European Electricity Sector Research Articles

Replacing location-based electricity consumption with market-based residual mixes in background data to avoid possible double counting: a quantitative analysis of effects and challenges

PurposeMost life cycle inventory (LCI) datasets include location-based electricity mixes. Using these LCI datasets in combination with market-based electricity accounting in life cycle assessments (LCAs) leads to double counting of electricity from specific sources, such as renewable energy. The goal of this paper is to analyze market-based accounting by replacing location-based electricity consumption with market-based residual mixes in all processes of the ecoinvent database. The python script for this replacement procedure is openly available.Materials and methodsWe use the Brightway 2 software package to replace European location-based electricity consumption in all 21,238 processes of the ecoinvent database with residual electricity mixes on the corresponding voltage level. The ecoinvent database provides residual electricity mixes for all countries involved in European trade with market-based energy attribute certificates—Guarantees of Origin. We analyze the induced changes to the database both on an individual process level and on a database-wide level. The analysis focusses on the impact category climate change but is further extended to the impact categories terrestrial acidification, freshwater eutrophication, marine eutrophication, ozone depletion, and particulate matter formation.Results and discussionFor European processes, the implementation of the residual electricity mixes leads to average changes in the life cycle impact assessment (LCIA) results for climate change of 1%, 10%, 20%, and 50% for 2958, 733, 387, and 107 processes, respectively. Changes are especially pronounced for Norwegian and Icelandic processes due to the large differences among their location-based and residual electricity mixes. For the other analyzed impact categories, the changes in LCIA results are particularly high for freshwater eutrophication. With the push towards more primary data in LCA and GHG accounting, the impacts of using residual electricity mixes instead of location-based electricity mixes need further research on basis of quantified figures, which we present in this paper.ConclusionThis paper presents an approach towards enabling more consistent market-based accounting throughout LCAs and thereby contributes to the avoidance of double counting. Since only European residual mixes are considered, the database of this paper leads to distortion of LCA results. Further, research is needed to address double counting beyond the European electricity sector. This includes an expansion of this research to a global level and other industrial sectors. Furthermore, research is needed regarding industry-specific electricity sources in LCI datasets, which may also lead to double counting.

Quaternary Law in EU Electricity Regulation: Stretching Meroni too Far?

In the European electricity sector, the delegation of rule-making has literally reached the next level. Socalled ‘methodologies’, legally binding rules developed between private electricity companies and specialized regulatory agencies, constitute a vast and growing body of ‘quaternary law’. The methodologies and their unique features raise numerous interesting questions for scholars of EU law, but they remain severely underresearched. This is regrettable, since the methodologies illustrate another pressing issue related to the delegation of rule-making: the fuzzy legal boundaries to delegation. These follow from the European Court of Justice’s (ECJ’s) non-delegation, or Meroni doctrine, which however seems to be subject to a creeping maceration. As the methodologies show, the resulting legal uncertainty encourages ever-bolder models of delegation, raising grave constitutional concerns. At the same time, the methodologies illustrate a need for delegated rule-making in technical sectors, such as electricity. The argument of this article is that the ECJ should therefore revise the Meroni doctrine to restore legal certainty with respect to delegation, while also respecting the requirements of regulatory reality. This article discusses possible approaches and proposes a starting point for a ‘Meroni doctrine 2.0ʹ. Meroni doctrine, non-delegation doctrine, tertiary law, quaternary law, electricity market integration, ACER, Clean Energy Package, European network codes and guidelines, terms, conditions and methodologies

Sustainable Development of the European Electricity Sector: Investigating the Impact of Electricity Price, Market Liberalization and Energy Taxation on RES Deployment

Replacing conventional CO2 intensive generation with green electricity from RES constitutes an essential prerequisite of sustainable development. Renewables play a vital role in achieving the UN’s goals for clean low-cost energy production and the reverse of climate change process. Based on a comprehensive dataset including observations for 17 European countries between 2003 and 2020, the present research attempts to unveil the fundamental determinants of RES deployment. A panel FMOLS approach was utilized to provide a detailed analysis of the impact of electricity prices, energy taxes and competition level in both power generation and the retail electricity market on each country’s RES percentage participation in electricity production fuel mix. The final econometric outcomes verified the strong statistical significance of all examined variables for the vast majority of the countries, constituting them crucial aspects of national energy strategies. However, both the actual effects as well as the impact size were found to differ significantly across Europe, signifying the complexity of the EU’s task to develop a unified, autonomous and eco-friendly electricity market based on the principals of a fundamental energy strategy. Contributing to state authorities’ and EU’s colossal effort to deal with the crucial challenges of RES power generation, the paper proposes a series of targeted individual and groupwise policy implications.

Using Modeling All Alternatives to explore 55% decarbonization scenarios of the European electricity sector

Climate change mitigation is a global challenge that, however, needs to be resolved by national-level authorities, resembling a "tragedy of the commons". This paradox is reflected at the European scale, as climate commitments are made by the EU collectively, but implementation is the responsibility of individual Member States. Here, we investigate a suite of near-optimal effort-sharing scenarios where the European electricity sector is decarbonized between 55% and 75% relative to 1990, in line with 2030 ambitions. To this end, we use a brownfield electricity system optimization model in combination with the Modeling All Alternatives methodology. Results show that only very particular effort-sharing schemes are able to reach the theoretical minimum system cost. In most cases, an additional cost of at least 5% is incurred. Results reveal large inequalities in the efforts required to decarbonize national electricity sectors.

A low-carbon electricity sector in Europe risks sustaining regional inequalities in benefits and vulnerabilities

Improving equity is an emerging priority in climate and energy strategies, but little is known how these strategies would alter inequalities. Regional inequalities such as price, employment and land use are especially relevant in the electricity sector, which must decarbonize first to allow other sectors to decarbonize. Here, we show that a European low-carbon electricity sector in 2035 can reduce but also sustain associated regional inequalities. Using spatially-explicit modeling for 296 sub-national regions, we demonstrate that emission cuts consistent with net-zero greenhouse gas emissions in 2050 result in continent-wide benefits by 2035 regarding electricity sector investments, employment gains, and decreased greenhouse gas and particulate matter emissions. However, the benefits risk being concentrated in affluent regions of Northern Europe, while regions of Southern and Southeastern Europe risk high vulnerabilities due to high adverse impacts and sensitivities, and low adaptive capacities. Future analysis should investigate policy mechanisms for reducing and compensating inequalities.

New approach for assessing and optimising the environmental performance of multinational electricity sectors: A European case study

The aim of energy planning is to achieve a reliable supply of energy resources at competitive costs and with the least negative impacts on society and the environment. However, most of the existing studies tend to ignore environmental impacts, although the electricity sector contributes greatly to environmental degradation. Therefore, the aim of this study is threefold: i) to assess the environmental performance of the most common types of renewable and non-renewable power plants in Europe, ii) to estimate an environmental index for each one of the electricity sectors in the European countries, and iii) to evaluate and optimise the environmental behaviour of the European electricity sector as a whole; in all cases taking into account fifteen environmental midpoint indicators with a cradle-to-grave approach. A combined procedure including a multi-criteria decision making model and an optimisation approach under three different scenarios was used for such a purpose. According to the results, hydro as well onshore and offshore wind resulted to be the best alternatives with environmental indices above 0.95 (being 1 the maximum possible value), while biogas and oil-fired power plants usually occupied the last positions of the ranking, with indices below 0.5. Some countries achieved outstanding environmental results such as Austria, Croatia, Ireland, Lithuania, Luxembourg, Latvia or Sweden, with indices always above 0.85, while Bulgaria, Cyprus, Estonia or Poland obtained discouraging results, since their production is largely based on oil, lignite or hard coal. Europe should boost hydro, onshore and offshore wind and natural gas power plants in order to improve its current index of 0.7363.

Impact of COVID-19 on listed European electricity companies: a comparative analysis of investment in renewable and traditional electricity

PurposeThe authors analyze the impact of COVID-19 on listed European electricity companies and differentiate between renewable and traditional electricity, to show the heterogenous characteristics of electricity subsectors and the differences between renewable and traditional electricity.Design/methodology/approachUsing the event study method, the authors calculate the cumulative average abnormal returns (ARs) before and after the World Health Organization pandemic announcement and the declaration of national lockdowns in Europe.FindingsThe results show that while the European electricity sector was overall negatively impacted by the COVID-19 announcement, this impact was larger for renewable companies due to their riskier investment profile. Moreover, after the national lockdowns came into effect, the recovery in the financial markets return was smaller for the latter.Research limitations/implicationsThere may be variables to be included in the model to analyze possible differences between companies and countries, as well as alternative econometric models. Limited to the data, the authors did not investigate the different impact of the economic policy uncertainty from various countries inside or outside the EU.Practical implicationsThe results have important implications for both investors and policymakers since the heterogenous characteristics of electricity subsectors. This heterogeneity prompts different investor reactions, which are necessary to know and to understand.Originality/valueAs far as the authors know, this is the first study that analyses the effect of COVID-19 in heterogeneity profile of both types of electricity, renewable and traditional.

More birds than stones – A framework for second-best energy and climate policy adjustments

A well-known principle in public economics states that at least as many policy instruments as market failures are required to achieve an efficient outcome. In practice, however, regulatory power is often constrained, making implementing the first-best policy portfolio difficult or impossible. We analyze analytically and numerically how available policy instruments should be adjusted vis-à-vis the first-best to account for under-internalized secondary market failures. Consider, for example, the power sector: alongside the external costs of emissions, evidence suggests that consumers undervalue energy efficiency investments, and knowledge spillovers hamper research and development (R&D) and learning-by-doing in low-carbon technologies. By exploring the potential and limits of policy instrument substitution, we provide suggestions for adjusting policies in second-best situations. We calibrate the theoretical model to the European electricity sector and find that, compared with the first-best policy portfolio, relying on carbon dioxide (CO2) pricing alone increases the policy cost of the EU CO2 emissions target by about 30%. Uninternalized R&D spillovers contribute the most to this increase, and are the most difficult to address indirectly, even with subsidies supporting learning-by-doing. By contrast, almost 40% of the additional cost created by the absence of optimal energy efficiency subsidies can be recuperated by a second-best electricity tax.

The role of transmission and energy storage in European decarbonization towards 2050

This paper presents analyses of the development of the European electricity sector that is in line with the climate and energy targets of the European Union for 2030 and 2050. The role of energy storage and transmission under various assumptions about a) development of electric battery costs, b) transmission grid expansion restrictions, and c) the variability of future electricity demand is demonstrated. Two models are soft-linked – LIBEMOD, a multimarket energy equilibrium model of Europe, and TIMES-Europe, a bottom-up stochastic model of the European electricity and district heat sectors – to provide an analysis of the decarbonization of the electricity sector that has consistent assumptions about electricity use and fuel prices. To explicitly value flexibility, a stochastic methodology is used to ensure that investment decisions take into account different operational situations that can occur due to weather-dependent renewable generation and the uncertainty of the electricity demand. It is demonstrated that the European power sector can be decarbonised with a 65%–70% share of the electricity supply from wind power and PV in 2050. The cost-efficient investment in stationary batteries is highly dependent on technology development in PV and expansion of the international transmission grid.

НЕВІДВОРОТНІСТЬ ПЕРЕХОДУ УКРАЇНИ ДО ВІДНОВЛЮВАНОЇ ЕНЕРГЕТИКИ

В статті розглянуто суттєві проблеми сучасної української електроенергетики. Зношеність енергетичного обладнання ТЕС і АЕС перевищує допустимі проектні ліміти, що зменшує стійкість постачання електроенергії споживачам, збільшує обсяги локальних і глобальних шкідливих викидів, збільшує питомі витрати палива на ТЕС і АЕС, а з цим – збільшує собівартість і ціну продажу електроенергії. Ще одним з викликів для електроенергетики України є залежність від імпорту палива. Пріоритетний розвиток виробництва електроенергії з відновлюваних джерел енергії, обраний європейськими країнами, дозволив подолати проблеми фізичного і морального зносу обладнання, доступу до енергоносіїв, екологічної чистоти роботи електростанцій, ефективності виробництва електроенергії для інвесторів і для держави. Для України є дуже важливим цей позитивний європейський досвід подолання кризи в електроенергетиці.
 За даними International Energy Agency в період 2014-2035 рр. інвестиції у відновлювані технології виробництва електроенергії в країнах ЄС перевищать інвестиції в галузі традиційної енергетики (ТЕС і АЕС) разом взяті, більше ніж у три рази.
 Результати функціонування європейської електроенергетики за новим “низьковуглецевим” курсом засвідчують, що стратегічні рішення в європейській електроенергетиці були вдалими – країни Європи подолали всі перешкоди розвитку. 
 Зважаючи на подібність багатьох нагальних проблем української і європейської електроенергетики, а також на значний енергетичний потенціал відновлюваних джерел енергії України, зокрема енергії сонця та вітру — 2273 млрд кВт∙год у рік, стратегічні рішення для української електроенергетики мають враховувати відповідний європейський досвід пріоритетного розвитку виробництва електроенергії з відновлюваних джерел енергії. Крім того, проведений аналіз дає обґрунтований висновок, що відновлювані технології виробництва електроенергії найбільш привабливі для інвесторів. 
 Бібл. 19, табл. 8, рис. 12.

Early decarbonisation of the European energy system pays off

For a given carbon budget over several decades, different transformation rates for the energy system yield starkly different results. Here we consider a budget of 33 GtCO2 for the cumulative carbon dioxide emissions from the European electricity, heating, and transport sectors between 2020 and 2050, which represents Europe’s contribution to the Paris Agreement. We have found that following an early and steady path in which emissions are strongly reduced in the first decade is more cost-effective than following a late and rapid path in which low initial reduction targets quickly deplete the carbon budget and require a sharp reduction later. We show that solar photovoltaic, onshore and offshore wind can become the cornerstone of a fully decarbonised energy system and that installation rates similar to historical maxima are required to achieve timely decarbonisation. Key to those results is a proper representation of existing balancing strategies through an open, hourly-resolved, networked model of the sector-coupled European energy system.

Electricity Regulation in the European Union: Uniform, Differentiated or Experimentalist?

This paper examines six major policy issues within EU electricity regulation, a case study chosen both for its intrinsic importance and because its interdependence, politicization and volatility make it a plausible candidate for uniform, differentiated, and experimentalist regulation. It finds that although EU electricity regulation is characterized by an ambition to uniformity due to the especially strong interdependence of electricity systems, no matter how uniform EU rules might be, they always leave some space for diversity. Contrary to differentiated integration expectations, divisions of member states into separate groups of “ins” and “outs” governed by different rules played virtually no role, despite the high interdependence and entrenched politicization characterizing the European electricity sector. Instead, in line with experimentalist governance expectations, prompted by environmental volatility and aware of persistent diversity, policy actors often made provisions to monitor and learn from such lower-level diversity in order to review and revise higher-level rules. Nonetheless, the use of lower-level diversity in experimentalist processes actually led to the generation of gradually more uniform rules which, accompanied by rapid and frequent revision of these rules based on review of implementation experience, suggests that experimentalist governance may be undertaking a metamorphosis in some sectors toward synchronic uniformity and diachronic revisability. Finally, in all the policy issues studied substantive EU rules applied also to countries beyond the Union, as posited by external differentiated integration; in most of them, moreover, non-member state actors also participated in the processes for creating and revising such rules, as described in extended (experimentalist) governance.

The role of electricity in decarbonizing European road transport – Development and assessment of an integrated multi-sectoral model

Despite regulation efforts, CO2 emissions from European road transport have continued to rise. Increased use of electricity offers a promising decarbonization option, both to fuel electric vehicles and run power-to-x systems producing synthetic fuels. To understand the economic implications of increased coupling of the road transport and electricity sectors, an integrated multi-sectoral partial-equilibrium investment and dispatch model is developed for the European electricity and road transport sectors, linked by an energy transformation module to endogenously account for, e.g., increasing electricity consumption and flexibility provision from electric vehicles and power-to-x systems. The model is applied to analyze the effects of sector-specific CO2 reduction targets on the vehicle, electricity and power-to-x technology mix as well as trade flows of power-to-x fuels in European countries from 2020 to 2050. The results show that, by 2050, the fuel shares of electricity and power-to-x fuels in the European road transport sector reach 37% and 27%, respectively, creating an additional electricity demand of 1200 TWh in Europe. To assess the added value of the integrated modeling approach, an additional analysis is performed in which all endogenous ties between sectors are removed. The results show that by decoupling the two sectors, the total system costs may be significantly overestimated and the production costs of power-to-x fuels may be inaccurately approximated, which may affect the merit order of decarbonization options.

Coase and Cap-and-Trade: Evidence on the Independence Property from the European Electricity Sector

This paper provides an empirical test of the Coase Theorem. I analyze whether emissions are independent from allowance allocations in the electricity sector regulated under the EU's Emissions Trading System (EU ETS). Exogenous variation in levels of free allocation for power producing installations enables a difference-in-differences strategy. The analysis reveals that a change in al- location levels does not significantly affect emissions, either at the plant or firm level. However, I identify an adjustment period with temporarily lower emissions for some firms. The results suggest that policy makers may use free allocation as a political tool without compromising the program's cost-effectiveness.

More Birds Than Stones – A Framework for Second-Best Energy and Climate Policy Adjustments

Tinbergen's seminal work showed that we need as many policy instruments as there are market failures to address. In practice, however, regulatory power is often constrained, making it difficult or impossible to implement the first-best policy portfolio. We analyze analytically and numerically how available policy instruments should be adjusted vis-a-vis the first-best to account for under-internalized secondary market failures. As a concrete example, consider the power sector: alongside the external costs of emissions, evidence suggests that consumers undervalue energy efficiency investments, and knowledge spillovers hamper R&D and learning-by-doing in low-carbon technologies. By exploring the potential and limits of policy instrument substitution, we provide guidance for policymakers on how to adjust first-best policies in second-best situations. We calibrate the theoretical model to the European electricity sector and find that, compared with the first-best policy portfolio, relying on CO2 pricing alone increases the policy cost of the EU CO2 emissions target by about 30%. Uninternalized R&D spillovers contribute the most to this increase, and are the most difficult to address indirectly, even with learning subsidies. By contrast, almost 40% of the additional cost created by the absence of optimal energy efficiency subsidies can be recuperated by a second-best electricity tax.

European electricity sector decarbonization under different levels of foresight

The European Union has set out to reduce the carbon intensity of its electricity generation substantially, as defined in the European Roadmap 2050. This paper analyses the impact of foresight towards decarbonization targets on the investment decisions in the European electricity sector using a specific model developed by the authors called dynELMOD. Incorporating the climate targets makes the investment into any additional fossil capacity uneconomic from 2025 onwards, resulting in a coal and natural gas phase-out in the 2040s. Limited foresight thus results in stranded investments of fossil capacities in the 2020s. Using a CO2 budgetary approach, on the other hand, leads to an even sharper emission reduction in the early periods before 2030, reducing overall costs. We also find that renewables carry the major burden of decarbonization; nuclear power (3rd or 4th generation) is unable to compete with other fuels and will, therefore, be phased out over time.

Implications of the integration of renewable energies into the electricity market of Greece

The main purpose of this paper is a comprehensive investigation of the Greek electricity production and transmission system with a focus on the integration of renewable energy sources. A techno-economic model of the Continental European electricity sector called ATLANTIS is used to analyse the development of the Greek power system. Several different projections—including national, ENTSO-E and European scenarios—have been investigated and the officially published national development strategy of Greece until 2027 has been chosen for the simulation. Starting with the modelling of the technical system, that considers a pre-defined development path for the power plant park and the transmission grid, several techno-economic investigations are performed. These include the effects of an increasing electricity demand on the electricity production with respect to several technologies, the imports, the load flows and the CO2 emissions. Additionally, the age structure and the value of the power plant park are analysed. The results illustrate a remarkable shift from a fossil fuel dominated electricity structure to an electricity system with a high share of renewable energies. The integration of the wind power and solar/PV production capacities requires a corresponding enhancement of the Greek transmission grid including several new cross-border connections to the neighbouring countries. Therefore, all important transmission grid projects based on the TYNDP and the national grid operator have been included in the physical transmission system, which covers long distance connections between the islands and the mainland as well as connections between the islands themselves by using also the HVDC technology. Furthermore, it is shown that due to the reduced lifetime of the RES technologies compared to the fossil-fuelled and the hydro power plants the up-coming re-investment cycles have to be planned carefully. Finally, the paper closes with a comprehensive discussion of the outcomes and gives an outlook of the ongoing and the future works, which cover e.g. a stronger linkage of the whole Mediterranean electricity systems to the European transmission grid according to a European energy strategy.

Determinants of the European electricity companies efficiency: 2005–2014

The growing dependence of economies on electricity makes essential the improvement of the power sector efficiency levels. This study aims to assess the factors that influence the efficiency of companies operating in the European electricity sector. To this end, a Stochastic Frontier Analysis has been applied to 4639 companies, located in 26 European countries, over the 2009–2014 period. Based on the results, it would be advisable, for all electricity subsectors, to reduce the level of indebtedness and to increase the firm size in order to enhance the efficiency levels. The results also show how the activity diversification and the company age affect firms' performance depending on the subsector.

Sensitivity of energy system investments to policy regulation changes: Too many, too fast?

In this paper we argue, that the interaction of energy policy regulations in the European electricity sector may be described by the slow-fast class of dynamical systems. Such systems may exhibit drastic changes in their dynamics known as bifurcations; one important being the so called blue sky catastrophe. Once reaching such a state, the slow system becomes unresponsive to the changes in the fast system. For the energy-policy nexus this translates into the energy system becoming unresponsive to policy interventions leading to a freeze in the system dynamics. Application of this result allows us to argue that caution is needed when updating economic policies to achieve a faster transition towards a low carbon energy supply structure. To avoid this risk the policy design should be aimed at long term incentive structures with less frequent but more consistent interventions.

How Renewable Energy is Reshaping Europe�s Electricity Market Design

We present a systematic review of the challenges to the regulation of electricity markets that are posed by the integration of variable renewable energy sources. System integration is the key to developing the required flexibility, because flexibility options exist at all system levels and within the competitive as well as in the regulated (network) domains. The fluctuating nature of variable renewable energy changes the dynamics of investment decisions. We develop a framework for analysing relations between aspects of the regulation of the power sector that need to be coordinated in order to achieve (or at least improve) economic efficiency. We base the framework on the technical functionalities of the electricity infrastructure, which we group along three dimensions: system level (from retail/distribution to transmission/wholesale), geographic scope (the connection between electricity systems) and time scales (from real-time operations and balancing markets to the investment time scale). The framework helps identify regulatory challenges—potential inefficiencies due to a lack of coordination—and to place them into context. The picture that emerges from this approach is that the institutional fragmentation of the European electricity sector will become increasingly burdensome as the development variable renewable energy requires ever closer coordination between countries, between the different levels of the electricity system and between markets that serve different time scales. Interactions between elements of market design and regulation such as congestion management, renewable energy policy and system adequacy policy affect each other and are an additional reason for a system integration approach to regulation.