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Costs for conventional and renewable fuels and electricity in the worldwide transport sector: A mean-variance portfolio approach
... Another key feature of the approach is the potential for consideration of external costs. Marrero et al. (2012) considers CO2 externalities to analyze the projected generating mix for Europe in 2020 (EU-BAU) highlighting the importance of complementarity between traditional and renewable energies to reduce not only portfolio risk and average cost but also total CO2 emissions. Roques et al. (2010) apply the MVPT to identify cross-country portfolios that minimize the total variance of wind generation for a given level of production across Austria, Denmark, France, Germany and Spain. ...
... The reason is not that those findings are field oriented. Rather, 4 Guerrero- Lemus et al. (2012) is an exception to the traditional focus of existing literature in the electricity sector. These authors analyze in detail the average costs and cost volatility of conventional and renewable fuels, and of electricity of either non-renewable or renewable nature for vehicles, and discuss the findings obtained from the MVPT when implemented to worldwide road transport sector. 5 It is also possible to apply MVPT from a private investor perspective to identify optimal portfolios for energy suppliers. ...
... Source: Based on Marrero et al. (2012) As we have said, beyond the analysis of Total Risks (in percent change) of an energy portfolio, we further consider the Capital Asset Pricing Model (CAPM) framework to distinguish between systematic and non-systematic risk, applied both to a set of energy commodities and feedstock time series prices. The former refers to market risk, common to all technologies and hence with no possibilities to reduce it by technology diversification, while the second is a technology-specific risk and hence susceptible to be diversified in the own generation process. ...
The risks associated with current and prospective costs of different energy technologies are crucial in assessing the efficiency of the energy mix. However, energy policy typically relies on the evolution of average costs, neglecting the covariances in the costs of the different energy technologies in the mix. Mean-Variance Portfolio Theory is implemented to evaluate jointly the average costs and the associated volatility of alternative energy combinations. In addition systematic and non-systematic risks associated to the energy technologies are computed based on a Capital Asset Pricing Model and considering time varying betas. It is shown that both electricity generation and fuel use imply risks that are idiosyncratic and with relevant implications for energy and environmental policy.
... EU-ETS was introduced in phases, which represents compliance periods with continuously stricter emissions reduction targets [3][4][5]. EU-ETS scheme has a considerable impact on a wide spectrum of issues in power industries and electricity markets; such as decision making of generation companies [6], dynamic multi market trading [7,8], self-scheduling [9], unit commitment [10,11], generation technologies selection [12,13], etc. ...
... Overall expected profit and involved risk has been calculated using (9) and (12), considering all trading alternatives. On the basis of total expected profit and involved risk, objective function (13), subject to constraint (14), is optimized. This MINLP optimization problem has been solved by commercially available software GAMS, on its solver SBB-CONOPT3 [37]. ...
... Siguiendo parámetros similares en el planteamiento de los problemas y la identificación de las necesidades del mercado actual, Guerrero-Lemus et al. [13] realizaron la evaluación por medio de la teoría de varianza media de las mezclas de combustibles usadas para el sector de transporte terrestre en busca de una composición eficiente que permita: la reducción en la emisión de gases y la diversificación de riesgos ante la volatilidad del precio de los combustibles fósiles, principalmente del petróleo. Esta evaluación evidencia la ineficiencia en ambos aspectos para las combinaciones de combustibles actuales; las cuales se encuentran concentradas en más de un 90% en combustibles fósiles. ...
La importancia del sector eléctrico en el crecimiento de las economías incentiva el estudio sobre las variables que determinan la ejecución de nuevos proyectos de inversión en el sector. Las barreras en la disponibilidad de los combustibles se traducen en un incremento de la incertidumbre, convirtiéndose en un aspecto fundamental en la toma de decisiones en los mercados de generación de energía. Ante esto, se realiza un contraste entre un modelo de volatilidad determinística y dos modelos de volatilidad estocástica paramétrica GARCH y EWMA, aplicados en el precio de los combustibles fósiles, con el fin de identificar trade off, entre costos y riesgo, enfrentado por los generadores en una matriz energética conformada por tecnologías basadas en carbón, gas y petróleo. Los tres modelos permiten contrastar los resultados empíricos de las covarianzas obtenidas a través de la metodología de Pearson, EWMA y Vech. La evidencia sugiere que en un contexto en el que sea necesario seleccionar uno de los combustibles, el carbón presenta menor exposición al riesgo y menor variación en su precio, implicando un menor egreso en los mercados de generación. Sin embargo, contar con la matriz energética conformada por los tres combustibles fósiles permite una menor exposición al riesgo para el mercado global.
... This important sector represent a significant level of energy consumption, around 20% of total energy consumed globally, and with an expected increase to 40% by 2040 [1]. In the short run, biofuels will play an important role due to their complementarity to the fossil fuels, confirming their position as a key element in a path to achieve the main energy policy goals in the transport sector [2]. Ethanol and Methanol can be used with conventional fuels, in pure form or as a blend, to act as a valid alternative solution for reducing the demand for conventional fuels. ...
The use of ethanol as a fuel in vehicles has existed for many years, and today the incorporation of small amounts in gasoline is a reality. Ethanol presents interesting properties as a fuel, especially the higher octane rating, higher latent heat of vaporization and higher laminar flame speed.
Based on these characteristics there are some important competitions worldwide using ethanol or mixtures of ethanol as fuel. Thus the main objective of this research is to study the necessary changes to convert a gasoline engine so that it can run on a fuel containing 85% ethanol and evaluate their effects in terms of performance and fuel consumption.
Trying to predict the future optimizations to be implemented in the engine to get out the best of the ethanol, a computer model was created using the software Lotus Engine Simulation (LES). Using this software a basic model in a Suzuki GSXR600 K5 engine was created, in order to obtain power curves as closely as possible of the real. After considering the base model as valid, using the petrol fuel and comparing the results with the factory performance curves, simulations were performed using E85 fuel. The properties of the fuel were changed and also the combustion model. Since ethanol behavior during combustion is not the same as that of gasoline, it was necessary to change the adjustable parameters of the Wiebe model "A" and "M", reaching the conclusion that the coefficients that best characterize the combustion of the ethanol were A=5 and M=3.
Using ethanol in the simulation the results reveal a possible increase of almost 8% in engine torque and an increase of fuel consumption by 37.5%, in all the operating conditions.
In order to validate and verify the computational model engine behavior with the use of E85, experimental tests were conducted using the CBR600 F4i Honda engine. This engine is not the same used in simulation but it presents very similar characteristics with that one. The tests result for ethanol (E85) reveal a torque curve very similar to the curve obtained considering the use of gasoline. The reason for this is due to the fact that no optimization changes were made in the engine ignition map. However there was an increase in fuel consumption in the range of 40% very close to the value obtained in computer simulations. This reveal that, with some optimization process, it should be possible to increase the engine torque and power but knowing that it will be obtained with a considerable increase in fuel consumption. Also the possibility to introduce a turbocharger, considering ethanol characteristics, revealing a higher octane index, should be explored.
... En Guerrero et al. (2010Guerrero et al. ( , 2012 hemos propuesto analizar el papel de cambios en el mix de combustibles para la diversificación de riesgos en el sector transporte. La idea es considerar el mix energético de manera conjunta y evaluarlo con las técnicas de gestión eficiente de carteras que propone la Mean-Variance Portfolio Theory (véanse Merton, 1952, y Markowitz, 1972. ...
Los biocombustibles líquidos tienen un importante papel a jugar en el proceso de sustitución de combustibles fósiles por energías renovables. Dos de las cuestiones de mayor trascendencia para este proceso son la seguridad en el suministro de combustibles y la reducción de las emisiones causantes del calentamiento global. En el artículo utilizamos el análisis económico para discutir estas dos cuestiones a nivel agregado. Por un lado, utilizamos la teoría de carteras eficientes para sugerir estrategias de diversificación de los riesgos asociados al suministro de energía para el transporte. Por otro lado, utilizamos la teoría económica y el análisis de datos de panel para cuantificar en qué medida el uso de biocombustibles puede contribuir a la reducción de las emisiones de CO2. El análisis que desarrollamos exige una comprensión del entorno tecnológico y económico en el que se desenvuelven los biocombustibles líquidos al que nos referimos brevemente en primer lugar.
... Limited by the regional availability of low-cost biomass, biofuels can be important for meeting mild climate policy targets [13]. The results of a recent empirical investigation [14] highlighted the important role played by biofuels in reducing volatility and systematic risk in a fuel mix due to their correlation structure with other fuel technologies. Moreover, in this study, it was shown that CO 2 emission reductions associated with such an efficient diversification can diminish to almost 58% from a 100% fossil fuels scenario. ...
As forecasted by the International Energy Agency Energy Technology Perspectives baseline scenario, the largest increment in LDV (light-duty vehicles) stock, travel demand and transport sector energy consumption will take place in the developing world. In the developing countries where the import of used vehicles is allowed, a considerable portion of the LDV stock increment will be realized with used vehicles. In this paper, the analytical framework for assessment of climate change mitigation potential of transport sector in developing countries is adapted in order to incorporate the expected vehicle fleet increase with used vehicles. The evaluation of appropriate mitigation strategies is performed using the GHG Costing Model (GACMO), which compares each mitigation option with the BAU (business-as-usual) option and determines its environmental effectiveness (t CO2 reduced) and economic effectiveness (US$/t CO2 reduced). The adapted analytical framework is applied on the case of transport sector of Macedonia, evaluating appropriate options inline with five mitigation strategies: improvement of vehicle fleet, introduction of low carbon fuels, improvement of travel behaviour, advancement of vehicle equipment and improvement of driver behaviour. The resulting marginal cost curve for the year 2020 indicates a total achievable reduction of 22% with respect to BAU GHG transport sector emissions, with bulk of it at relatively high specific costs of around 90 US$/t CO2. (c) 2013 Elsevier Ltd. All rights reserved.
Energy stock market is closely related with energy economic, energy applications and energy policies, but it is filled with various uncertainties such as stock market scenarios, government policies, especially the input parameters of stock portfolio models. Jointly managing these uncertainties is notoriously hard for energy stock market investments. Although robust portfolio is the prevailing portfolio policy handling with uncertainties, it mostly focuses on the worst-case scenario of all the possible realizations of uncertain input parameters, resulting in the optimal portfolios considerably conservative and the portfolio performances very inferior. To this end, from the innovative perspective of best-case scenario, based on Markowitz’s mean-variance (MV) model, this paper constructs the best-case scenario based robust portfolio formulation (RMV-best), just contrary to the one based on the worst-case scenario (RMV-worst). Furthermore, stock market scenarios which uncertainly shift, intuitively, show the periodic characteristics, and can be divided into three movement states: the bull, the bear and the steady. To verify the consistency of RMV-best, RMV-worst and MV portfolio policies over the different motion cycles and identify the differences of these portfolio policies at various movement states, the mix data including two motion cycles and three industry sectors is employed, and the impacts of government policies on energy portfolio policies-making also analyzed. Eventually, empirical results indicate that RMV-best is always the most favorable portfolio policy at the bull and the bear market, while MV can produce more profitable portfolios at the steady market over two motion cycles. However, the limitations of RMV-worst, further, are confirmed in this study.
Muitas empresas atuam no mercado por meio de diferentes unidades de negócio, ou seja, com segmentos distintos de produtos. Assim, torna-se importante verificar como cada unidade de negócio comporta-se frente às demais unidades e quais agregam mais valor para a empresa como um todo. Este trabalho visa analisar o risco e retorno de cada unidade e seu efeito no risco e retorno de uma empresa de bens de capital, que atua com três unidades de negócio, utilizando a teoria do portfólio proposta por Markowitz. Verificou-se que a unidade de máquinas ferramenta, isoladamente, é a que apresenta a melhor relação risco-retorno. No contexto de formação de carteiras, foi possível verificar qual a proporção de investimento que deveria ser alocada a cada unidade de negócio de forma a obter a melhor relação risco e retorno.
In this work, portfolio theory is applied to efficient electricity generation from both an economic and environmental point of view. The proposed model includes all the generation costs for different technologies, including externalities; the risk derived from them, and a set of constraints on the emission of pollutant gases, such as carbon dioxide, sulfur dioxide, nitrogen oxides and particulate matter. Our results show that the EU technology portfolio, as proposed by the International Energy Agency for the 2030 horizon, is far from efficient. The joint cost-risk-environmental perspective confirms the need to increase the share of renewable energy technologies in the European energy mix, including photovoltaic energy, and to promote wind power as much as possible, to reduce the environmental impact. It is also necessary to continue to rely on hydro, CCS and nuclear technologies, in order to optimize the cost-risk tradeoff and the security of supply. In addition, it is concluded that restrictions on other pollutant gases should be also imposed, because they would contribute to reducing the environmental impact, with a relatively small increase in terms of cost-risk.
U.S. regions are expected to follow the national trend towards investment in renewable energy as part of their electricity portfolio. The progress of energy portfolios that typically involves traditional methods, such as centralized nuclear and coal-fired generation, and towards cleaner-and renewable-source generation will impact economic growth and public health. Renewable electricity production must strike a balance among cost, reliability, and compatibility. The economic and health benefits obtained from developing an efficient energy portfolio make renewable energy alternatives an important consideration for regions endowed with natural resources. A portfolio mix of production method that considers the economic benefits while limiting adverse health and environmental impacts is attractive. This research proposes a System Dynamics simulation framework to support policy-making efforts in assessing the impact of energy portfolios. The authors demonstrate the utility of the framework by means of analyzing data that pertain to the U.S. Hampton Roads-Peninsula Region.
Modern portfolio theory (MPT) stands as a widely accepted methodology to meet the challenges associated with the definition of energy planning for a particular territory or region. Energy planning is thus framed as an investment selection problem. MPT is characterized by having a wider capacity and conceptual richness than the other previously used methodologies, such as the individual least cost alternative. The portfolio approach is based on solving for an objective function that seeks to minimize either the cost or the risk of the portfolio, subject to different constraints, considering that real electricity generation assets can be defined in terms of cost or return and economic risk for each alternative technology. The relevant portfolios are the result of solving the optimization model, to determine the efficient cost-risk frontier. The work presented here consists of an exhaustive review of the literature in relation to the application of MPT methodology to the field of energy planning and electricity production. A new classification is proposed from a financial perspective of the selection of investments from the preceding studies. It delves deeper into the explanation of the limits to the methodology and into the concept of risk, which is key from both a financial and an energy perspective. The main methodological contributions found in the literature are examined that are aimed at improving the capacity of the model and adjusting it to the reality of the electricity market, Finally, conclusions are provided from the works analyzed in terms of renewable technologies and the policy implications derived from them. In most studies, a preference has been shown for the inclusion of renewable technologies in the efficient portfolios. However, in order to implement the decision to increase the share of renewable technologies, greater flexibility in the interconnection capacity between states and in storage capacity is needed.
The different energy sources, their costs and impacts on the environment determine the electricity production process. Energy planning must solve the existence of uncertainty through the diversification of power generation technologies portfolio. The European Union energy and environmental policy has been mainly based on promoting the security of supply, efficiency, energy savings and the promotion of Renewable Energy Sources. The recent European Commission communication “Towards an European Energy Union: A secure, sustainable, competitive and affordable energy for every European” establishes the path for the European future. This study deals with the analysis of the latest EU “Energy Union” goals through the application of Markowitz portfolio theory considering technological real assets. The EU targets are assessed under a double perspective: economic and environmental. The model concludes that implementing a high share of Renewable Energy target in the design of European Policies is not relevant: the maximization of Renewable Energy share could be achieved considering a sole Low Emissions of carbon dioxide policy. Additionally it is confirmed the need of Nuclear energy in 2030: a zero nuclear energy share in 2030 European Mix is not possible, unless the technological limits participation for Renewable Energy Sources were increased.
Using Malaysia as a case study in comparison with other studies that apply aggregate models, this study employs a multi-sector CGE model (computable general equilibrium) to derive the short-run and long-run effects of sustained increase in world petroleum prices on the transport sector. Since the transport sector is the main consumer of petroleum products, the study highlights the transmission channels through which the rising cost of petroleum products affects this sector in particular. The simulation results suggest that in the short-run, the effects of the shock are negative towards the economy and the transportation sector, but it will eventually encourage the reallocation of resources and, therefore, induces inequality in sectoral adjustments. However, in the long-run, the shock will be beneficial for the transportation sector because it will contribute to an increase in domestic output and stimulate investment. In the whole of the economy and all transportation sectors, the shock will lead to an increase in the emissions of all air pollutants in the short-run while it decreases them in the long-run.
Portfolio Theory can result in a valid and contrasted methodology for evaluating real assets and electricity production portfolios within the construct of energy planning. It results in a more complete alternative to the least-cost perspective. In the proposed model the production costs of all technologies are considered, including the different components of externalities (not only CO2 costs). This tries to correct for possible market failure, due to imperfect cost allocation. Furthermore, the model measurement of technological risk is based on the non-weighted addition of variances. This proposal can be a more robust calculation to obtain risk values. The model presents a risk minimisation objective function and a cost-risk efficient frontier. Two different cases are proposed: “Pure Markowitz” (with only simple portfolio approach constraints) and “Technological Limitation” (considering the participation portfolio limits for technologies). It makes it possible to analyse the efficiency of IEA.EU-27 portfolios for year 2010 and 2020 and 2030 horizons from a Portfolio Theory perspective. The results are shown in terms of proximity to the Efficient Frontier and demonstrate how the “efficient minimum risk path” (economical and environmental) for EU-27 is essentially based on an increasing share of renewable sources in the power generation portfolio.
The Canary Island of Tenerife is supplied by an insular power system which relies mainly on conventional thermal power plants. However Tenerife has reached grid parity in photovoltaics (PV) and wind energy. The Spanish government has just approved a new legislation to stimulate the deployment of new PV and wind energy systems in all Spanish insular systems mainly to reduce the cost of these systems. This paper analyses the current electric power system and energy production in Tenerife, especially PV and wind energy, and investigates the consequences of this new legislation and the planning initially approved by the government of the Canary Islands to substantially increase the share of both technologies in the horizon 2020. This paper shows that the Tenerife power system is technically capable of managing the ramps expected to occur in the defined near term scenarios. However, the cost per MWh will increase because of the curtailment of renewable energy generation and the operation of the thermal power system in suboptimal conditions. Some regulatory recommendations are included as conclusions.
The European Union׳s commitment to increase the presence of renewable energy sources in its portfolio has resulted in better levels of security of supply, competitiveness and environmental sustainability. This proposed work reviews European legislation regarding the promotion of renewable energy sources, as well as the bibliography that applies portfolio theory methodology to energy policy. This double revision gives rise to the question whether the share limits of renewable energy technologies anticipated for the European power mix in 2020 and 2030 are actually efficient. The optimization model corrects for the attractiveness of renewable energy sources as opposed to conventional sources in terms of costs, risks and pollutant gas emissions. This model successfully and explicitly identifies the positive effect on the environment that is represented by the inclusion of renewable energy sources in the portfolio. The goal is to minimize the cost and risk that society must bear to produce electricity, in addition to compliance with European pollutant gas (CO2, SO2, NOx and PM) objectives. The results for 2020 indicate that the EU would not be able to reach its emissions reduction goals with the anticipated shares of renewable energy sources. In 2030, achieving a lower emissions portfolio would not mean taking on greater costs, although it would be necessary to assume a greater level of risk. The anticipated shares of renewable energy sources (+5%) and fossil fuel technologies (+15%) would be overdimensioned in the forecasts analyzed. In terms of technologies, both nuclear and wind energy stand out, both with shares above 20%. On the contrary, biomass and solar photovoltaic energies would be unnecessary in order to reach efficiency. In any case, one thing is clear: The EU would be the master of its energy future if it prioritizes the importance of renewable energy sources in its efficient portfolio.
The study found that promising algae biofuels R&D breakthroughs (hydrothermal liquefaction technology, high-frequency magnetic impulse cavitation reactors, etc.) and industry milestones (technologies of hydrorefining and catalytic selective oxidation among others), in order to move forward, require for implementation of new synergies and further innovations needed to improve economical production of advanced biofuels that are not applicable today. It seems that already viable state-of-the-art findings must be re-examined extensively in all of the different aspects in order to hasten the commercialisation of algal biofuels production in sustainable biorefineries. The same could be said about the feedstock selection for algal biomass production and its cultivation. It is the first step to successful large-scale algae cultivation in new regions of the world. Based on the above mentioned we identified fourteen promising algae species that can successfully grow in various regions of Russia under local climatic conditions. Samples collected during expedition were analysed at Lomonosov Moscow State University. Providing predetermined alternate periods of light and darkness and for temperature control of the different mediums to improve photosynthetic responses we investigated two different microalgal production systems: open ponds of the volume V=500 l and closed bioreactors of the volume V=1.0 l. Later on, a review on interdisciplinary synergies between biology and technology to open up new avenues of R&D in the field of algae-for-transport was carried out by leading universities of Lithuania, Russia, and Ukraine. In summary, we found that it is already possible to reduce the price of the 3rd and 4th generation biodiesel fuel from algae by applying the synergistic approaches to sustainable energy production highlighted in this paper, and probably some other ones as well.
For oil company decision-makers, the principal concern is how to allocate their limited resources into the most valuable opportunities. Recently a new management philosophy, “Beyond NPV”, has received more and more international attention. Economists and senior executives are seeking effective alternative analysis approaches for traditional technical and economic evaluation methods. The improved portfolio optimization model presented in this article represents an applicable technique beyond NPV for doing capital budgeting. In this proposed model, not only can oil company executives achieve trade-offs between returns and risks to their risk tolerance, but they can also employ an “operational premium” to distinguish their ability to improve the performance of the underlying projects. A simulation study based on 19 overseas upstream assets owned by a large oil company in China is conducted to compare optimized utility with non-optimized utility. The simulation results show that the petroleum optimization model including “operational premium” is more in line with the rational investors’ demand.
Different support instruments for renewable energy expose investors differently to market risks. This has implications on the attractiveness of investment. We use meanevariance portfolio analysis to identify the risk implications of two support instruments: feed-in tariffs and feed-in premiums. Using cash flow analysis, Monte Carlo simulations and meanevariance analysis, we quantify risk-return relationships for an exemplary offshore wind park in a simplified setting. We show that feed-in tariffs systematically require lower direct support levels than feed-in premiums while providing the same attractiveness for investment, because they expose investors to less market risk. These risk implications should be considered when designing policy schemes. //
This article is also published as part of my PhD thesis, available here: http://orbit.dtu.dk/en/publications/risk-implications-of-energy-policy-instruments(8d770b85-a75c-45c3-9a2e-e5740b0b907e).html
Emissions from the transport sector represent the fastest growing source of greenhouse gas emissions. There is little prospect that this situation will be resolved with a single technological fix. As developing nations quickly move to catch up with the motor-ization levels of developed nations, the sheer number of private vehicles may overwhelm any advances made by cleaner fuels. By 2030, there is projected to be more vehicles in the developing world than in developed nations. Despite the growth in developing-nation transport emissions, the sector has produced relatively few mitigation projects within the mechanisms of the Kyoto Protocol. However, a few developing cities, such as Bogota, Colombia, have demonstrated innovation in low-cost solutions to reducing emissions. This research employs scenario analysis to examine the size and cost of potential emission reduction options from the urban transport sector of developing nations. In particular, the analysis compares the cost of greenhouse gas emission reductions from fuel technology options to reductions from measures promoting mode shifting. This comparative analysis indicates that a diversified package of measures with an emphasis on mode shifting is likely to be the most cost-effective means to greenhouse gas emission reductions.
There is a consensus among the majority of the world’s scientists that our planet is experiencing man-made climate change, which will bring great social, economic and environmental threats to human being (Europa, 2008). The increase amount of atmospheric CO2 concentration impacts climate changes has become a major concern to the public. Transportation is accounted for 26% of global CO2 emissions and is one of the few industrial sectors where emissions are still growing (Chapman, 2007). In the European Union (EU), the road transport sector is one of the main sources of CO2 emissions. Therefore, reducing CO2 emissions and fuel consumption from road transportation is an important strategy for EU to implement the Kyoto Protocol and to develop a sustainable transport system (Fontaras and Samaras, 2007). This paper explores and discusses the initiation and development of the EU’s policies and strategies against climate change and the share experiences in the EU transport sector to reduce CO2 emission. Basing on the research, it can be concluded that the EU has acted as a front-runner in the battle of combat against climate change.
Energy use is inelastic in time-series data, but elastic in international cross-section data. Two models of energy use reproduce these elasticities: a putty-putty model with adjustment costs developed by Pindyck and Rotemberg (1983) and a putty-clay model. In the Pindyck-Rotemberg model, capital and energy are highly complementary in both the short run and the long run. In the putty-clay model, capital and energy are complementary in the short run, but substitutable in the long run. We highlight the differences in the cross-section implications of the models by considering the effect of an energy tax on output in both models. In the putty-putty model, an energy tax that doubles the price of energy leads to a fall in output in the long run of 33%. In contrast, the same tax in the putty-clay model leads to a fall in output of only 5.3%.
Monte Carlo simulations of gas, coal and nuclear plant investment returns are used as inputs of a Mean-Variance Portfolio optimization to identify optimal base load generation portfolios for large electricity generators in liberalized electricity markets. We study the impact of fuel, electricity, and CO2 price risks and their degree of correlation on optimal plant portfolios. High degrees of correlation between gas and electricity prices - as observed in most European markets - reduce gas plant risks and make portfolios dominated by gas plant more attractive. Long-term power purchase contracts and/or a lower cost of capital can rebalance optimal portfolios towards more diversified portfolios with larger shares of nuclear and coal plants.
In this paper, we build a version of the putty-clay model in which there is a large variety of types of capital goods which are combined with energy in different fixed proportions. Our principal contribution is to establish easily checked conditions under which the problem of solving for the equilibrium of the model economy reduces to a dynamic programming problem with only two endogenous state variables, regardless of the number of different types of capital goods that are allowed. In appropriate applications, this result allows us to avoid the 'curse of dimensionality' that typically plagues attempts to analyze the dynamics of economies with a wide variety of capital goods and binding non-negativity constraints on investment. We apply these results to study the equilibrium dynamics of value-added, investment, wages, and energy use in a simple model of energy use with putty-clay capital.
ABSTRACT Two easily measured variables, size and book-to-market equity, combine to capture the cross-sectional variation in average stock returns associated with market {3, size, leverage, book-to-market equity, and earnings-price ratios. Moreover, when the tests allow for variation in {3 that is unrelated to size, the relation between market {3 and average return is flat, even when {3 is the only explanatory variable. THE ASSET-PRICING MODEL OF Sharpe (1964), Lintner (1965), and Black (1972)
The International Energy Agency’s annual energy projections. Based on scenarios, these projections compare what will happen if policies remain the same and what might happen if policies were improved. Each edition tends to have a particular geographical or policy focus.
Integrating the power and transport system, in the future energy system planning, influences the economically optimal investments and optimal operation of the power system as well as the transport system. For analysing the integrated power and transport system a new model capable of calculating optimal investments in both power plants and vehicle technologies is presented in this article. The model includes the interactions between the power system and the transport system including the competition between flexibility measures such as hydrogen storage in combination with electrolysis, heat storage in combination with heat pumps and heat boilers, and plug-in electric vehicles.
Energy procurement is a necessity which needs a deep study of both the demand and the generation sources, referred to consumers territorial localization. The study presented in this paper extends and consolidate the Shimon Awerbuch’s study on portfolio theory applied to the energy planning, in order to define a broad generating mix which optimizes one or more objective functions defined for a determined contest. For this purpose the computation model was specialized in energy generation problem and extended with the addition of new cost-risk settings, like renewable energy availability, and Black–Litterman model, which extends Markowitz theory.Energy planning was then contextualized to the territory: the introduction of geographic and climatic features allows to plan energy infrastructures on both global and local (regional, provincial, municipal) scale. The result is an efficient decision making tool to drive the investment on typical energy policy assets. In general the tool allows to analyze several scenarios in support of renewable energy sources, environmental sustainability, costs and risks reduction. In this paper the model was applied to the energy generation in Italy, and the analysis was done: on the actual energy mix; assuming the use of nuclear technology; assuming the verisimilar improvement of several technologies in the future.
Urban car transportation is a cause of climate change but is also associated with additional burdens such as traffic congestion and air pollution. Studies of external costs and potential impacts of travel demand management help to define policy instruments that mitigate the damaging impact of transportation. Here, we analyze different externalities of car transportation in Beijing and show that social costs induced by motorized transportation are equivalent to about 7.5–15.0% of Beijing’s GDP. Congestion and air pollution contribute the most with climate change costs being the most uncertain. We show that a road charge could not only address congestion but also has environmental benefits. The paper investigates the role of demand elasticities and demonstrates that joint demand and supply-side policies provide considerable synergies.
The discussion on the promotion of biofuels is ambiguous: on the one hand benefits like reduction of greenhouse gas emissions and increase of energy supply security are expected, on the other hand low effectiveness with respect to reducing greenhouse gas emissions and high costs are being criticized. The core objective of this paper is to investigate the market prospects of biofuels for transport in the EU in a dynamic framework till 2030. The major results of this analysis are: (i) Under current policy conditions – mainly exemption of excise taxes – the economic prospects of 1st generation biofuels in Europe are rather promising; the major problems of 1st generation biofuels are lack of available land for feedstocks and the modest ecological performance; (ii) Large expectations are currently put into advanced 2nd generation biofuels production from lignocellulosic materials. With respect to the future costs development of 2nd generation biofuels, currently it can only be stated that in a favourable case by 2030 they will be close to the costs of 1st generation biofuels. However, because of the increasing prices for fossil gasoline and diesel in all international scenarios – given remaining tax exemptions – biofuels will become competitive already in the next few years.
This paper provides first a review of the production costs of hydrogen from conventional, nuclear and renewable sources, reported in the literature during the last eight years. In order to analyze the costs on a unified basis, they are updated to a common year (2009), taking into account the yearly inflation rates. The study also considers whether the hydrogen has been produced in centralized or distributed facilities. From these data, the expected future costs for conventional production of hydrogen are calculated considering several scenarios on carbon emission taxations. Based on these estimations, together with the predicted future costs (2019–2020 and 2030) for hydrogen from alternative sources, several hydrogen cost-parity analyses are exposed for renewable and nuclear energies. From the comparison between these alternative technologies for hydrogen production and the conventional ones (steam methane reforming and coal gasification), several predictions on the time-periods to reach cost parities are elaborated.
The importance of energy on greenhouse gases (GHG) emissions is reflected by the fact that 65% of said emissions in the World are currently due to the use and production of energy. However, most empirical emission models are found within the Environmental Kuznetz Curve (EKC) framework, which focuses on the relationship between emissions and economic development. Ang's (2007, 2008) papers are some of the exceptions that simultaneously study the relationship between emissions, growth and energy. With respect to Ang's research, we contribute on two important aspects. First, while Ang uses a particular country as the study and use time series techniques, we take advantage of a panel data set of 24 European countries between 1990 and 2006 and use a Dynamic Panel Data (DPD) framework. Second, the impact of energy consumption on emissions would depend on the primary energy mix and on the final use of this energy, and we consider both factors in the model.
Renewable generating technologies offer an effective means for climate change mitigation. Policy makers, however, are wary because of the widespread perception that these technologies cost more than conventional alternatives so that increasing their deployment will raise overall electricity generating costs.
Energy planning represents an investment-decision problem. Investors commonly evaluate such problems using portfolio theory to manage risk and maximize portfolio performance under a variety of unpredictable economic outcomes. Energy planners need to similarly abandon their reliance on traditional, “least-cost” stand-alone kWh generating cost measures and instead evaluate conventional and renewable energy sources on the basis of their portfolio cost – their cost contribution relative to their risk contribution to a mix of generating assets.
Energy security generally focuses on the threat of abrupt supply disruptions. This paper suggests a more profound aspect: mitigating fossil price volatility. An extensive body of research indicates that fossil volatility significantly disrupts the economies of consuming nations, potentially exacting hundreds of billions of dollars from the US and EU economies alone. Energy security is reduced when countries hold inefficient portfolios that are needlessly exposed to fossil price risks.
This paper describes essential portfolio-theory ideas and uses three case studies to illustrate how electricity-generating mixes can benefit from additional shares of wind, geothermal and other renewables. Compared to existing, fossil-dominated mixes, efficient portfolios reduce generating cost while including greater renewables shares in the mix thereby enhancing energy security. Though counter-intuitive, the idea that adding more costly renewables can actually reduce portfolio-generating cost is consistent with basic finance theory. An important implication is that in dynamic and uncertain environments, the relative value of generating technologies must be determined not by evaluating alternative resources, but by evaluating alternative resource portfolios.
This paper offers a brief journey through twelve major cities with various policies in place to curb private vehicle use and assesses their success in term of energy consumption and greenhouse gas emission.Every region reviewed including Singapore is experiencing increase in energy use, greenhouse gas emissions and/or private vehicle ownership. In Europe, several regions improved transit quality and increased its ridership attracting non-motorized modes users instead of private vehicle users effectively increasing the total energy consumption.The author argues that policies aimed at reducing private vehicles use are failing because they do not incorporate the reality of human propensities for accessibility and comfort and they unsuccessfully try to attract customers toward services of lesser perceived quality. The demand for both accessibility and comfort will likely continue to grow with rising standards of living and will be met regardless of the environmental impact. Instead of attempting to constrain private vehicle use, the author suggests raising the competitiveness of alternate modes by investing in more attractive environments for non-motorized modes and designing transit systems actually capable of competing with private vehicles in term of perceived service quality while offering improved environmental performances.
The Canary Islands offer an example of an isolated electric grid of relative important size within the EU. Due to its peculiarities, the role of renewable energies and their complementarity with fossil fuels offers a solid path to achieving the main energy policy goals of the Islands. The purpose of this paper is to assess the current situation and the energy objectives proposed in the Energy Plan of the Canaries (PECAN, 2006) for the electricity industry, taking into account the average cost and the risk associated with the different alternatives for generating electricity by means of the Mean–Variance Portfolio Theory. Our analysis highlights the inefficiency of the current electricity generating mix in terms of cost, risk and lack of diversification. Shifting toward an efficient system would involve optimizing the use of endogenous energy sources and introducing natural gas to generate electricity. This scenario would mean reducing both cost and risk by almost 30% each, as well as atmospheric CO2 emissions. Our results agree with the PECAN philosophy.
This paper identifies five common risk factors in the returns on stocks and bonds. There are three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity. There are two bond-market factors, related to maturity and default risks. Stock returns have shared variation due to the stock-market factors, and they are linked to bond returns through shared variation in the bond-market factors. Except for low-grade corporates, the bond-market factors capture the common variation in bond returns. Most important, the five factors seem to explain average returns on stocks and bonds.
In its fight against climate change the EU is committed to reducing its overall greenhouse gas emissions to at least 20% below 1990 levels by 2020. To meet this commitment, the EU builds on segmented market regulation with an EU-wide cap-and-trade system for emissions from energy-intensive installations (ETS sectors) and additional measures by each EU Member State covering emission sources outside the cap-and-trade system (the non-ETS sector). Furthermore, the EU has launched additional policy measures such as renewable energy subsidies in order to promote compliance with the climate policy target. Basic economic reasoning suggests that emission market segmentation and overlapping regulation can create substantial excess costs if we focus only on the climate policy target. In this paper, we evaluate the economic impacts of EU climate policy based on numerical simulations with a computable general equilibrium model of international trade and energy use. Our results highlight the importance of initial market distortions and imperfections as well as alternative baseline projections for the appropriate assessment of EU compliance cost.
Electricity policymakers, industry participants, analysts, and even consumers have become acutely aware of the ever-present risks that face the delivery of electricity. Recent instability in the electricity industry illustrates the need for thoughtful resource planning to balance the cost, reliability, and risk of electricity supply. This article evaluates the relative risk profiles of renewable and natural gas generating plants. It does so by analyzing how six different risks are allocated and, if possible, mitigated in long-term power purchase contracts, taking as a contract sample 27 agreements signed by the California Department of Water Resources in 2001. This assessment illustrates some of the significant differences between the risk profiles of natural gas-fired and renewable generation. Renewable energy contracts are shown to provide the most value relative to natural gas-fired contracts by mitigating fuel price and environmental compliance risks. Gas-fired electricity contracts typically provide better protection against short-term demand risk. When it comes to fuel supply, performance, and regulatory risks, the relative value of renewable and gas-fired contracts is ambiguous. We conclude that a better understanding of risks and risk allocation practices will help utilities, regulators, and others make more objective decisions in the future when selecting between renewable and gas-fired electricity supply.
This paper deals with the long-term prospects of alternative fuels in global personal transport. It aims at assessing key drivers and key bottlenecks for their deployment, focusing particularly on the role of biofuels and hydrogen in meeting climate policy objectives. The analysis is pursued using the Global Multi-regional MARKAL model (GMM), a perfect foresight “bottom-up” model of the global energy system with a detailed representation of alternative fuel chains, linked to the Model for the Assessment of Greenhouse Gas Induced Climate Change (MAGICC). The analysis shows that biofuels are limited by the regional availability of low-cost biomass, but can be important for meeting mild climate policy targets. If policy-makers intend to pursue more stringent climate policy, then hydrogen becomes a competitive option. However, the analysis finds that the use of hydrogen in personal transport is restricted to very stringent climate policy, as only such policy provides enough incentive to build up the required delivery infrastructure. An analysis of costs additionally shows that “keeping the hydrogen option open” does not take considerable investments compared to the investment needs in the power sector within the next decades, but allows the use of hydrogen for the pursuit of stringent climate policy in the second half of the century.
This paper reexamines and extends the work of Ben Horim and Levy [1], which argued that risk decomposition should be based on standard deviation rather than on variance. Their analysis showed that decomposition of variance is wrong when 0 and that, in general, this procedure produces incorrect estimates of undiversifiable risk. This paper shows that these conclusions also apply to the no-risk-free asset extended CAPM if risk is adjusted for the unavoidable risk associated with the global minimum variance portfolio.
Mitigating climate change could be better achieved by regulating land use change than emissions reductions alone.
In thime series data, energy use does not change much with energy price changes.
However, energy use is responsive to international differences in energy prices in cross-section data across countries. In this paper we consider a model of energy use in which production takes place at individual plants and capital can be used either to directly produce output or to reduce toe energy required to run the plant. We assume that reallocating capital from one use to another is costly. This turns out to be crucial for the quantitative properties of the model to be in conformity with the low short-run and high long-run elasticities of energy use seen in data. Furthermore, our model displays variations in capacity utilization that are in line with those observed during the period of major oil price increases.
We propose a procedure for representing a time series as the sum of a smoothly varying trend component and a cyclical component. We document the nature of the co-movements of the cyclical components of a variety of macroeconomic time series. We find that these co-movements are very different than the corresponding co-movements of the slowly varying trend components.
Large fluctuations in energy prices have been a distinguishing characteristic of the U.S. economy since the 1970s. Turmoil in the Middle East, rising energy prices in the U.S. and evidence of global warming recently have reignited interest in the link between energy prices and economic performance. This paper addresses a number of the key issues in this debate: What are energy price shocks and where do they come from? How responsive is energy demand to changes in energy prices? How do consumers’ expenditure patterns evolve in response to energy price shocks? How do energy price shocks affect real output, inflation, stock markets and the balance-of-payments? Why do energy price increases seem to cause recessions, but energy price decreases do not seem to cause expansions? Why has there been a surge in gasoline prices in recent years? Why has this new energy price shock not caused a recession so far? Have the effects of energy price shocks waned since the 1980s and, if so, why? As the paper demonstrates, it is critical to account for the endogeneity of energy prices and to differentiate between the effects of demand and supply shocks in energy markets, when answering these questions.
Two easily measured variables, size and book-to-market equity, combine to capture the cross-sectional variation in average stock returns associated with market "beta", size, leverage, book-to-market equity, and earnings-price ratios. Moreover, when the tests allow for variation in "beta" that is unrelated to size, t he relation between market "beta" and average return is flat, even when "beta" is the only explanatory variable. Copyright 1992 by American Finance Association.
Applying portfolio theory to UE electricity planning and policy-making Paris: IEA/EET Available from: http://www.awerbuch. com/shimonpages/shimondocs/iea-portfolio.pdf Fuel mix diversification incentives in liberalized electricity markets: a MeaneVariance Portfolio theory approach
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Driving without petroleum? a comparative guide to biofuels, gas-to-liquids and coal-to-liquids as fuels for transportation
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