Transcript Document

Evaluating Security of Energy Supply in the EU
Nicola Pochettino
European Investment Bank
European Economic Congress, Financing of investments related to energy security – Katowice 18 May 2011
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Contents
The European Investment Bank
Long-term finance promoting European objectives
EIB lending strategy in energy projects
Financing instruments
Security of Energy Supply
Definition of security of energy supply
Energy security in European policies
Energy security externality:
Identifying and quantifying externalities
Limits of the existing approaches
EIB is researching a methodology
European Economic Congress, Financing of investments related to energy security – Katowice 18 May 2011
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The European Investment Bank (EIB)
Long-term finance promoting European objectives
European Union’s long-term lending bank set up in 1958 by the
Treaty of Rome
Shareholders: 27 EU Member States
EIB lending
2009: EUR 79.1bn
2010 (provisional): EUR 71.7bn
European Economic Congress, Financing of investments related to energy security – Katowice 18 May 2011
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EIB Lending Strategy in Energy Projects
Priority lending areas supporting sustainable, competitive and secure energy
EIB Lending to the Energy Sector
EIB 2010 Lending to Energy by Objectives
EUR bn
External
energy
security
10%
20
Outside EU
EU27+EFTA
18
16
Energy
Efficiency
13%
14
12
Diversification
and security
of internal
supply
30%
10
8
6
Renewable
Energy
34%
4
2
0
2006
2007
2008
2009
2010
TEN-E
13%
Total lending to the Energy sector amounted to 18.1 billion EUR in 2010,
quadrupling in 5 years
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EIB Financing
Benefits and facilities
Low cost of funding by AAA-rated bank passed on to clients:
Large amounts, broad range of currencies, long maturities
Attractive interest rates (lending at close to the cost of borrowing)
Catalytic effect on participation of other banking or financial partners
Main facilities:
Direct Loans (large-scale projects, more than EUR 25m)
Intermediated Loans (small and medium-scale projects, particularly to
SMEs, via national and regional intermediary banks)
Innovative financing instruments :
Structured Finance Facility (to fund projects with a higher risk profile)
Investments in Equity Funds (e.g. Marguerite)
Risk Sharing Finance Facility (with EC, to support technology platforms
and R&D)
Europe 2020 Project Bond Initiative (credit enhancement mechanism,
currently under evaluation)
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Definition of Security of Energy Supply
Market-centric definitions of energy security
Availability – physical element
Affordability – economical element
Most widely used definition: the availability of a regular supply of
energy at an affordable price (IEA, 2001)
Whether energy insecurity stems from price or physical availability
concerns depends on the nature and the effectiveness of price-volume
linkages in the market (IEA, 2007)
Broader definitions of energy security include:
Accessibility – geopolitical element
Acceptability – environmental element
Multiple dimensions: time/space
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Energy Security in European Policies
Energy 2020. A strategy for competitive, sustainable and secure
energy
COM(2010)639, 10 November 2010
Security of electricity supply
2005/89/EC
Security of natural gas supply
2004/ 67/EC
Proposal of Regulation COM(2009)363 / European Parliament
legislative resolution of 21 September 2010
Strategic oil stocks
2006/ 67/EC
2009/119/EC
Aim: more interaction with IEA crisis mechanism
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Energy Security Externality
A theoretical justification for public policy on energy security
Externalities refer to the spill-over effects (costs or benefits) of one
person’s activities on another person’s welfare.
For European policy-makers energy security is an important issue as
private decisions about energy use (production, consumption, import,
investments) may not fully internalise the cost of energy insecurity
disruptions in supply and dramatic price increases have macroeconomic
impacts that individual consumers/firms do not take into account
market failure
Therefore, it is important from a policy perspective to estimate the size
of the external costs of energy arising from energy insecurity.
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Identifying and Quantifying Externalities
Providing policy guidance
External costs need to be:
identified
quantified
translated in monetary terms (i.e. convert externality in a unit value, e.g.
€/MWh)
Quantifying the level of the externality is the most useful approach
with respect to providing policy guidance since externality may directly
be translated into the magnitude of a tax
This represents a useful tool to internalize the externality and correct
this market failure.
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Limits of the Existing Approaches
Providing policy guidance
At present, there is no definitive methodology for calculating or
assessing externalities associated with energy security and for
quantifying the external security cost in a robust way.
Policies towards internalisation of energy security externalities are still
in their infancy, since measurements of energy security externalities
remain a complex and difficult exercise.
Some valuation models:
Macroeconomic effects of energy insecurity (Costantini, Gracceva, 2004)
Interruption costs (Ajodhia, 2006)
Damage vs. control costs (Owen, 2004)
Willingness to pay for network reliability (Munasinghe, 1980)
Value of lost load (Welle, Zwaan, 2007)
Costs of energy security policy (Arnold, Hunt, Markandya, 2009)
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EIB is Researching a Methodology
To quantify and monetize security of energy supply
Main purpose of the EIB research with Bocconi University (Milan,
Italy) is to provide a tool, easy to apply, for the assessment of the cost
of security of energy supply
In its mathematical formulation, the security of energy supply
externality should have two elements:
a physical component (related to volumes)
a pricing component (related to price volatility)
Properly quantifying the security of supply externality would support:
the economic appraisal of energy projects (cost/benefit analysis)
the establishment of energy policies
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For more information
http://www.eib.org/
[email protected]
Tel: (+352) 43 79 - 22000
Fax: (+352) 43 79 - 62000
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