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The main scientific investigations carried out by department “LOW CARBON PROGRAMME: Fundación Repsol / UPV-EHU / BC3 Joint Initiative on the Economics and Policy of Energy and Climate Change”:

  • Working Paper 1: “Valuation of wind energy projects: A real options approach”
    Luis M. Abadie and José M. Chamorro
    Download WP1 2012-11 Keywords: wind farms, electricity, stochastic load factor, futures mar- kets, real options.
    Date: 2012-10-17
    Issue: 2012-11

    This paper addresses the valuation of an operating wind farm and the finite-lived option to invest in such a farm under diferent reward and/or support schemes. They range from a feed-in tarif to a premium on top of electricity market price, to a transitory subsidy to capital expenditure. The availability of futures contracts on electricity with ever longer maturities allows to undertake valuations based on market data. The model considers two sources of uncertainty, namely the future electricity price (which shows seasonality) and the level of wind generation (which is intermittent in addition to seasonal). Lacking analytical solutions we resort to a trinomial lattice (which supports mean reversion in prices) combined with Monte Carlo simulation at each of the nodes in the lattice. Our data set refers to the UK. The numerical results show the impact of a number of factors involved in the decision to invest: the subsidy per unit of electricity generated, the initial lump-sum subsidy, the investment option’s maturity, and price volatility.

  • Working Paper 2: “Economic Efficiency, Environmental Effectiveness and Political Feasibility of Energy Efficiency Rebates: The Case of the Spanish Energy Efficiency Renove Plan”
    Ibon Galarraga, Luis M. Abadie and Alberto Ansuategi
    Download WP 2 2013-05
    Keywords: Energy efficiency rebates, deadweight losses, rebound effect
    Date: 2013-02-01
    Issue: 2013-05

    Energy labels are used to promote the purchase of efficient appliances. Many countries in Europe use subsidies (namely energy efficiency rebates) to support these purchases as it is the case of Spain. A figure ranging from 50 to 105€ subsidy has been granted in the past for the acquisition of the most efficient appliances. This paper first analyses the impact of a 80€ subsidy on the dishwasher market and compares the results with a 40 € tax for non-labelled ones. The results take into account the effects that the policies generate in the market segment that is a close substitute, that is, cross effects. The paper shows that the subsidy is expensive for the Government, generates some welfare losses and it also generates a rebound effect as a consequence of the increase in the total number of appliances sold. The 40 € tax does not cost money to the Government, it generates a lower welfare loss and reduces the energy bill. However, the analysis is extended to go beyond the two extreme scenarios: subsidies without taxes and taxes without subsidies. Different combinations of both instruments are suggested and they are assessed based on their performance regarding economic efficiency, environmental effectiveness and political feasibility.

  • Working Paper 3: “Evaluation of Two Alternative Carbon Capture and Storage Technologies: A Stochastic Model”
    Luis M. Abadie, Ibon Galarraga and Dirk Rübbelke
    Download WP3 2013-07
    Keywords: carbon capture and storage; enhanced oil recovery; power plants; stochastic model; futures markets; real options.
    Date: 2013-03-06
    Issue: 2013-07

    In this paper we evaluate two alternative CCS technologies of a coal-fired power plant from an investor’s point of view. The first technology uses CO2 for enhanced oil recovery (EOR) paired with storage in deep saline formations (DSP) and the second one just stores CO2 in DSF. For projects of this type there are many sources of risk, and three sources of uncertainty stand out: the price of electricity, the price of oil and the price of carbon allowances. In this paper we develop a general stochastic model that can be adapted to other projects such as enhanced gas recovery (EGR) or industrial plants that use CO2 for either EOR or EGR with CCS. The model is calibrated with UK data and applied to help understand the conditions that generate the incentives needed for early investments in these technologies. Additionally, we analyse the risks of these investments.

  • Working Paper 4: “The use of Bonus-Malus schemes for promoting energy-efficient household appliances: a case study for Spain”
    Ibon Galarraga and Luis M. Abadie
    Download WP3 2014-06 Keywords: energy efficiency, Spain, rebates, appliances, rebound effect..
    Date: 2014-09-22
    Issue: 2014-06

    Subsidies to promote the purchase of energy-efficient household appliances have been extensively used in many countries. This paper deals with the case of the Spanish rebate scheme, and proposes the use of both subsidies and taxes as a more effective way of promoting efficient appliances. The authors propose a sophisticated methodology for designing optimal combinations of taxes and subsides depending on different policy goals such as budget neutrality, increasing the proportion of efficient appliances, etc.

  • Working Paper 5:
    “La pobreza energética y sus implicaciones”
    Mikel González-Eguino
    Download WP3 2014-08
    Keywords: energy poverty; energy access; indoor air pollution; economic development. Pobreza energética; acceso a la energía; contaminación interior; desarrollo.
    Date: 2014-11-24
    Issue: 2014-08

    El sector energético se enfrenta en las próximas décadas a tres grandes transformaciones relacionadas con el cambio climático, la seguridad de suministro y la pobreza energética. Las dos primeras han sido analizadas ampliamente. Sin embargo, la pobreza energética ha pasado más desapercibida a pesar de tener una gran influencia en la vida de millones de personas, especialmente en los países más pobres.
    Actualmente, 1.300 millones de personas (el 20% de la población mundial) no tienen acceso a la electricidad y 2.700 millones dependen del uso de la biomasa para cocinar. La pobreza energética tiene implicaciones importantes para la salud, la economía y el medio ambiente. Según la OMS, 1,3 millones de personas mueren al año por causas relacionadas con la contaminación interior asociada al uso de biomasa en cocinas inadecuadas. Aunque la pobreza energética no puede ser desligada del problema más amplio y complejo de la pobreza, el acceso a infraestructuras energéticas evitaría sus peores consecuencias y ayudaría a fomentar un desarrollo más autónomo. Según la IEA, el coste de universalizar el acceso a la energía para 2030 supondría una inversión anual de 35.000 millones de dólares; una cantidad muy inferior a las subvenciones otorgadas a las energías fósiles y equivalente al 2% de las tarifas eléctricas en los países de la OCDE.