the study. We then move to a more realistic representation of the European electricity market based on the so-called market coupling design where energy and transmission are operated separately by PXs and TSOs. We consider different degrees of coordination of the national TSOs' activities to assess the range of inefficiencies that the lack of integration can lead to. The paper supposes price taking agents and hence leaves aside the incentive to game the system induced by zonal systems. Keywords: Market Coupling, Counter-Trading, Coordination, Generalized Nash Equilibrium, European Electricity Market

Market Structure Scenarios in International Steam Coal Trade

Johannes Truby and Moritz Paulus

DOI: http://dx.doi.org/10.5547/01956574.33.3.4
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The seaborne steam coal market has changed in recent years; demand has grown fast, important players have emerged, and since 2007 prices have increased significantly and remained relatively high. In this paper, we analyze steam coal market equilibria in the years 2006 and 2008 by testing for two possible market structure scenarios: perfect competition and an oligopoly setup with major exporters competing in quantities. The assumed oligopoly scenario cannot explain market equilibria for any year. While we find that the competitive model simulates market equilibria well in 2006, the competitive model is yet not able to reproduce real market outcomes in 2008. The analysis shows that not all available supply capacity was utilized in 2008. We conclude that either unknown capacity bottlenecks or more sophisticated non-competitive strategies were the cause for the high prices in 2008. Keywords: Steam coal trade, Mining costs, Market structure

The Role of Energy in the Industrial Revolution and Modern Economic Growth

David I. Stern and Astrid Kander

DOI: http://dx.doi.org/10.5547/01956574.33.3.5
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The expansion in the supply of energy services over the last couple of centuries has reduced the apparent importance of energy in economic growth despite energy being an essential production input. We demonstrate this by developing a simple extension of the Solow growth model, which we use to investigate 200 years of Swedish data. We find that the elasticity of substitution between a capital-labor aggregate and energy is less than unity, which implies that when energy services are scarce they strongly constrain output growth resulting in a low income steady-state. When energy services are abundant the economy exhibits the behavior of the "modern growth regime" with the Solow model as a limiting case. The expansion of energy services is found to be a major factor in explaining economic growth in Sweden, especially before the second half of the 20th century. After 1950, labor-augmenting technological change becomes the dominant factor driving growth though energy still plays a role. Keywords: Unified growth theory, Energy, Industrial Revolution, Economic growth

Simulating Security of Supply Effects of the Nabucco and South Stream Projects for the European Natural Gas Market

Caroline Dieckhoner

DOI: http://dx.doi.org/10.5547/01956574.33.3.6
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Because of the decrease in domestic production in Europe, additional natural gas volumes will be required. In addition to Nord Stream, the major import pipeline projects, Nabucco and South Stream, have been announced to provide further gas supplies to Europe. This raises the question concerning whether and how these projects contribute to the European Union's focus on security of supply. Applying the natural gas infrastructure model TIGER, this paper investigates the impact of these pipeline projects on southeastern Europe's gas supply. Gas flows and marginal cost prices are evaluated in general and considering the possibility of supply disruptions via Ukraine for the year 2020. The model results show a positive impact of these pipelines on security of supply despite few consumer cut-offs that result from intra-European bottlenecks. South Stream is only highly utilized in case of a Ukraine crisis, supporting the idea that its main purpose is to bypass Ukraine. Keywords: Natural gas, security of supply, Nabucco, South Stream, linear-optimization, transport infrastructure

The Impact of Different Unbundling Scenarios on Wholesale Prices in Energy Markets

Christoph Bremberger, Francisca Bremberger, and Margarethe Rammerstorfer

DOI: http://dx.doi.org/10.5547/01956574.33.3.7
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A recent highly disputed subject of regulating energy markets in Europe is the unbundling of vertically integrated up-and downstream firms. While legal unbundling is already implemented in most countries and indisputable in its necessity for approaching regulatory aims, continuative models such as ownership unbundling are still ambiguous. The following article contributes to the economic analysis of identifying the differences of these separate types of unbundling by concentrating on competition effects and the possibility to conceal true marginal costs. Via simulation, we find that legal unbundling yields the lowest prices in a market under Cournot competition. Moreover, under Bertrand competition, no differences between legal unbundling and ownership unbundling can be identified. Keywords: Electricity Market Modeling and Simulation, Cournot Competition, Vertical Relations, Unbundling

Systemic Risk in Energy Derivative Markets: A Graph-Theory Analysis

Delphine Lautier and Franck Raynaud

DOI: http://dx.doi.org/10.5547/01956574.33.3.8
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This article uses graph theory to provide novel evidence regarding market integration, a favorable condition for systemic risk to appear in. Relying on daily futures returns covering a 12-year period, we examine cross-and inter-market linkages, both within the commodity complex and between commodities and other financial assets. In such a high dimensional analysis, graph theory enables us to understand the dynamic behavior of our price system. We show that energy markets--as a whole--stand at the heart of this system. We also establish that crude oil is itself at the center of the energy complex. Further, we provide evidence that commodity markets have become more integrated over time. Keywords: Systemic risk, Energy, Derivative markets, High dimensional analysis, Graph theory, Minimum spanning trees