We assess the impact of regional differences related to energy transition on average costs and al... more We assess the impact of regional differences related to energy transition on average costs and allowed revenues for a panel of Dutch electricity distribution system operators (DSOs) subject to yardstick competition. Yardstick competition entails that the allowed revenues of DSOs are based on the average costs of the entire industry, which requires that these DSOs are comparable. This comparability requirement is challenged by the penetration of distributed generation and other distributed energy resources, which may cause regional differences among DSOs. Estimating an averagecost function for the entire population of Dutch DSOs for the period 2012-2020, we find that the installed capacity of solar PV, installed capacity of on-shore wind and number of public electric-vehicle charging points have a significant effect on unit costs of DSOs. If yardstick competition does not take these effects into account, the allowed revenues for some DSOs (having above-average shares of energy-transition variables) are too low, whereas allowed revenues for other DSOs (having below-average shares of energy-transition variables) are too high. We find that taking the impact into account can change the price caps of individual DSOs with a percentage up to around 20%.
Competition and regulation in network industries, Mar 1, 2013
Th e recently introduced market-based gas-balancing regime in the Netherlands is meant to improve... more Th e recently introduced market-based gas-balancing regime in the Netherlands is meant to improve the effi ciency of gas balancing in order to enhance the development of the Dutch wholesale market for gas. Th is paper shows that the effi ciency of the new balancing regime could be improved further by making the market simpler with less restrictive rules. By removing the reserve market, the incentive component as well as the obligation on all players to off er assistance gas, the balancing regime would still enable the TSO to realise network stability but with less allocative ineffi ciencies.
Firms buy renewable energy at premiums and report environmental concerns as motivation to do so. ... more Firms buy renewable energy at premiums and report environmental concerns as motivation to do so. The bulk of the literature on environmental corporate social responsibility (CSR) suggests that this type of behavior even results in higher profit. From a microeconomic perspective, however, higher profit from environmental CSR activities is generally not expected. This paper investigates the relationship between firms' renewable energy use and profit by analyzing panel data for 920 firms over 2014-2018. We find no relationship between renewable energy use and profit. Hence, a win-win in the form of higher profit and a better environment does not seem to exist. In addition, it appears that firms do not have a positive willingness to pay for renewable energy as contribution to the environment.
CERRE 2019 | Future markets for renewable gases & hydrogen: what would be the optimal regulatory ... more CERRE 2019 | Future markets for renewable gases & hydrogen: what would be the optimal regulatory provisions? 11/86 2. Technologies for the production of renewable gases and hydrogen 2.1.
This publication is part of the CERRE project 'Electrification of heating and transport in Europe... more This publication is part of the CERRE project 'Electrification of heating and transport in Europe and consequences for gas', Centre on Regulation in Europe (CERRE), Brussels, Belgium.
The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas c... more The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas competition on a European scale with closely related natural gas prices in the various markets. More recently, the European Union aims to become a resilient energy union which may call for additional policy measures. In this paper we discuss the need for such additional measures on top of the existing measures to liberalize and integrate markets. We test the hypothesis that the European natural gas market is resilient to adequately deal with external shocks by analyzing the five most dramatic supply disturbances in the European natural gas markets over the past decade. We find that the natural gas markets were able to trigger responses by market parties which prevented forced supply of gas to consumers in almost all cases. In one case, infrastructure bottlenecks prevented market players to adequately respond to a shock. Hence, we conclude that the best policy to create a resilient energy union is to further integrate European markets and to further remove barriers for market participants.
The transition from high-to low-carbon energy sources differentially impacts financial assets. Lo... more The transition from high-to low-carbon energy sources differentially impacts financial assets. Low-carbon assets may benefit from lower costs of capital through a reduction in perceived risk as well as increased investor preference for such assets relative to high-carbon assets. This paper investigates whether firms' greenhouse gas (GHG) emissions intensity affects their cost of equity. Using an international sample of 1,920 publicly listed firms over the years 2002-2016, we find that industry-adjusted GHG emissions intensity positively and significantly impacts the cost of equity. For every unit increase in GHG emissions intensity, we find that the cost of equity increases by 15 basis points. This suggests that firm-level emissions-reduction efforts enhance firm value through a reduction in the cost of capital.
Fossil fuel divestment campaigns urge investors to sell their stakes in companies that supply coa... more Fossil fuel divestment campaigns urge investors to sell their stakes in companies that supply coal, oil, and gas. However, avoiding investments in such companies can be expected to impose a financial cost on the investor because of reduced opportunities for portfolio diversification. We compare the risk-adjusted return performance of investment portfolios with and without fossil fuel companies over the period 1927-2015. Contrary to theoretical expectations, we find that fossil-free investing does not seem to impair financial performance. These findings can be explained by the fact that fossil fuel company portfolios do not generate above-market performance and provide relatively limited diversification benefits. Significant performance impacts of a divestment strategy, however, are observed over short time frames and when applying divestment to less diversified investment portfolios.
Energy networks, such as the networks for the transportation of electricity and gas, are natural ... more Energy networks, such as the networks for the transportation of electricity and gas, are natural monopolies, which implies that competition among these networks is not possible. In order to protect network users against monopoly prices and to give the network operators the incentive to operate efficiently, many countries have implemented tariff regulation. After discussing the economic consequences of natural monopolies and the need for regulation, this chapter briefly compares the various types of tariff regulation, discussing the incentive power, the ability to make a profit, and the reward on the costs of capital. The chapter concludes by discussing how tariff regulation may enable network operators to finance the necessary investments to connect new renewable energy production facilities.
Within the EU the share of renewable energy will increase strongly in the near future which may h... more Within the EU the share of renewable energy will increase strongly in the near future which may have significant effects on how the electricity market functions as well as the costs for electricity users. The EU's Renewable Energy Directive (2009/28/EC) sets a binding target of 20 percent final energy consumption from renewable sources by 2020. To achieve this, EU countries have committed to reach their own national renewable targets ranging from 10 percent in Malta to 49 percent in Sweden. Under such an increase, the electricity market might need to be redesigned to avoid adverse economic or societal effects of the surge in renewable energy. The increase in supply from renewable energy sources (RES) strongly affects electricity markets. The distance between production and consumption may create bottlenecks in the grid. National policies to stimulate RES result in higher costs for energy users and have consequences for energy users in other countries. The intermittency of RES ma...
This publication is part of the CERRE project 'Electrification of heating and transport in Europe... more This publication is part of the CERRE project 'Electrification of heating and transport in Europe and consequences for gas', Centre on Regulation in Europe (CERRE), Brussels, Belgium.
Competition and Regulation in Network Industries, 2013
Th e recently introduced market-based gas-balancing regime in the Netherlands is meant to improve... more Th e recently introduced market-based gas-balancing regime in the Netherlands is meant to improve the effi ciency of gas balancing in order to enhance the development of the Dutch wholesale market for gas. Th is paper shows that the effi ciency of the new balancing regime could be improved further by making the market simpler with less restrictive rules. By removing the reserve market, the incentive component as well as the obligation on all players to off er assistance gas, the balancing regime would still enable the TSO to realise network stability but with less allocative ineffi ciencies.
Economics of Energy & Environmental Policy, 2019
The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas c... more The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas competition on a European scale with closely related natural gas prices in the various markets. More recently, the European Union aims to become a resilient energy union which may call for additional policy measures. In this paper we discuss the need for such additional measures on top of the existing measures to liberalize and integrate markets. We test the hypothesis that the European natural gas market is resilient to adequately deal with external shocks by analyzing the five most dramatic supply disturbances in the European natural gas markets over the past decade. We find that the natural gas markets were able to trigger responses by market parties which prevented forced supply of gas to consumers in almost all cases. In one case, infrastructure bottlenecks prevented market players to adequately respond to a shock. Hence, we conclude that the best policy to create a resilient energy union is to further integrate European markets and to further remove barriers for market participants.
To address the problem of information asymmetry in renewable electricity markets, European govern... more To address the problem of information asymmetry in renewable electricity markets, European governments have introduced certification schemes. While certification appears to be an increasingly important trade mechanism for renewable electricity, it is unclear to what extent certificate markets are functioning properly. In addition, countries have chosen very different designs for their certification schemes. Some countries, for instance, have appointed a private company as certifier where others have opted for a public certifier. In order to assess the performance of certificate markets, we construct four market performance indicators and analyse their development over 2001-2016: churn rate, price volatility, certification rate and expiration rate. We also investigate the relationship between two design features of certification schemes (public/private nature of certifier and presence of an international standard) and market performance. We find that increasing shares of renewable electricity have been certified, although certificate markets still suffer from poor liquidity and high volatility in prices. Our results also show that private certifiers are associated with lower market volumes while adopting an international standard has a positive effect on certified volumes.
Power-to-gas plants are not profitable under current market conditions. • There are currently not... more Power-to-gas plants are not profitable under current market conditions. • There are currently not enough hours with sufficiently low electricity prices. • To become profitable, power-to-gas plants need higher revenues and lower costs. • An optimistic future scenario shows that power-to-gas plants can become profitable.
We assess the impact of regional differences related to energy transition on average costs and al... more We assess the impact of regional differences related to energy transition on average costs and allowed revenues for a panel of Dutch electricity distribution system operators (DSOs) subject to yardstick competition. Yardstick competition entails that the allowed revenues of DSOs are based on the average costs of the entire industry, which requires that these DSOs are comparable. This comparability requirement is challenged by the penetration of distributed generation and other distributed energy resources, which may cause regional differences among DSOs. Estimating an averagecost function for the entire population of Dutch DSOs for the period 2012-2020, we find that the installed capacity of solar PV, installed capacity of on-shore wind and number of public electric-vehicle charging points have a significant effect on unit costs of DSOs. If yardstick competition does not take these effects into account, the allowed revenues for some DSOs (having above-average shares of energy-transition variables) are too low, whereas allowed revenues for other DSOs (having below-average shares of energy-transition variables) are too high. We find that taking the impact into account can change the price caps of individual DSOs with a percentage up to around 20%.
Competition and regulation in network industries, Mar 1, 2013
Th e recently introduced market-based gas-balancing regime in the Netherlands is meant to improve... more Th e recently introduced market-based gas-balancing regime in the Netherlands is meant to improve the effi ciency of gas balancing in order to enhance the development of the Dutch wholesale market for gas. Th is paper shows that the effi ciency of the new balancing regime could be improved further by making the market simpler with less restrictive rules. By removing the reserve market, the incentive component as well as the obligation on all players to off er assistance gas, the balancing regime would still enable the TSO to realise network stability but with less allocative ineffi ciencies.
Firms buy renewable energy at premiums and report environmental concerns as motivation to do so. ... more Firms buy renewable energy at premiums and report environmental concerns as motivation to do so. The bulk of the literature on environmental corporate social responsibility (CSR) suggests that this type of behavior even results in higher profit. From a microeconomic perspective, however, higher profit from environmental CSR activities is generally not expected. This paper investigates the relationship between firms' renewable energy use and profit by analyzing panel data for 920 firms over 2014-2018. We find no relationship between renewable energy use and profit. Hence, a win-win in the form of higher profit and a better environment does not seem to exist. In addition, it appears that firms do not have a positive willingness to pay for renewable energy as contribution to the environment.
CERRE 2019 | Future markets for renewable gases & hydrogen: what would be the optimal regulatory ... more CERRE 2019 | Future markets for renewable gases & hydrogen: what would be the optimal regulatory provisions? 11/86 2. Technologies for the production of renewable gases and hydrogen 2.1.
This publication is part of the CERRE project 'Electrification of heating and transport in Europe... more This publication is part of the CERRE project 'Electrification of heating and transport in Europe and consequences for gas', Centre on Regulation in Europe (CERRE), Brussels, Belgium.
The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas c... more The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas competition on a European scale with closely related natural gas prices in the various markets. More recently, the European Union aims to become a resilient energy union which may call for additional policy measures. In this paper we discuss the need for such additional measures on top of the existing measures to liberalize and integrate markets. We test the hypothesis that the European natural gas market is resilient to adequately deal with external shocks by analyzing the five most dramatic supply disturbances in the European natural gas markets over the past decade. We find that the natural gas markets were able to trigger responses by market parties which prevented forced supply of gas to consumers in almost all cases. In one case, infrastructure bottlenecks prevented market players to adequately respond to a shock. Hence, we conclude that the best policy to create a resilient energy union is to further integrate European markets and to further remove barriers for market participants.
The transition from high-to low-carbon energy sources differentially impacts financial assets. Lo... more The transition from high-to low-carbon energy sources differentially impacts financial assets. Low-carbon assets may benefit from lower costs of capital through a reduction in perceived risk as well as increased investor preference for such assets relative to high-carbon assets. This paper investigates whether firms' greenhouse gas (GHG) emissions intensity affects their cost of equity. Using an international sample of 1,920 publicly listed firms over the years 2002-2016, we find that industry-adjusted GHG emissions intensity positively and significantly impacts the cost of equity. For every unit increase in GHG emissions intensity, we find that the cost of equity increases by 15 basis points. This suggests that firm-level emissions-reduction efforts enhance firm value through a reduction in the cost of capital.
Fossil fuel divestment campaigns urge investors to sell their stakes in companies that supply coa... more Fossil fuel divestment campaigns urge investors to sell their stakes in companies that supply coal, oil, and gas. However, avoiding investments in such companies can be expected to impose a financial cost on the investor because of reduced opportunities for portfolio diversification. We compare the risk-adjusted return performance of investment portfolios with and without fossil fuel companies over the period 1927-2015. Contrary to theoretical expectations, we find that fossil-free investing does not seem to impair financial performance. These findings can be explained by the fact that fossil fuel company portfolios do not generate above-market performance and provide relatively limited diversification benefits. Significant performance impacts of a divestment strategy, however, are observed over short time frames and when applying divestment to less diversified investment portfolios.
Energy networks, such as the networks for the transportation of electricity and gas, are natural ... more Energy networks, such as the networks for the transportation of electricity and gas, are natural monopolies, which implies that competition among these networks is not possible. In order to protect network users against monopoly prices and to give the network operators the incentive to operate efficiently, many countries have implemented tariff regulation. After discussing the economic consequences of natural monopolies and the need for regulation, this chapter briefly compares the various types of tariff regulation, discussing the incentive power, the ability to make a profit, and the reward on the costs of capital. The chapter concludes by discussing how tariff regulation may enable network operators to finance the necessary investments to connect new renewable energy production facilities.
Within the EU the share of renewable energy will increase strongly in the near future which may h... more Within the EU the share of renewable energy will increase strongly in the near future which may have significant effects on how the electricity market functions as well as the costs for electricity users. The EU's Renewable Energy Directive (2009/28/EC) sets a binding target of 20 percent final energy consumption from renewable sources by 2020. To achieve this, EU countries have committed to reach their own national renewable targets ranging from 10 percent in Malta to 49 percent in Sweden. Under such an increase, the electricity market might need to be redesigned to avoid adverse economic or societal effects of the surge in renewable energy. The increase in supply from renewable energy sources (RES) strongly affects electricity markets. The distance between production and consumption may create bottlenecks in the grid. National policies to stimulate RES result in higher costs for energy users and have consequences for energy users in other countries. The intermittency of RES ma...
This publication is part of the CERRE project 'Electrification of heating and transport in Europe... more This publication is part of the CERRE project 'Electrification of heating and transport in Europe and consequences for gas', Centre on Regulation in Europe (CERRE), Brussels, Belgium.
Competition and Regulation in Network Industries, 2013
Th e recently introduced market-based gas-balancing regime in the Netherlands is meant to improve... more Th e recently introduced market-based gas-balancing regime in the Netherlands is meant to improve the effi ciency of gas balancing in order to enhance the development of the Dutch wholesale market for gas. Th is paper shows that the effi ciency of the new balancing regime could be improved further by making the market simpler with less restrictive rules. By removing the reserve market, the incentive component as well as the obligation on all players to off er assistance gas, the balancing regime would still enable the TSO to realise network stability but with less allocative ineffi ciencies.
Economics of Energy & Environmental Policy, 2019
The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas c... more The liberalization and integration of natural gas markets in Europe have resulted in gas-to-gas competition on a European scale with closely related natural gas prices in the various markets. More recently, the European Union aims to become a resilient energy union which may call for additional policy measures. In this paper we discuss the need for such additional measures on top of the existing measures to liberalize and integrate markets. We test the hypothesis that the European natural gas market is resilient to adequately deal with external shocks by analyzing the five most dramatic supply disturbances in the European natural gas markets over the past decade. We find that the natural gas markets were able to trigger responses by market parties which prevented forced supply of gas to consumers in almost all cases. In one case, infrastructure bottlenecks prevented market players to adequately respond to a shock. Hence, we conclude that the best policy to create a resilient energy union is to further integrate European markets and to further remove barriers for market participants.
To address the problem of information asymmetry in renewable electricity markets, European govern... more To address the problem of information asymmetry in renewable electricity markets, European governments have introduced certification schemes. While certification appears to be an increasingly important trade mechanism for renewable electricity, it is unclear to what extent certificate markets are functioning properly. In addition, countries have chosen very different designs for their certification schemes. Some countries, for instance, have appointed a private company as certifier where others have opted for a public certifier. In order to assess the performance of certificate markets, we construct four market performance indicators and analyse their development over 2001-2016: churn rate, price volatility, certification rate and expiration rate. We also investigate the relationship between two design features of certification schemes (public/private nature of certifier and presence of an international standard) and market performance. We find that increasing shares of renewable electricity have been certified, although certificate markets still suffer from poor liquidity and high volatility in prices. Our results also show that private certifiers are associated with lower market volumes while adopting an international standard has a positive effect on certified volumes.
Power-to-gas plants are not profitable under current market conditions. • There are currently not... more Power-to-gas plants are not profitable under current market conditions. • There are currently not enough hours with sufficiently low electricity prices. • To become profitable, power-to-gas plants need higher revenues and lower costs. • An optimistic future scenario shows that power-to-gas plants can become profitable.
Uploads
Papers by Machiel Mulder