Category Archives: Energy

PROMO: Energy MBA in Bucharest

The MBA in Energy at the Academy of Economic Studies (ASE) in Bucharest starts the registrations for prospective candidates between 23-25 July 2018.

Organized by the Faculty of Business Administration in Foreign Languages (FABIZ), the Energy Master is the best in Romania and is done in collaboration with representatives of the energy business environment (OMV Petrom, Siemens, CEZ, Electrica, Transgaz etc.).

Join the new challenges and be a part of the Energy Business!

The programme is open to all bachelor degree graduates, but candidates need one year experience in energy. Of course, a good command of English is required, as it is taught in English.

It is a flexible MBA, held during weekends, for 4 semesters. The courses range from “EU Policy in Energy” to “Energy Trading”. The professors and experts’ team is excellent, including one of Romania’s best energy professionals, Corina Popescu.

Please find below the brochure of the programme.

Brosura_MBA-Energie_6.2018

More information also at the following link: mba-energie.ase.ro.

How the electricity system works

The electricity market – a very peculiar market

Economic interactions regarding electricity are designed as a market, like any other commodity. Therefore electricity prices follow demand and supply rules. However, they have some very specific characteristics, at consumer level.

Firstly, demand is relatively inelastic in the short-term, particularly for small consumers, less so for large ones. Secondly, there is limited customer storage options. While there is the option of batteries for small consumers, the storage capability is small (Tesla Powerwalls, for example, have a storage of 7kWh and a power of 2kWh; while average daily household consumption in the UK is about 11kWh). This limits significantly consumers’ response to price fluctuations. Thirdly, consumers have limited if any, substitutes for electricity. They can invest in long term demand-response measures (for example, investing in more energy-efficient appliances), but the basic need for the product remains. Fourthly, the entire society is based on electricity as energy carrier. The use of electricity cannot be avoided by consumers. Because of very inflexible demand and limited storage options, the supply has to match and follow the demand at all times. Various ways to organize the electricity market were used, reflecting competing public policies, for example non-for-profit utilities or regulated monopolies. Electricity markets have retail and wholesale markets. Retail markets involve the sale of electricity to end consumers, while wholesale markets involve the selling of electricity to distributors by electric utilities.

How wholesale electricity markets work

The wholesale market is where the commodity, electricity, is traded (bought and sold) by the electricity producers, the electricity suppliers (who subsequently sell it to end consumers) and brokers or traders. Trading can be via direct agreement – directly between producer and supplier, via broker – brokered mutual agreement, or on electricity stock exchanges.

On electricity stock exchanges (also called power exchanges), like any other stock exchanges, transactions may be either financial (speculating for a better price) or may lead to a physical supply. Products can be spot (purchased for delivery on the same day or following day) or forward products (purchased for delivery sometime in the future). This is very similar to any stock exchange, with the exception that the market did not evolve yet to derivative products.

A particularity of the power exchange is that the commodity follows consumption patterns, so the products can also be base (the minimum consumption of electricity) or peak (supply from 8 morning until 20 from Monday to Friday). Finally, spot products can be day-ahead, weekend or hourly-reference products (half an hour, an hour or blocks of several hours). Therefore, a product sold on the exchange can be, for example, base spot or forward weekend. Key is the day-ahead spot price because it is the reference price for the spot trade.

The power of the regulating authority, usually the Transmission System Operator, on power exchanges is significant, because it has the ultimate responsibility to keep the system in balance. Because the electricity system has to be in balance at all times, the grid manager can take balancing actions, procuring more electricity, stopping someone to supply or asking large consumers to limit usage.

The merit order

A model often used by traders and brokers on electricity markets to describe the electricity generators, their production and costs is the merit order. This ranks power generators (mostly power stations and wind farms) by increasingly short-run marginal costs of production and capacity. Power generators with costs below the demand curve (also known as electricity load) will produce, while those above load will wait for a peak. The last power generator “called” to fill the needed load “sets” the price.

While the model has its limits, such as ignoring energy storage and ramp rates, it still shows that electricity produced by the plants with the lowest cost is dispatched first, minimizing the cost for consumers. The difference between the dispatched power plant cost and the load price is called infra-marginal rent.

For peaking units, the costs are covered by scarcity rents, created when load is very high (peaking). Spread is called the difference between electricity prices and the production cost of the plant (mainly involving fuel costs). Clean spread is the difference between electricity prices and the production cost of the plant, including taxes (such as the CO2 price or the carbon floor in the UK). The main competition is between coal and gas, called clean dark spread and clean spark spread, respectively.

How electricity wholesale markets work in EU28

In 2015, there were several bidding zones, but the purpose of the European policymakers is to make an European Energy Market, with one central market. A bidding zone is the largest geographical area where bidders can exchange energy without constraint . The bidding zones are CWE (France, Belgium, Netherlands, Germany, Austria, Luxembourg), NordPoolSpot (Sweden, Denmark, Finland, Estonia, Latvia, Lithuania and Norway), Apennine (Italy), Iberia (Spain and Portugal), CEE, also known as PXE (Poland, Czech Republic, Slovakia, Hungary, Slovenia, Romania), and Greece. Other couplings were constructed between countries, but they do not significantly affect price differentials.

Some of those bidding areas are now further integrated to form an even larger European power exchange, limited only by the level of interconnection between systems. National power markets still exist, such Romania’s OPCOM, Portugal’s OMIP or Spain’s OMEL, which creates some overlap.

Those bidding zones or power exchanges, including national power exchanges, work as a genuine exchange, trading electricity like any other commodity. NordpoolSpot, the leading European power market, for example offers day-ahead and intraday spot contracts for Nordic, Baltic and UK’s N2EX markets and intra-day spot contracts for the German market. The European Energy Exchange (EEX) and EPEX Spot, a joint venture between Germany’s EEX and France’s PowerNext, offer day-ahead and intraday spot contracts for Germany, Austria, France and day-ahead spot contracts for Switzerland. In addition, EEX has also future contracts, varying from day to year futures, for about all Western countries.

Regulation of the Power Sector – Ignacio Pérez-Arriaga (ed.)

Grids limit the operation of the electricity system in many ways. The most typical limitation is congestion, which occurs when the maximum current that can be handled by a line or other facility is reached, thus determining the amount of electric power that can flow through the element in question. The underlying cause for the limitation may be thermal, and therefore dependent upon the physical characteristics of the facility. It may also be related to the characteristics of system operation as a whole; for instance, provisions to guarantee security in the system’s dynamic response to disturbances or to stability-related problems that usually increase with line length.

Another typical grid constraint is the need to maintain voltages within certain limits at all nodes, which may call for connecting generating units near the node experiencing problems. The maximum allowable short-circuit power established may also limit grid configuration. Generally speaking,
the main effect of grid constraints is to condition system operation and in so doing to cause deviations from economically optimum operation. The most common constraints in distribution grids are related to voltage and maximum line capacity.

“Regulation of the Power Sector” is a comprehensive technical book on the electricity sector, aimed at specialists and advanced students. It encompasses several scholarly fields, including law, economics, regulation, physics and political science.

It is divided into 14 chapters, as follows: I. Technology and Operation of Electric Power Systems; II. Power System Economics; III. Electricity Regulation: Principles and Institutions; IV. Monopoly Regulation; V. Electricity Distribution; VI. Electricity Transmission; VII. Electricity Generation and Wholesale Markets; VIII. Electricity Tariffs; IX. Electricity Retailing; X. Regional Markets; XI. Environmental Regulation; XII. Security of Generation Supply in Electricity Markets; XIII. Electricity and Gas; XIV. Challenges in Power Sector Regulation.

The first electromagnetic generator, invented by Michael Faraday in 1831.

The authors cover pretty much everything in terms of background in energy regulation, with a focus, but not exclusive, to European regulation and market design. The book reads as a manual and goes into detail in explaining why some regulatory decisions were taken. However, it does not push a message or contributes to the scholarly debate, it is more a stocktaking exercise.

The book makes the basis for the Regulation of the Power Sector course at the Florence School of Regulation, a 6-months intensive training for professionals in the area.

The authors are mostly academics and former regulators with plenty of practical examples. What is impressive is that they managed to have a very balanced approach in a highly divisive area.

The volume is not an easy read, some diagrams and formulas taking some time to digest, even for specialists. This is because the book encompasses a very wide range of fields, from formulas taken from the field physics to economic calculations.

For energy professionals, I commend the book, as a very comprehensive summary of energy regulation, theories and basics of the power system. It refreshes knowledge and fills some gaps, in a balanced way.

Intelligent Research Design – Bob Hancké

The single-most relevant piece of advice, though, is to think carefully who you are writing for. Many, possibly most, research students write just for their supervisor. That is a big mistake: yes, you need to convince him or her of the important of what you are doing, but they are not the ultimate yardstick – and it’s too bad for them if they don’t know that. you should really have a broader, mostly sympathetic, audience in mind when you write, and should probably also diversify your imaginary audience a bit.

Although a book and not an article, I add this post in the Energy section, because it is more related to studies than reading.

Intelligent Research Design is a book offering advice for doctoral researchers at the beginning of their research. While short, the material is condensed and it takes a while to digest. Bob Hancké offers a guide to construct a thesis, from the research question to research design, methodology and presentation.

intelligent-market-design
Learning to construct science

The writing is easy to follow, although the material covered is difficult. It teaches the reader how science is created, the benchmarks of an academic paper and the questions we should ask when reading an article, revealing the potential gaps.

Bob Hancké  is Reader in European Political Economy at the London School of Economics and Political Science and he draws for his decades of teaching experience and grading to show how a good academic paper should look like.

I enjoyed reading the book and I could easily see the points that Hancké wanted to make. I would have liked to recommend the book to my younger me, writing the Masters dissertation.

Sources of electricity – solar

Solar energy is a plentiful energy source, radiance energy coming from sun is at the order of 85,000 to 120,000 TW, while current world energy consumption is around 18 TW (IEA, Key Energy Statistics, 2014; Coimbra, Photovoltaic and Photothermal Energy Production: Future of Energy, 2014).

For electricity, solar energy technologies are broadly divided into photovoltaic cells (direct PVs) (direct conversion to electricity: photons to electrons); solar thermal power (using heat, also known as concentrated solar power) and other technologies (solar Stirling engines etc.).

Conventional PV cells have a very low efficiency, only 20%, but multi-junction cells, which absorb photons from different parts of the solar spectrum have efficiencies around 40% (however, they are 100 times more expensive than conventional PV cells).

Solar thermal power has an intermediary step, where solar energy is transformed first into thermal energy than into electrical energy. Mirrors can heat either a central liquid transforming it into steam or a working fluid, usually a high-temperature oil, in small tubes.

The biggest problem with solar energy is its variation, season to season, day to day, morning to evening. Daily variations can be somewhat balanced because daily electricity consumption roughly coincides with higher solar radiance, however storage is a must for long term development of the technology (Coimbra, Photovoltaic and Photothermal Energy Production: Future of Energy, 2014).

Sources of electricity – wind

Wind energy tapes the Earth’s winds to create electricity through wind turbines. Wind turbines can be HAWTs (Horizontal-Axis Wind Turbines), widely used, or VAWTs (Vertical-Axis Wind Turbines). VAWTs are designed to be used mainly within urban areas. The turbines can be deployed onshore (on land), producing cheaper electricity or offshore (near cost), producing more reliable electricity.

A wind turbine uses the inflow of wind to activate the blades and the rotor. They spin the main shaft and gearbox, which spin the generator, producing electricity. Blades work basically like a reversed airplane wing.

The design of a wing facilitates lift, while the wind turbine blade facilitates push, with the most important part (and most expensive materials) at the top of the blade, because most of the aerodynamic loading is created there. The blade is made of fibreglass (cheaper than aluminium, with similar structural resistance).

The rotor assembly is the main focus now for improving the turbine (Bazilevs, Wind Turbines: Future of Energy, 2014).

Sources of electricity – oil

Oil or petroleum was once a key player in the electricity sector, but now it is used only marginally, usually as back-up reserve in diesel generators for major consumers, such as factories, hospitals, airports or as an electricity source in islands (for example in Greece).

Oil lost its share because of price, it is far more expensive to burn oil than burning coal or gas.

Merits of oil include high energy density, easy to transport and very stable composition, remaining liquid in most climatic conditions. Drawbacks of oil are price are environmental concerns (Webber, 2014).