The International Energy Experience

The following sections are included:

• FOREWORD

• CONTENTS

The following sections are included:

• Theme 1. World Energy Markets

• Theme 2. National Studies of Energy Structure and Reform

• Theme 3. Electricity and Gas: Markets and Regulation

• Theme 4. Oil Markets and Regulation

• Theme 5. Renewable Energy

• Theme 6. Environment and Energy Efficiency

The following sections are included:

• Introduction

• World energy markets 1986-96
  • Introduction
  • Total energy consumption
    • World outside the FSU
    • FSU energy
    • Regional energy trends
    • Fuel shares
  • Energy consumption by fuel
  • Energy supply
    • Oil
    • Gas
    • Coal
    • Nuclear and hydroelectricity
  • Supply or demand driven?
  • CO₂ emissions
  • Conclusions

• 1998: A hiatus in energy trends

• Long term prospects
  • Will future world GDP growth trends differ from those of the last decade?
  • Are there adequate energy resources to meet future needs?
  • Will energy supply/demand dynamics cause a future imbalance?
  • What exogenous forces could hit energy markets?
    • Environmental policies
    • Deregulation
    • Supply security
    • OPEC policies
  • FSU energy markets

• Conclusions

• References

In this chapter I want to take a rather broad look at the regulatory system for Britain's utilities. I begin from some issues of principle about the nature of competition and the nature of regulation and then discuss to what extent Britain has devised a regulatory regime which is an advance on other such regimes. En passant, I shall say a few words about British utility privatisation schemes because they were important determinants of the regulatory system. I shall conclude with some observations on the review of regulation which the government is conducting.

The following sections are included:

• Introduction: the industry before the liberalisation

• The process of liberalisation

• An assessment of the regulatory reform
  • The market structure
  • The liberalisation of supply
  • The remuneration for the competitive transition costs
  • The procedure for the regulatory reform

• Conclusions

• References

The following sections are included:

• The electricity supply industry in Poland

• Scope and objectives of the new Act

• Basic principles of organisation and functioning of the electricity supply industry
  • The principle of separation of generation, transmission, distribution and sale of electricity
  • The principle of operation of transmission and distribution enterprises as public utilities
  • The principle of limited third party access to the network
  • The principle of supplying electricity on the basis of a contract
  • The principle of securing rational and economical use of fuels and electricity in the processes of designing, producing, importing, constructing and using equipment, installations and networks

• Basic principles of influencing the electricity supply industry by the State
  • The principle of separation of ownership, political and regulatory functions
  • The principle of uniformity of energy policy
  • The principle of electricity industry regulation independence
  • The principle of regulation through concessions and tariffs
  • The principle of regulation for competition
  • The principle of ensuring observance of the Act by criminal-administrative means

• Secondary legislation

• The Regulator

• Privatisation in the electricity supply industry

• Conclusions

The following sections are included:

• Introduction

• Conceptual background
  • A conceptual model for a competitive electricity industry
  • The need for aggregation
  • Practical implementation

• The National Electricity Market
  • Market rules
  • Initial results of spot market trading in the NEM
  • Forward markets in financial instruments
  • Ancillary services and projections of system adequacy

• Network pricing
  • NEC provisions for inter-connectors between regions
  • NEC provisions for intra-regional transmission network pricing and access
  • NEC provisions for distribution network pricing and access

• Regulatory arrangements
  • Economic efficiency
  • Social equity
  • Environmental impact

• Conclusions

• References

The following sections are included:

• Introduction

• The balance of power between central government and the provinces
  • The increasing power of the provinces
  • The key to central government influence

• The weakness of the evolving regulatory framework

• The impact on regulation of the energy industry

• Issues to be addressed

• Conclusions

• References

The following sections are included:

• Introduction

• Why are wholesale electricity trading arrangements needed?

• Wholesale trading arrangements – principles, objectives and issues

• Characterisation of wholesale trading arrangements – three generic models
  • Mandatory pooling
  • Bilateral contracting and residual trading
  • Nodal pricing

• Competing wholesale trading options for Europe – which to choose?

The following sections are included:

• Introduction

• Regulation and pricing behaviour in the final goods market
  • Ofgas' policies
  • BG's pricing behaviour

• Network access regulation and British Gas's strategic behaviour
  • Network access regulation
  • British Gas's strategic reaction: vertical integration and capacity pre-commitment

• Conclusion

• References

The following sections are included:

• Introduction

• A theoretical framework
  • Literature review
  • Theoretical expectations
  • The UK electricity generation industry - modelling assumptions
  • Model
    • Environmental regulation
    • Economic regulation
    • Implications of the non-co-operative regulatory regime
    • Cupertino

• Conclusions

• References

A major intention for guidelines on deregulation of electricity markets is to provide electricity at more competitive (= lower) prices than under monopolies with franchised service areas. Despite little doubt that there will be short term decreases in electricity prices – at least for large customers – it is not clear how long these price reductions will last. This is due to the fact that nobody knows how the structure of the European power industry will develop in the long run. Since there is no final stage of an equilibrium market it is likely that mergers will take place and that small utilities will disappear. The major conclusion of this chapter is that without a new strong regulation – probably on an EC level – electricity prices in the long run may be at the same or an even higher level as under the past regimes of monopolies with franchised service areas.

The following sections are included:

• Purpose

• Model specification

• The data

• Estimation results

• Implications for oil supply

• References

The following sections are included:

• Introduction

• The economic rationale

• The UK experience

• Lessons from the US

• Summary

• References

• Appendix

The following sections are included:

• Profile of UK North Sea oil production

• Factors influencing changes in North Sea oil production

• The impact of fiscal reform

• The impact of cost-saving new technology

• Comparing the fiscal and technology effects

• Impact of new technology on established fields

The following sections are included:

• Introduction

• Economic rents at development and exploration stages

• Methodology and assumptions for analytical work
  • Data

• Results
  • Development stage
  • Exploration stage

• Returns to exploration with optimistic success rates

• Summary and conclusions

The following sections are included:

• Introduction

• Renewable energy in the UK - the promotional mechanism

• Successes of the NFFO

• The problems of the NFFO process

• Meeting a 10% by 2010 target

• UK energy policy uncertainties

• The EU influence

• The 2nd phase

• Future policy: lessons to be learned

• Conclusion — how well has the UK done?

• References

Many countries around the world liberalise their electricity markets by introducing power exchanges. At the same time the share of renewable energy supplies is steadily increasing.

Renewable energy supplies, such as are derived from sunlight or wind, have more fluctuating production patterns than those derived from more conventional power generation.

Power exchange is one way to balance out the fluctuations in energy production. Generators of fluctuating power can incorporate their production offers on the daily spot market on the power exchange at the same prices as other generators. The only extra expenses for fluctuating power arises if the generators are unable to fulfil the commitments made on the spot market when the actual deliveries take place. This expense comes about from the regulation expense the system operator encounters by maintaining the total balance between supply and demand on the spot market.

The goal of this chapter is to examine this type of expense and how the use of a power exchange tends to balance out the effect of fluctuations in wind power production. To illustrate this, the Nordic power market is used as the main example.

The chapter briefly describes the different markets of Nord Pool, the Nordic power exchange, and their potential use for enabling wind power to be utilised fully. By use of research results on the prices on Nord Pool and a Danish case study, different scenarios are set up for the wind power producer's use of the power exchange. It is found that not only does the accuracy of the prediction influence the use of the power exchange, but the structure of the power exchange itself may also play an important role.

Liberalisation of the electricity market in 1998 offers an opportunity for a major diffusion of renewable technology. With inelastic supply, demand may be vital for determining the future development of renewable electricity market. This chapter examines previous experiences of the demand for renewable electricity, mainly in the U.S. and in the Netherlands, to draw lessons for the British market and recommendations for the electricity regulator, if it seeks to promote these alternative technologies. This chapter finds that, although small, a niche demand is likely to actually (as well as hypothetically) exist for 'green' electricity in the United Kingdom at the usual premium prices charged. Raising awareness and generating confidence amongst customers, as well as keeping price differentials low, are likely to be vital to increasing demand for renewable electricity.

The following sections are included:

• Introduction

• The SAFIRE approach

• The scenarios investigated

• Results
  • Technical potential
  • Energy demand
  • Market potential
  • Market penetration
  • Cost-benefit assessment
    • Employment
    • Emissions

• Summary and conclusions

• References

The following sections are included:

• Introduction

• The energy sector
  • Coal
  • Oil
  • Other energy sources

• Environmental impacts

• The simulations
  • The model
  • The scenarios
  • Discussion

• Conclusions

• References

The following sections are included:

• Introduction

• The planning framework

• Appraisal methods for transport
  • Highways
  • Major public transport infrastructure
  • Bus operations
  • Walking and cycling
  • Railways
  • Comparing the methods

• A way forward?
  • Valuation of environmental impacts
  • Resource consumption
  • Multi-criteria approaches

• Conclusions

• References

The following sections are included:

• Introduction

• Expectations from a liberalised ESI

• Plant capacity and fuel use after liberalisation

• Air pollution emissions after liberalisation

• Revisions in official energy/emissions scenarios
  • Fuel shares and CO₂ emissions scenarios
  • SO₂ emissions scenarios

• Conclusion

• References

The pressures to demonstrate a robust and rigorous basis for the environmental appraisal of energy options are now stronger than ever. The stakes are as high where investment decisions are dominated by Government policy or regulation as where they are influenced more through the structures of commercial markets and consumer demand. However, the available analytical tools for environmental appraisal are suffering something of a 'crisis of confidence'. After a period of ascendancy in the 1980's, comparative risk assessment has been cumulatively undermined by criticism of its neglect of the scope and complexity of environmental performance. There is currently an energetic bid to establish environmental cost-benefit analysis as a replacement approach to analysis for regulation and public policy intervention. However, though the issues may be concealed by a new vocabulary, essentially the same questions may be raised.

Based on insights gleaned in the field of risk analysis, this paper examines some of the difficulties encountered in attempts to characterise the broad environmental effects of energy options as monetary 'externalities'. A series of important general factors in environmental appraisal are identified: such as the divergent forms and distribution patterns of the effects of different options; the varying degrees of autonomy on the part of those affected by different types of impact; the treatment of uncertainty and variability and the framing and presentation of analysis. These factors are then discussed in relation to a number of highly influential recent environmental valuation studies. It is shown that, if anything, neoclassical environmental economics in practice actually adds to the deficiencies displayed by comparative risk analysis.

The results obtained by more than thirty major environmental valuation studies in the electricity sector are then reviewed. Attention is focused on the variability in the literature and on the resulting ambiguity in the possible rank-orderings of different options. The results obtained by different studies are found to vary by factors ranging up to several orders of magnitude. The literature as a whole might be taken to accommodate several radically different environmental rank orderings of generating technologies. In addition, it is argued that the values derived for energy externalities may reflect the constraints imposed by existing market prices as much as they do the relative magnitudes of different environmental effects.

The paper concludes by pointing to alternative practical approaches to the social appraisal of environmental impacts. Looking at recent experience in the USA, Germany and Switzerland, it is argued that other techniques are available which offer greater transparency and rigour and which, through structured public participation, avoid futile and politically polarising attempts to impose an 'analytical fix' on the essentially political business of comparative environmental appraisal of energy options.

Nuclear liabilities are the costs of dealing all the unwanted products of the nuclear age - radioactive wastes, spent reactor fuel and redundant nuclear structures. These have been accumulating in the UK over the past 50 years and now amount, on official estimates, to some £41.8 billion (undiscounted). There is a conventional wisdom that nuclear generation, alone among the energy sources, accounts for and makes financial arrangements to meet all its costs, including liabilities.

Our recent paper demonstrates that this 'wisdom' is false. Past arrangements for the payment of future nuclear liabilities have failed. This is primarily because nuclear generation was and is uneconomic, so that provisions invested internally in new nuclear reactors did not generate the required rate of return. A large funding gap has developed. Slight improvements in the funding arrangements were instituted by the 1996 privatisation in the form of the British Energy Segregated Fund - but the liabilities covered by this Fund are only a small proportion of the total ostensibly in the private sector. In addition, most of the liabilities left in the public sector are unfunded.

The consequence is to raise serious questions about the compatibility of nuclear liability arrangements with the commitment of successive UK Governments to the principle of sustainability in environmental policies. Sustainability - "development which does not compromise the ability of future generations to meet their own needs" - proves easy to define but difficult to implement.

The following sections are included:

• Introduction

• Market liberalisation and energy efficiency
  • Price effects
  • Re-regulation of natural monopoly
  • Regulatory driven energy efficiency programmes
  • Opportunities from supply liberalisation

• The fundamental barriers to energy efficiency

• Liberalisation and the barriers to energy efficiency
  • Centralisation
  • Commoditisation
  • Market structure
  • Consumer/producer dichotomy

• Implications for public policy
  • Regulatory measures
  • Other policies

• Conclusions

• References

The following sections are included:

• Introduction

• Themes from the chapters

• Designing electricity wholesale markets

• Taxes and subsidies

• Conclusions

• References

The following sections are included:

• CHAPTER KEYWORD INDEX