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Prepress Content: The following article is a preprint of a scientific paper that has completed the peer-review process and been accepted for publication within The Energy Journal.

While the International Association for Energy Economics (IAEE) makes every effort to ensure the veracity of the material and the accuracy of the data therein, IAEE is not responsible for the citing of this content until the article is actually printed in a final version of The Energy Journal. For example, preprinted articles are often moved from issue to issue affecting page numbers, and actual volume and issue numbers. Care should be given when citing Energy Journal preprint articles.

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The Energy Journal
Volume 40, The New Era of Energy Transition



Environmental and Energy Efficiency of EU Electricity Industry: An Almost Spatial Two Stages DEA Approach

Simona Bigerna, Maria Chiara D’Errico, and Paolo Polinori

DOI: 10.5547/01956574.40.1.sbig
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Abstract:
This study analyzes the relationship between the energy efficiency and the stringency of environmental and market regulation in the electricity sectors has been analyzed. Using 19 European Union countries (2006-2014), we decomposed the environmental policy stringency index, the OECD regulatory indicators and the total factor productivity growth to highlight the complexity of the relations between electricity sector and regulatory policies. In the first stage we compute the three main components of total factor productivity. These three efficiency measures are used in the second stage to assess the impact of the regulatory policies on the total factor productivity also controlling for spatial effect. Results suggest that market and environmental regulations have not unidirectional impacts on the three components of total factor productivity. Pure and scale efficiency index are negatively affected by sectorial regulation that positively affect the shift of technological frontier. Environmental policy negatively affects the shift of the efficient frontier, but has a positive effect on the scale efficiency.Keywords: Electricity, Total factor productivity growth, Undesirable output, Market and environmental regulation, spatial effect




The RES-Induced Switching Effect Across Fossil Fuels: An Analysis of Day-Ahead and Balancing Prices

Angelica Gianfreda, Lucia Parisio, and Matteo Pelagatti

DOI: 10.5547/01956574.40.1.agia
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Abstract:
The empirical literature on electricity markets has highlighted a strong cointegrating relationship governing the dynamics of electricity and fuel prices. More recently the massive introduction of RES in electricity generation, fostered by generous supporting schemes, has influenced the shape and position of the supply function and consequently the equilibrium prices. We believe that the new competitive scenario may have influenced the fuel-electricity nexus with a different impact in day-ahead and balancing markets. Empirical evidence of the evolving fuels-electricity nexus is shown looking at one Italian zone across two samples characterized by a significant change in the level of RES penetration. We conduct the analysis taking into account both day-ahead and, for the first time, balancing market sessions. Results indicate that fuel prices are much less relevant in determining the dynamics of electricity prices in recent years characterized by high RES penetration. On the contrary, taking into account flexible thermal sources, we show that in the second sample balancing and fuel prices (especially gas) are in a long run equilibrium.




Heterogeneous Returns to Scale of Wind Farms in Northern Europe

Giacomo Benini, Maria Carvalho, Ludovic Gaudard, Patrick Jochem, and Kaveh Madani

DOI: 10.5547/01956574.40.SI1.gben
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Abstract:
The present paper tries to identify the optimal size of a wind farm using North European data. An empirical analysis of 61 sites constructed between 2004 and 2014 suggests that economies-of-scale are highly heterogeneous across on-shore and off-shore projects. A Varying Coefficient Model captures such diversity by making the impact of the farm site on the amount of its potential capacity a non-linear function of the number of installed turbines. The resulting scale elasticities suggest that small on-shore farms have a bigger per-turbines output than off-shore ones, while the opposite is true for big projects.




Living in an era where market fundamentals determine crude oil price

Theodosios Perifanis and Athanasios Dagoumas

DOI:
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Abstract:
Crude oil price plays a crucial role in the trajectory of the economic activity. This paper aims at quantifying the impact of the fundamental drivers of crude oil price, over the period 2008-2017 using monthly data. This period, with sharp fluctuations of crude oil prices, has not been examined thoroughly in the literature. We apply regression analysis to examine the crude oil price drivers, concluding that crude oil price follows mostly market fundamentals, such as consumption, OPEC production, shale production and days ahead consumption for OECD stocks. Results unveil the importance of both factors of demand and supply to affect the price. We also find evidence on the considerable impact of S&P crude oil index, as a "paper oil" market indicator. We do not find evidence from indicators measuring political instability, such as the number of terrorists attacks in oil producing countries, but as well the VIX volatility index, which - besides a market instability index - could also be perceived as an index incorporating political instability. The impact of political factors is not evident in our analysis, possibly because we do not consider related dummy variables. Moreover, the paper applies bivariate VAR and GARCH analysis to examine crude oil price volatility, not finding strong volatility transmission with the examined market indices, namely the S&P crude oil and the VIX indices.






Efficient Combinations of Taxes on Fuel and Vehicles

Geir H. M. Bjertnæs

DOI: 10.5547/01956574.40.SI1.gbje
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Abstract:
A tax on fuel combined with tax exemptions or subsidies for fuel-efficient vehicles is implemented in many countries to reduce greenhouse gas emissions and other negative externalities from road traffic. This study, however, shows that a tax on fuel should be combined with heavier taxation of fuel-efficient vehicles to curb externalities from road traffic. The tax on fuel is implemented in order to curb externalities linked to both consumption of fuel and road use. A heavier tax on fuel-efficient vehicles prevent motorists from avoiding the road user charge on fuel by purchasing fuel-efficient vehicles.




A Multicriteria Assessment Approach to the Energy Trilemma

Athanasios Pliousis, Kostas Andriosopoulos, Michalis Doumpos, and Emilios Galariotis

DOI: 10.5547/01956574.40.SI1.apli
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Abstract:
The development of sustainable energy systems is pivotal in addressing climate change, but is also a complex and multifaceted task that should take into consideration a wide range of technological and socio-economic issues. The energy trilemma concept acknowledges this complexity and emphasizes the need to achieve a balance among three main dimensions: energy security, energy equity, and environmental sustainability. This study provides a systematic treatment of the energy trilemma at the country level. A novel multicriteria assessment framework is employed to evaluate the related performance of countries. Such an evaluation provides useful results for policy making, as it enables the examination of the status of each country and the challenges that it faces in achieving energy sustainability. The obtained empirical results are analyzed over time as well as considering the characteristics of the countries.




Oil Prices and the Renewable Energy Sector

Evangelos Kyritsis and Apostolos Serletis

DOI: 10.5547/01956574.40.SI1.ekyr
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Abstract:
Energy security, climate change, and growing energy demand issues are moving up on the global political agenda, and contribute to the rapid growth of the renewable energy sector. In this paper we investigate the effects of oil price shocks, and also of uncertainty about oil prices, on the stock returns of clean energy and technology companies. In doing so, we use monthly data that span the period from May 1983 to December 2016, and a bivariate structural VAR model that is modified to accommodate GARCH-in-mean errors. Moreover, we examine the asymmetry of stock responses to oil price shocks of different sizes, with and without oil price uncertainty. Our evidence indicates that oil price uncertainty has no statistically significant effect on stock returns, and that the relationship between oil prices and stock returns is symmetric. Our results are robust to alternative model specifications and stock prices of clean energy companies.




Evaluation of Risks for Electricity Generation Companies through Reconfiguration of Bidding Zones in Extended Central Western Europe

Caroline Deilen, Tim Felling, Robin Leisen, and Christoph Weber

DOI: 10.5547/01956574.40.SI1.cdei
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Abstract:
In Central Western Europe, a reconfiguration of bidding zones for electricity is frequently discussed as a way to improve congestion management. The current EU guideline on Capacity Allocation and Congestion Management even envisages reviews of the bidding zone configuration (BZC) in regular intervals of three years. Such a change of BZCs gives rise to additional regulatory risk for generation companies. Their expected net present value depends on local prices, which are directly influenced by the BZC. The paper at hand develops a methodology to investigate the impact of this regulatory risk. Therefore the risk of bidding zone changes is modeled using a partly-meshed scenario tree. The risk factors reflected therein are uncertainties in grid developments, in combination with other risks such as changing coal and gas spreads, demand, or renewable infeed variations. Results are compared to the current BZC in Europe and to a nodal setup.




Addressing Key Drivers of Regional CO2 Emissions of the Manufacturing Industry in Japan

Ken’ichi Matsumoto, Yosuke Shigetomi, Hiroto Shiraki, Yuki Ochi, Yuki Ogawa, and Tomoki Ehara

DOI: 10.5547/01956574.40.SI1.kmat
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Abstract:
This study investigated the factors behind the historical changes in CO2 emissions of the Japanese manufacturing industry as a whole and by sector at the prefectural level. We decomposed the changes of CO2 emissions in 47 prefectures from 1990 to 2013 into four factors (carbon intensity, energy intensity, structure, and activity effects) using the logarithmic mean Divisia index method. We found that energy intensity, structure, and activity effects were more influential in the changes of emissions than the carbon intensity effect, although the most influential factor varied by prefecture. Among the eight considered industrial sectors of Japan's manufacturing industry, the changes in the chemistry and metal sectors were particularly complex. Thus, improvements of the energy intensity and production in these two sectors should be prioritized. We also conducted detailed analysis of the decomposed factors in three selected prefectures based on cluster analysis.






Directed Technical Change, Capital Intensity Increase and Energy Transition: Evidence from China

Dong Wang, Amin Mugera, and Ben White

DOI:
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This paper analyses the causes of China's energy transition since 1978 when the economic reform policy was launched. We aim to determine if increasing capital intensity in the Chinese economy is driving a shift in the energy mix towards modern energy sources, such as solar electricity. The empirical investigation is based on national level time series data from 1978 to 2015. The results of a Granger Causality test show that increasing capital intensity causes transition to modern energy in the long run, but not vice versa. The impulse-response analysis, based on the Johanson cointegration and vector error correction model (VECM), verifies that capital intensity determines energy transition in the long-run and the adjustment period to an exogenous shock from capital intensity is around five years. This is in line with China's National Five-year Plans which often introduce major shifts in energy and industrial policy. We conclude China's energy transition is driven by capital deepening and biased technical change towards capital-intensive modern energy in the long run. The rate of change is increased by exogenous investment shocks partly as a result of policy initiatives introduced by China's Five Year Plans.




An Estimation of Market-Based Carbon-Emission Prices Using Comparative Analogy: A Korean Case

Saedaseul Moon, Deok-Joo Lee, Taegu Kim, and Kyung-Taek Kim

DOI: 10.5547/01956574.40.SI1.smoo
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Abstract:
In 2015, Korea became one of the pioneering countries to implement ETS nationwide in Asia. The purpose of this paper is to estimate the market-based prices of carbon credits in Korea by using a comparative analogy approach. In this paper, the comparative analogy is applied as follows: Based on the assumption that the factors affecting carbon prices would be same with the those of EU ETS which is the most matured market in the world, we attempt to estimate the market-based carbon prices of Korea with the estimation model obtained by using the data from EU ETS. After estimating the market-based price of carbon in Korea, we compare the estimated price to the actual observed prices and analyze the reasons why there existed the gap between both prices. Furthermore, we examine the properties of the estimated market-based price with respect to the changes of factors affecting the carbon price through sensitivity analysis




China vs. The Rest: A New Era of Global Energy Dealmaking

Qiangyu Wang and Gavin Kretzschmar

DOI: 10.5547/01956574.40.SI1.qwan
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Abstract:
China's recent global energy policy suggests an acquisitive attitude to deal-making, coming as it does fourteen years after a failed high profile 2005 bid for the U.S. giant Unocal. Our study of 726 global oil and gas mergers and acquisitions for the period 2006 to 2012 reveals that by entering risky oil regions, China is executing deals globally and doing them (relatively) well. By median, Chinese state backed energy giants paid 6.5 percent less than comparable energy dealmakers. Findings suggest that by undertaking deals in risky countries, typically those with high trade barriers to entry and significant political risk, China achieves observably more favourable deal pricing terms, achieving acquisitions at significant discount.




Common Unobserved Determinants of Intraday Electricity Prices

Nikolaos S. Thomaidis, Gordon H. Dash, and Nina Kajiji

DOI: 10.5547/01956574.40.SI1.ntho
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Abstract:
This paper employs multilevel factor modelling techniques to unravel systematic unobserved determinants of the intraday and interzonal price curve dynamics for the Pennsylvania-New Jersey-Maryland (PJM) interconnection. These techniques make an explicit separation of global drivers from region-specific common factors, thereby facilitating the identification of the actual sources of co-variability. Our empirical findings confirm the hypothesis that the common unobserved determinants of power prices in the PJM interconnection obey a block structure, some of which affect different segments of our panel. We argue that a multilevel factor approach offers a more systematic and transparent representation of intertemporal and cross-sectional patterns in PJM electricity prices compared to alternative brute-force VARMAX parametrizations and the single-level factor models, which are often put forward in the literature as viable modelling alternatives.




How Do Oil Shocks Impact Energy Consumption? A Disaggregated Analysis for the U.S.

Thi Hong Van Hoang, Syed Jawad Hussain Shahzad, Robert L. Czudaj, and Javed Ahmad Bhat

DOI: 10.5547/01956574.40.SI1.thoa
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Abstract:
This paper investigates the interaction between energy consumption and oil shocks in the U.S. from 1974 to 2018 using monthly data. Its contributions rely on the double disaggregation of energy consumption and oil shocks in a time-varying context. Oil shocks are disaggregated into oil supply, oil demand and aggregated demand shocks following the method of Kilian (2009). Energy consumption is disaggregated according to the production source in distinguishing between renewable and non-renewable energy consumption (hydropower, geothermal, wood, waste, coal, natural gas and petroleum). The impulse response function results show that renewable energy consumption responds the most to aggregate demand and oil supply shocks while for non-renewable energy consumption, it is oil demand shocks. The dynamic connectedness results show that oil supply and demand shocks spillover the most to hydropower consumption while aggregate demand shocks spillover the less. However, these relationships change over time and recommend the flexibility of energy policies.




Storage Business Models: Lessons for Electricity from Cloud Data, Frozen Food and Natural Gas

Karim L. Anaya and Michael G. Pollitt

DOI: 10.5547/01956574.40.SI1.kana
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The aim of this paper is to evaluate different well-established non-electric storage markets (cloud data, frozen food and natural gas) in order to identify relevant lessons for electrical energy storage (EES) connected to electricity distribution networks. The case studies that have been evaluated are Google Drive (cloud storage), Oakland International (frozen food storage) and Centrica Storage (gas storage). A specific business model methodology has been selected for comparing the different business model components across these sectors. The methodology (following Johnson et al., 2008) refers to key interconnected components: customer value proposition, the revenue formula, key resources and key processes. The evaluation of the three case studies suggests that well-developed business models already exist in growing and mature storage markets. Regulation plays also an important role across the different storage markets and business model components, however its importance varies depending on the type of market. Innovation in storage business models is also observed (technological and contractual) which should also be facilitated in EES. Innovation helps move storage markets towards more sustainable business models.