Sophia Ruester

Electricity Storage: How to facilitate its deployment and operation in the EU

Each semester the THINK project publishes two research reports based on topics proposed by the European Commission

EU Involvement in Electricity and Natural Gas Transmission Grid Tarification

Each semester the THINK project publishes two research reports based on topics proposed by the European Commission

Recent Developments in Transaction Cost Economics

This working paper provides a summary on transaction cost economics (TCE) and recent developments thereof. After an introductory discussion of TCE’s role within the field of New Institutional Economics, a critical analysis of the contribution of the existing body of empirical literature is conducted. In recent years, researchers have continued to develop and extend TCE. Williamson (1991b) introduces the shift parameter framework which investigates how the optimal choice of governance changes in response to dynamics in the institutional environment. Nickerson (1997) develops the positioning-economizing perspective arguing that decisions regarding market position, resource investments, and governance mode are interdependent and determined simultaneously. A number of authors came up with an increasing interest in relational institutional arrangements arguing that TCE may overstate the desirability of complex long-term contracts and vertical integration in exchange settings where a substantial hold-up potential is present.

Public Support for the Financing of RD&D Activities in New Clean Energy Technologies

Several market failures, as well as other technical, economic and regulatory barriers to the market penetration of clean energy technologies result in under-investment of private innovators in RD&D. Therefore, public support is needed in order to induce innovations. Policy tools creating market conditions that are attractive for the exploitation of clean technologies (market pull) must be combined with other tools directly supporting the development of these technologies through the provision of public funds (technology push). Thereby, financing policy instruments should be chosen so that their characteristics match with those of the specific innovation process being targeted at the same time that social welfare is maximized. We develop an analytical framework to define the form of public support and to provide recommendations on the optimal choice of both technology push and market pull instruments.

Power Market Design beyond 2020: Time to Revisit Key Elements?

We revisit key elements of European power market design with respect to both short term operation and longer-term investment and re-investment choices. For short term markets, the European policy debate focuses on the definition of common interfaces, like for example gate closure time. We argue that that this is insufficient if the market design is to accommodate for the different needs of renewable and conventional generation assets and different flexibility options. The market design needs to ensure resources are pooled over larger geographic areas, the full flexibility of different assets can be realized with complex bids and scarce network resources are efficiently used. For investment and re-investment choices we argue that different technology groups like wind and solar versus fossil fuel based generation may warrant different treatment – reflecting different level of publicly accessible information, requirements for grid infrastructure, types of strategic choices relevant for the sector and share of capital cost in overall generation costs. We discuss opportunities for such a differentiated treatment and implications for electricity consumers.

Recent Dynamics in the Global Liquefied Natural Gas Industry

This paper provides a summary on recent developments in the global liquefied natural gas (LNG) industry and discusses prospects for capacity development in the mid-term future. During the early years of the industry, most of the world’s LNG export infrastructure remained under state control and the industry was characterized by inflexible bilateral long-term supply agreements with take-or-pay and destination clauses. In today’s LNG market, new flexibility in trading patterns comes from changes in the structure of long-term contracts. In addition, short-term agreements and spot transactions gain in importance. The first export projects without having sold total volume based on long-term contracts are moving forward. LNG suppliers and buyers increasingly integrate vertically along the whole value chain. Some companies invest in an entire portfolio of LNG export, shipping, and import positions, enabling them to conduct flexible trades and to benefit from regional price differences. In contrast, some new entrants invested in non-integrated LNG import terminals operating them as tolling facilities or speculating for short-term deliveries. However, the non-integrated players still have to prove to be successful in an industry, which a long time has been a sellers’ market without major uncommitted export capacities, and in which also in the longer-term future, once, the economic crisis is overcome, importers are expected to continue to compete for global supplies.

Financing LNG Projects and the Role of Long-Term Sales-and-Purchase Agreements

The financing of infrastructures is a major topic in recent energy policy debates. Project finance, as a specialized form of debt finance, thereby has become a well-established financing tool. This paper contributes a qualitative and quantitative analysis of the determinants of the debt ratio in project finance, using data on 26 liquefied natural gas (LNG) export and import projects. We argue that lenders will make their decision on how much to lend dependent on the risk profile of the project. In this vein, a project’s off-take agreements serve as a security for financial contracts. We empirically show that the debt ratio of an LNG project decreases with increasing risks associated to future cash flows. Estimation results confirmthat leverage increases with higher shares of a project’s capacity sold under long-term sales-and-purchase agreements, with a lower capital outlay of the project, and with a lower risk index of the country where the project is located.

A new EU energy technology policy towards 2050 : which way to go?

Each semester the THINK project publishes two research reports based on topics proposed by the European Commission.

A strategic energy technology policy towards 2050: no-regret strategies for European technology push

As current policy frameworks are expiring in 2020, the EU is revisiting its energy technology policy for the post-2020 horizon. The main long-run objective for energy technology policy is to foster the achievement of ambitious EU goals for decarbonisation by 2050. Given this objective, we discuss how European energy technology policy towards 2050 can be effective despite i) uncertain carbon prices, ii) uncertain technological change and iii) uncertain or alternating policy paradigms shifting its focus from decarbonisation to competition or security of supplies. Public support to innovation in energy technologies is needed to correct for market failures and imperfections, as well as to fully exploit trade opportunities of such technologies on the world market. Benefits from EU intervention can be expected from the coordination of national policies. Effective European technology push should put strong emphasis on pushing consumption-oriented and enabling technologies, as these offer a no-regret strategy vis-a-vis any future context.

THINK Half-Way and Beyond

THINK is a Think Tank advising the European Commission on mid- and long-term energy policy. QM-32-12-022-EN-C (print) QM-32-12-022-EN-N (digital)