• Energy Research

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.

It is expected that several national gas markets in Europe will be merged in the near future. Such mergers provide network users transport alternatives, which may imply competition amongst transmission system operators (TSOs). TSOs are, however, regulated by default, as they are viewed to operate natural monopolies facing no effective competition. Using daily data for the German gas market over 2014–2018, this paper assesses market power for cross-border transport capacity based on the Residual Supply Index to analyse the need for regulation. To contribute to the debate on the future regulatory framework within the EU, we assess TSOs’ market power for cross-border capacity in a single merged German gas market. We find 15 German TSOs operating in seven relevant markets. In 85% of the cases, we do not find any significant market power for TSOs. In 20% of these cases, the absence of significant market power was related to the utilisation of excess storage capacity. Hence, we conclude that current regulatory constraints imposed on gas TSOs, such as tariff regulation, may be relaxed for cross-border capacity, when market mergers lead to effective inter-TSO competition.

Emissions trading is a hot issue. At national as well as supranational levels, proposals for introduction of emissions trading schemes have been made. This paper assesses alternative emissions trading schemes at domestic level: (1) schemes where the total level of emissions is fixed (absolute cap-and-trade), (2) schemes where the allowable level of emissions per firm is related to some firm-specific indicator (relative cap-and-trade), and (3) mixed schemes which combine elements of the above alternatives. We present a quantitative assessment of these alternatives for climate change policy in the Netherlands. It is concluded that while relative cap-and-trade would avoid negative effects on competitiveness, it would not reduce emissions at the lowest costs. Besides, the addition of a trade system to existing relative standards does not result in additional emission reduction; it should be combined with other policy measures, such as energy taxes, in order to realise further reduction. Absolute cap-and-trade leads to efficient emissions reduction, but, implemented at the national level, its overall macroeconomic costs may be significant. The mixed scheme has as drawback that it treats firms unequal, which leads to high administrative costs. We conclude that none of the trading schemes is an advisable instrument for domestic climate policy. © 2003 Elsevier Science Ltd. All rights reserved.

The use of internal carbon prices (ICPs) is a practice by which companies voluntarily attach a hypothetical cost to their carbon emissions to help prioritize low-carbon investment projects. We find that ICP use is driven byexternal carbon constraints and by firms’ exposure to formal carbon pricing systems, next to various firm and society characteristics. The size of the gap between countries’ actual and intended emissions alone, without a translation into stringent climate policies, does not play a role. These findings inform policymakers and investors about when and why firms account for future carbon constraints internally. A key societal risk is that corporate investments are not sufficiently directed at a future low-carbon economy. Stringent climate policies that provide predictable pathways appear to help firms mitigate the isalignment of their investments by using ICPs and thereby contribute to a less erratic and less expensive transition of the energy system.

Abstract Hydrogen and regional energy infrastructure are significant for the European Green Deal and was the focus of the SuperP2G research Project (Synergies Utilising renewable Power Regionally by means of Power to Gas). Five national projects (Denmark, Netherlands, Germany, Austria, and Italy) cooperated to investigate power-to-gas feasibility. The energy crisis due to the war in Ukraine peaked during the project. The demand for green hydrogen increased as natural gas was reduced. In 2022, the cost of blue hydrogen was 9.5–12.6 €/kg. Higher electricity prices impacted the cost of green hydrogen less. Considering the 2021–22 level of electricity and gas prices, and the potential flexibility of electrolysers, electrolytic hydrogen was on a par with blue hydrogen. On the long term, green hydrogen is assumed to be competitive around 2030. A fast ramping up and favourable electricity cost development could halve the hydrogen production cost until 2040 with investment being the major contributor to a cost reduction. Meanwhile, the smart operation of a wind/electrolyser system might achieve 24% reduction of its operation cost. The following measures are recommended to introduce green hydrogen on a large scale: 1) certification of green and low carbon hydrogen and a uniform CO2 price; 2) ensuring a level playing field across markets; 3) enabling policies to enhance European security of supply by increasing domestic production and diversifying imports; 4) fast ramping of renewable electricity generation; and 5) coordinated planning of hydrogen, methane, and electricity infrastructures.

Many governments aim to reduce the dependence on coal-fired generation to decrease carbon emissions. At the same time power markets with competition between independently operating power firms have been created which leave the actual decisions concerning electricity production to these firms. This paper analyzes the interaction between climate policies and policies to foster power markets. Using hourly plant-level data on the Dutch power market over 2006-2014, we find that the dispatch of fossil-fuel power plants is strongly influenced by relative fuel prices, despite the existence of several climate policy measures. Coal-fired power plants have become more important in the Dutch market since 2006, not only in share of total production, but also as provider of flexibility. Examining the short-term dispatch decisions and the past volatility in relative fuel prices, the maximum CO2 price which was needed to provide incentives for power producers to dispatch a gas-fired plant instead of a coal-fired plant was 43 euro/ton. We conclude that internalizing the external (CO2) costs by raising the CO2 price is a more appropriate measure than a forced closure of coal-fired power plants to align the principles of a market-based power industry and the wish to implement effective climate-policy measures at relatively low costs.

We analyse the impact of two different generation techniques used by fringe suppliers on the intensity of competition in the electricity wholesale market. For that purpose, we derive a Cournot model of this market taking into account long-term contracts, international trade and fringe suppliers using different energy generating technologies. We apply this model to the Dutch market and estimate the impact of fringe supply on the Lerner index. We find that the fringe supply coming from both intermittent wind generation and combined heat and power (CHP) plants operated by horticultural farmers increases competition, which leads to lower prices in the electricity market. However, this impact is relatively small. The effect per unit of intermittent wind electricity generation on competition and, therefore, prices is stronger than that of the CHP technology. (C) 2015 Elsevier B.V. All rights reserved.