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13 May 2016

PhD Candidate shares his experience of the Energy Economics Week

Mid-April, 16 of our PhD candidates attended a one-week training on Energy Economics at Grenoble Ecole de Management (GEM) in Grenoble, France.

 

Hussain Kazmi is a current PhD candidate in the KIC InnoEnergy PhD School and he is employed by Enervalis, a Belgian start-up that develops a cloud-based software for electricity producers, storage providers and consumers to save or make money.

In the following paragraphs, he described his experience about the KIC InnoEnergy PhD Energy Economics Weeks of Spring 2016.

 

ouvrir-guillemetThis last week, I attended a summer school arranged by KIC InnoEnergy in the beautiful town of Grenoble. The last time I was in Grenoble – also for a KIC InnoEnergy event – the temperature had fallen below -7 degrees; which is about 5 degrees south of what I consider habitable conditions. No such problems this time, with fantastic weather welcoming me as I took the train from Paris to Grenoble.

 

Day 1.1: Climate policy and EU emissions trading system – Joachim SCHLEICH (GEM)

Getting us started was Joachim Schleich, perhaps the most affable of the presenters over the week. There was nothing light-hearted about the questions raised in the session though, ranging from the price of development to the (economic) cost of a human life. Not that there was something sinister being planned at the summer school. The discussion was about how pollution and GHG emissions affect human life and whether we can put a price on it.  In a heated discussion, the opinions were split, with people equating human life to be anything from priceless to their net earning potential. I reckon, this latter view would perhaps be more commonly endorsed by people a long way away from retirement age. This purely economic valuation also raised the hairy issue of whether a life is more valuable in USA or Europe than in Africa or Asia, with the inherent differences in earning potential.

We also had a fun game on EU emissions trading system with different make-believe companies and Joachim acting as the energy czar, dropping off permits for GHG emissions. It was instructive, but no one cheated (surprise, surprise!) and so we managed to play out the game nicely. I raised the point of IEA always under-predicting renewable generation in their energy scenarios. Joachim assured me that, to the best of his knowledge, there was no systemic bias but that I should check with Mathew Wittenstein of the IEA, whom we would meet later in the course.

I was thinking about some discussion on the topic of de-growth but, before we knew it, time had run out. In the end, the session raised more questions than answers on deeply personal and contentious issues, and we were off!

 

Day 1.2: Geopolitics of fossil energy – Emmanuel HACHE (IFP School)

After a (philosophically) troubling morning and a (gastronomically) great lunch, we were welcomed back by Emmanuel Hache, quite possibly the most controversial presenter we encountered in the week. He started off with the disclaimer that his talk had very little to do with renewables directly. He also caused quite a stir when he categorically told us that ‘coal is solid, oil is liquid and gas is gas,’ leaving little room for future debate. In terms of geopolitics though, he soon pointed out the importance of these ‘facts’. Following up on these startling revelations, he next proclaimed the bottomed out oil prices to be following a cyclic trend of over- and under-production (or exploration and exploitation of new and already discovered oil reserves). This might be true, I feel, but the interesting thing to know would be the periodicity of this seasonality.

We also had an animated discussion on peak oil (the opinion was split on whether it exists or does not exist). In the end, we decided (did we?) that it will be an economic consideration, far before it will ever be a physical limit (as the saying goes, ‘the Stone Age didn’t end for want of stone, neither will the age of oil.’)

At the same time, we discussed the differences between international oil companies and national oil companies, who has influence where in the price markets and the future of OPEC. We managed to define the energy transition according to our preconceived notions (regulations versus decarbonisation versus systemic); a discussion that also offered us the chance to indulge in mild stereotyping.

And with that the first day was over.

 

Day 2.1: Drivers of investment in the electricity sector – Matthew WITTENSTEIN (IEA)

Matthew’s talk was one I had looked forward to the most, and it didn’t disappoint. Although it covered mostly familiar ground for me, I can imagine it would have been very informative for people who had never had an energy economics course before. Matthew believes that, going forward, climate change will be a major driving force in our economic and energy choices. I sure hope so.

The chance to ask about IEA models’ past performance didn’t come up so that made me slightly gloomy. All in all however, a solid morning’s work!

 

Day 2.2: The Gas value system – Axel EMMERICH (GeoResources STC)

In the afternoon, we were back to the land of hydrocarbons, with Axel walking us through the entire value chain of the oil production cycle. He explained downstream, upstream and midstream parts of the value chain. It was a great refresher for my time doing research in quantifying uncertainty in exploration geophysics (upstream, for those who didn’t know!). We also played a game where we had to bid for the development of HC reserves in Libya, with Axel complicating matters further by flashing confusing news signals. A team won the bid after having unrealistically assumed an interest rate of 5%. We grudgingly conceded defeat, safe in the knowledge that, in real life, their CEO would have been fired before the lecture was over.

The session concluded with a long discussion on the international trade opportunities of gas and what the US shale gas boom means for European energy security. Axel also argued that, given suitable regulatory oversights, both conventional and unconventional drilling can be safe endeavours. Call me a pessimist or a realist, but this is something I am still not sure about.

And with that, we were off to the Bastille, which offers a fantastic, panoramic view of the city! We took the cable car, but the (reportedly) 40 minute hike would have been nice too. Maybe, another time. We were also able to glimpse the tallest peak of the Alps, and it made me strangely nostalgic for home.

 

Day 3.1: Energy efficiency and energy policy Joachim SCHLEICH (GEM)

Joachim was back and we started day 3, eager to learn about even more mind-boggling philosophical questions that had no (politically) correct answer. The session didn’t disappoint. We started off with a brief overview by all the participants of what, in their opinion, was happening in their country in terms of the energy transition. Joachim consolidated this round of free exchange with a detailed overview of the French and German transitions. I realized, for the first time, that French goals of decarbonisation are arguably as ambitious as the German ones since they are starting from such a different place (historic reliance on nuclear versus coal).

Next, we argued about energy efficiency and the wicked rebound effect, differences between willingness to accept and the willingness to pay as well as other anomalies in human rationality.

The session drew to a close and, after a quick lunch, we were off to Lyon where we would visit CNR, a company operating hydro-power plants on the river Rhone (besides other stuff?).

 

Day 3.2: Company visit – CNR in Lyon

The journey from Grenoble took slightly more than an hour, on a bus where we got to learn more about French law, in this instance that you must fasten your seat belt even in a bus. The trip itself was fantastic as we got to see real energy trading. We also got expert opinions on hedging and the way markets work, and how you can’t game the market (for long, anyway). One common message that seemed to arise from many discussions we had during the week was that renewables and weak oil prices were hurting fossil-based generation in a big way. This made me happy (for the environment), and slightly queasy (for the people working in these sectors) at the same time.

Lyon seemed an interesting city, but there wasn’t enough time to explore. Eventually, we made our weary way back to Grenoble (with seat belts fastened!)

 

Day 4.1: Wholesale power markets and price formation mechanisms – Philippe VASSILOPOULOS (EPEX)

This turned out to be the most interesting session for me personally, possibly because of its close relationship with my own research. Philippe delivered a great, engaging lecture on the way power markets work as well as the way European interconnection is altering the landscape of the markets. He also alluded to the difficulty in building consensus on these supra-national projects. In particular, we talked about the share (in terms of volumes) of futures and forwards in the electricity markets as well as day-ahead, intraday and balancing markets. The German market’s maturity, in terms of traded volume at least, and how France is catching up also came up.

As always, I was curious about what control mechanisms were in place to stop dominant market players abusing their power (in an Enron-esque scenario). We talked about this more as Philippe had a smoke. Apparently many large players worry more about the negative press such market abuse could generate rather than any potential earnings from indulging in these shenanigans. He also told me about the great research being done at KU Leuven in this direction, something I intend to follow up on.

 

Day 4.2: European electricity market: A TSO perspective – Tanguy JANSSEN (RTE)

Tanguy’s lecture was fun; it meandered around for quite a bit but the message I took away in the end was that it is complicated being a TSO, and will get even more so in the future. The distinction of roles is blurring with new business cases for DSO’s, BRP’s and aggregators. This might lead to greater challenges, particularly in the definition of responsibilities and competences.

I also harangued Tanguy about the size of the balancing markets as well as primary, secondary and tertiary reserves. The fact that their names were changed to more complicated jargon also came up. I also (re-)discovered that capacity trading can be done both in terms of watts (reserves) and watt-hours (activation), something that will be useful for my own research.

And with that, we had finished the second last day in the summer school.

 

Day 5.1: Energy modeling and energy scenarios – Martin WIETSCHEL (Fraunhofer ISI)

With energy levels somewhat lower than when we started, we arrived at the last session of the summer school. This turned out to be a fun, hands-on session. We started off with giving our opinion on the clientele of electric vehicles: male techies living successful suburban lives. There was some consternation as to why the market should have anything to do with the gender, but the data apparently borne out this initial sexism. We also mostly agreed that getting 1 million electric vehicles on German streets by 2020 (up from about 50000 at present) was not very realistic. A more realistic target would be by 2023, or so, Martin claimed.

The session concluded with an introductory session to LEAP, a software that is used in more than 190 (excluding the imaginary state of Freedonia, which was subject to brutal micro- and macro-economic experiments in the session). And that wrapped up the summer school, though in the afternoon we still needed to present our ideas for creating businesses.

 

Conclusion

The summer school was a great exercise, I learnt a lot from the different perspective of TSO’s and market operators and traders. This was really different than the academic or industrial settings I normally work in. It was also encouraging to see so many smart people working on interesting problems aimed at reducing anthropogenic footprint, in one way or the other. Additionally, a fair bit of networking went on, so kudos to KIC InnoEnergy and GEM for arranging the whole event.

Throughout the discussions, I felt that having ambitious, slightly unrealistic targets is important because it lets us work towards a difficult goal and not slack off. It is fine as long as people don’t throw their hands in the air and stop caring about these environmental goals.

At the same time, I couldn’t help but think (as an engineer) that more hands-on sessions would have been interesting as well. Particularly, in terms of how markets are optimized, supply and demand balanced etc. But this is a minor quibble in what was otherwise an awesome event.

If there was one thing else I noticed, it was that every presenter was a guy. I realize it is engineering but still!guillemet

 

 

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