• Energy Research

Abstract The 21st Conference of the Parties (COP21) of the United Nations Framework Convention on Climate Change (UNFCCC) marked a milestone in the course of international efforts on global climate action. As part of the COP21 side events, on December 4th the Lima Paris Action Agenda presented a half-day of presentations and round table discussions titled Focus on Private Finance. The event was supported by the Secretary-General of the United Nation, Caisse des Depots, and the I4CE Institute for Climate Economics. This conference report summarizes the findings of the session and the messages delivered by finance industry representatives. Significant investment in low carbon assets is required to maintain global temperature increases below 2 °C. The two resounding themes throughout the session were that in order to attract capital for low carbon investments fossil fuel subsidies must end and a higher carbon price is needed to incentivise investment. Furthermore, accounting and regulatory bodies need to implement more stringent disclosure and reporting requirements so that climate risk is properly understood by investors. There is significant appetite for investment in the low carbon sector which is demonstrated by the growth in the green bond market. Financial institutions have a role to play in aggregating, structuring and de-risking investments to facilitate private finance investment. Policy makers also need to improve the investment environment by creating consistent and stable long term policies which will give investors' confidence.

Abstract : The prominent growth in environmental, social and governance (ESG) investment is evident, with the number of global assets managed sustainably more than doubled over the last decade. This trend is expected to continue until 2030. This type of financial data is positive but given the United Nations stated ’climate emergency’ and ’climate survival’ in society today, there needs to be an even greater acceleration of growth in ESG investment. Unfortunately, significant negativity has emerged on ESG in recent years. This ’Cutting Edge’ study explores the reasons why and how ESG investment has veered off the journey towards enabling society to achieve both its targets under the 2030 United Nations Sustainable Energy Agenda and the 2015 Paris Agreement. It examines the factors prompting leading multinational companies, particularly in the energy and food sectors, to shift their corporate strategies. The key message advanced is that ESG frameworks and guidelines are not problematic; rather, the issue lies in the practice of ethics in decision-making within corporations. Addressing this ethical challenge, which is at the heart of ESG practices, across different professions and disciplines can rebuild trust among stakeholders in ESG investing. This form of interdisciplinary ‘just transition ethics’ can re-orient us back on the journey towards a just and sustainable world 

Abstract This paper evaluates the potential low carbon opportunities for and challenges to the utilisation and financial performance of Ireland's gas distribution network within a series of low carbon scenarios. There has been a limited amount of academic literature published on the future implications of gas demand on gas networks. This paper takes the unique perspective of assessing the stranded asset risk to a utility operating a gas network in the context of a low carbon energy system. Building on established emissions reduction scenarios, a financial model is developed from an integrated energy system model to understand the financial risks associated with continued investment in gas networks. We find that higher network tariffs are required for consumers in the future to cover network costs, even though gas consumption grows relative to current consumption levels in low carbon scenarios with carbon capture and storage.

Abstract Citizen investment in distributed renewables is becoming a key feature of low carbon transition in some countries, opening up new sources of capital and offering benefits for social support. Little is known about citizen investor preferences outside of mature markets such as Denmark and Germany, or if the experiences in these countries can be replicated elsewhere. Based on a survey of 1280 Irish citizens, 1000 of whom participated in a choice experiment, we find a high level of interest in investing in these technologies. This is particularly the case among high-income households with some investment experience. Investment amounts, however, are low compared to equity required for large projects, suggesting that citizen investors will not be a significant source of finance in these cases. Key barriers include lack of savings and no access to loan finance. A majority of citizens are highly risk-averse, and are motivated by financial attributes such as return and minimum investment holding period. Our findings suggest that developer-led projects may provide more opportunities for citizen investment, especially for large projects, and that significant policy interventions would be required targeting early-stage project risks to mobilise citizen investment in fully community-owned schemes.

This paper evaluates the economic benefits to over-installing turbines on capacity-constrained wind farm sites in order to capture more energy at low wind speeds. Although this implies curtailment at high wind speeds, we show that over installing generation facilities can increase returns to investors and reduce system costs. A detailed model-based analysis is developed using British data, with variations in the range of over installation, the renewable policy support systems (fixed feed-in tariffs or green certificate premia to wholesale energy prices) and the extent of replacement of fossil generation in the technology mix with wind. In the cases of premia to market prices, we use agent-based, computational learning and risk simulation to model market prices. Not only is over installation beneficial under fixed feed-in tariffs, but is more so under premia to market prices and increasingly so as wind replaces fossil generation.

Abstract Mobilising greater levels of private finance through local citizen investment in low-carbon technologies can help bridge the capital shortfall to meeting climate objectives, while also building societal support for the low-carbon transition. Within this context we undertake a systematic review of literature assessing the impact of technology-specific economic and financial incentives promoting greater levels of investment in low carbon technologies from local citizen investors, both individuals and community groups. We focus in particular on the impact of feed in tariffs compared to quota schemes, grants, tax incentives and soft loans. The analysis suggests that local citizen investors do not necessarily act in an economically rational manner in response to these incentives. It underscores the importance of understanding the preferences of target demographics, the local context, as well as the characteristics of the technologies in question, and suggests interventions should be considered as part of wider policy packages. While identifying challenges to be overcome through instrument design, we find that feed-in tariffs, grants and tax incentives can be successful in mobilising greater levels of investment from local citizen investors, but that soft loans tend to be less effective as a stand-alone instrument. The review identifies areas meriting further exploration in this emerging field of research.

Whilst the acquisition of physical transmission interconnector rights between two or more electricity markets can be structured as spread options on the spot prices of electricity between connected markets, empirical evidence suggests that actual prices may be quite different. This raises issues for the valuation of transmission rights, particularly in the European context of market harmonisation, and the use of transmission rights with increasing levels of wind penetration. We examine the price differentials between the Irish and British electricity markets, where explicit transmission capacity auctions have been persistently undersubscribed and transmission rights acquired but not fully utilised. We find significant empirical indications that auction prices for transmission rights are undervalued against both arbitrage and spread option valuations. We also find significant power flows against the efficient price spread direction. A survey of a group of experts with an interest in trading power between Ireland and Britain inform a number of possible explanations for the apparent inefficiencies. These include ex-post pricing in the Irish market, intermittent wind and strategic behaviour by dominant firms.

A number of leading international industry associations and organizations, representing thousands of companies from around the globe, took part in a side event at the IETA/WBCSD Business Hub in the Blue Zone at Le Bourget on Wednesday, 2 December The Hub was part of the COP21 assembly of the United Nations Framework Convention on Climate Change (UNFCCC) in Paris. In the session, a series of so-called ‘Carbon Markets Statements’ were presented in order to emphasize the importance of including Carbon Market provisions in the Paris Agreement (UNFCCC, 2015) if global warming is to be maintained below 2 °C. While the conference, as expected, did not achieve a global carbon price, the UNFCCC Agreement (2015, p. 19) mentions the role of non-party stakeholders such as civil society, the private sector and financial institutions in addressing climate change and “recognizes the important role of providing incentives for emission reduction activities, including tools such as domestic policies and carbon pricing.” The conference report summarizes the findings of the session, along with the message delivered by industry representatives. Drawing on individual industry statements presented in the session, several themes are identified: (1) the importance of Carbon Markets, (2) benefits of Carbon Markets, (3) competitiveness of organizations and development of low-carbon solutions, and (4) the need for improvements to Carbon Markets. As emphasized by the industry associations, the Paris agreement failed to explicitly address Carbon Markets, albeit the expectations of this being realized were quite low. However, countries have submitted ambitious Intended Nationally Determined Contributions (INDCs) for greenhouse gas emissions reduction, which will demand ambitious reductions in carbon emissions. Therefore, countries will be forced to bring forward policies to meet these targets, and further development of Carbon Markets may materialize in response.