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Mark Jamison, Ph.D.
Director
World Energy Markets and Regulation:
Opportunities in the Gaps
www.purc.ufl.edu “Leadership in Infrastructure Policy”
Question 1 What percent of the world’s energy supply was from renewable energy in 2011? a. 9% b. 13% c. 18% d. 25%
1 Source: International Energy Association, 2013
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World total primary energy supply, 1973 and 2011
0
2000
4000
6000
8000
10000
12000
14000
1973 2011
Oil
Equi
vale
nt
(mill
ions
of t
ons)
NuclearRenewablesNatural GasCoal/PeatOil
2 Source: International Energy Association, 2013
13%
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Question 2 What percent of the OECD’s energy supply was from renewable energy in 2011? a. 9% b. 13% c. 18% d. 25%
3 Source: International Energy Association, 2013
www.purc.ufl.edu “Leadership in Infrastructure Policy”
OECD total primary energy supply, 1973 and 2011
0
1000
2000
3000
4000
5000
6000
1973 2011
Oil
Equi
vale
nt
(mill
ions
of t
ons)
NuclearRenewablesNatural GasCoal/PeatOil
4 Source: International Energy Association, 2013
9%
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Question 3 Where are the biggest opportunities in energy? a. Increased efficiency b. Effective regulation c. Transport of energy d. Technology development
5 Source: International Energy Association, 2013
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The future? • Patterns in opportunities • Role of regulation
6
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Source: Denys Sakva, “Evaluation of errors in national energy forecasts” Rochester Institute of Technology, 2005
Caveat
Perfect Forecast
Energy forecasts often wrong SR Over Forecasts
LR Under Forecasts
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Source: US Dept. of Energy, 2013
Forecasts are flat for OECD and growth for non-OECD. Non-OECD consumption exceeds OECD.
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Source: US Dept. of Energy, 2013
Most of the non-OECD growth is for Asia…
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Source: US Dept. of Energy, 2013
…primarily China
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Source: US Dept. of Energy, 2013
Natural gas growth primarily industrial, but all areas grow
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Source: US Dept. of Energy, 2013
Fossil fuels will dominate electricity Generation Implications for carbon pricing?
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Question 4 Which is the most subsidized fuel for generating electricity in the U.S.? a. Nuclear b. Fossil fuels c. Solar d. Wind
13
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Fuel Subsidies ($ millions)
$0
$1,000
$2,000
$3,000
$4,000
$5,000
Traditional Fuels
14
$0
$1,000
$2,000
$3,000
$4,000
$5,000
Renewables
Source: US Dept. of Energy and Institute for Energy Research, 2011 (from Wall Street Journal, August 18-19, 2012)
www.purc.ufl.edu “Leadership in Infrastructure Policy”
Subsidies per MwH
$0
$2
$4
Traditional Fuels
15
$0
$200
$400
$600
$800
Renewables
Source: US Dept. of Energy and Institute for Energy Research, 2011 (from Wall Street Journal, August 18-19, 2012)
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World carbon emissions from energy, 1973 and 2011
0
5000
10000
15000
20000
25000
30000
35000
1973 2011
CO
2 (m
illio
ns o
f ton
s)
Other
Non-OECD Americas
Middle East
Other Asia
China
Non-OECD Europe/Eurasia
OECD
16
Source: International Energy Association, 2013
Consumption out strips emissions OECD, but not non-OECD
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China
India
Russia Japan
USA
CO2 Emissions vs GDP, 2011
Turkey
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1985
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2005
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2010
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China
India Russia Japan
USA
What if China, India, and Russia moved onto the trajectory?
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Roles of Regulation • Limit exploitation of market power • Limit exploitation of political power
– Opportunism • Provide commercial framework • Provide standards, such as for safety
23
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Features of Regulation • Tariff authority (prices, safety, terms and
conditions) • Commitment • Expertise • Transparency • Independence
24
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Question 5 Which best describes regulation? a. Controlling bad guys b. Controlling all of us c. Response to problems d. Political favors
25
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U.S. Path for Public Utilities • Common Law Foundation • Features
– Enduring natural monopoly – Affected with public interest – Franchise
• Jurisdiction local as possible
26
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Electricity Industry Structure • Prior to 1990s, vertically integrated structure
– Utilities traded at wholesale • Since 1990s
– Some states have unbundled – Development of ISOs and RTOs
27
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U.S. Electricity Co-Evolution Challenges • Industry enlargement
• Unserved areas and jobs • Northeast blackout 1968 • Declining air quality
• Rising fuel imports and
costs • High jurisdictional prices
Policy Responses • PUCs, FPA (1935),
PUHCA (1935) • TVA (1933), REA • NERC (1968) • EPA (1970), CLA (1970,
1990) • PURPA (1978), ESA
(1979, 1980), state EE • FERC 888 (1996),
California (1996), ISO New England (1997)
28
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U.S. Electricity Co-Evolution Challenges • California Crisis (2000-
2001) • Climate change concerns
Policy Responses • Reforms ended
• State: RPSs, CO2 targets,
renewable subsidies, EE
29
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Gas Industry Structure • Prior to 1980s, linear market structure
– Producers explored, extracted – Pipelines bought, transported, sold – LDCs sold to end-users
• Regulation focused on prices – FERC: Producer and pipeline prices – States: LDC prices
30
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U.S. Gas Development Challenges • Infant industry
• Industry expansion • Gas shortages (1970s)
and take or pay contracts • New gas bias • Arbitrage gas pricing
(Enron)
Policy Responses • Local and state
regulation • NGA (1938) • NGPA (1978), Gas spot
market • FERC Order 436 • FERC Order 636
31
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Changing Structure • Producers free to sell to anyone at market
prices • Pipelines just transport • Marketers can sell to anyone
32
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Gas Marketers • National or regional (mostly in the case of
LDC marketers) • First marketers were spin-offs from pipeline
companies who had signed ‘take or pay’ contracts before regulation
33
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U.S. Gas Jurisdiction Agencies • Federal Energy
Regulatory Agency (FERC)
• US Dept. of Transportation (DoT)
• State PUCs
Authority • Interstate pipeline,
certain construction, transport rates
• Pipeline safety
• LDCs, local safety, inspector for DoT
34
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Summary for Gas • Increased flexibility • Role of regulation changed, not eliminated • New business challenges and opportunities
35
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But often we get it wrong… • Political influence • Cognitive bias • Resistance to loss
36
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Special Interests: Fuel Subsidies (millions)
$0
$1,000
$2,000
$3,000
$4,000
$5,000
Traditional Fuels
37
$0
$1,000
$2,000
$3,000
$4,000
$5,000
Renewables
Source: US Dept. of Energy and Institute for Energy Research, 2011 (from Wall Street Journal, August 18-19, 2012)
www.purc.ufl.edu “Leadership in Infrastructure Policy”
Subsidies per MwH
$0
$2
$4
Traditional Fuels
38
$0
$200
$400
$600
$800
Renewables
Source: US Dept. of Energy and Institute for Energy Research, 2011 (from Wall Street Journal, August 18-19, 2012)
www.purc.ufl.edu “Leadership in Infrastructure Policy”
Cognitive Biases • Over reactions to
– Three Mile Island – California energy crisis
• Poor estimates of – Carbon costs – Benefits of electricity markets
39
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The Secret to Co-Evolution… • Dealing with losses • Steering and stirring • Acting with conviction
– While maintaining with equal validity that you might be wrong
40
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Losses • Every change involves a loss • People resist loss, not change • Identify
– Losses – Mitigation strategies
41
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Three Juxtapositions • Not BEST Practice, but NEXT Practice • Not WHAT, but WHY • Not LEADING, but LEADERSHIP
42
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The Regulatory Practice
What ispossible?
What isimportant?
How canwe do it?
• Engineering• Economics• Finance• Law
• Counsel• Management• Relationships
• Politics• Negotiation• Dialogue
The work of leadershipis helping stakeholders,policymakers, andourselves find the place where reality, ourvalues, and our abilitiesjoin together.
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Appendix
45
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Energy Infrastructure Development
Alignment of Regulation with Sector, Political, Economic, Financial, Institutional Development
Maturity Curve
Co-Evolution
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Sector • Penetration • Efficiency • Commercial Practices • Private investment
Co-Evolution
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Political • Rule of law • Transitions • Independent judiciary • Freedom of speech • Expert
Co-Evolution
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Economic • Other infrastructure • Education • Economic freedom • Dynamic
Co-Evolution
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Financial Markets • Liquidity • Security • Transparency
Co-Evolution
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Institutions • Well-defined • Transparent • Adaptable
Co-Evolution
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www.purc.ufl.edu “Leadership in Infrastructure Policy”
Weekly Henry Hub Gas Prices
Co-Evolution
54
