Outreach

El 12 de marzo, Natalia Fabra impartirá la sesión magistral del encuentro annual de FINRESP, titulada “Retos de la política energética y climática”.

El pasado 8 de julio tuvo lugar la presentación del Reporte de Economía y Desarrollo (RED) “Energías Renovadas: Transición Energética Justa para el Desarrollo Sostenible” del Banco de Desarrollo de América Latina y el Caribe (CAF).

Esta nueva edición del RED subrayó la necesidad de llevar a cabo una transición energética justa, enfocada desde la perspectiva de América Latina y el Caribe, reconociendo las realidades particulares de cada país en la región y la necesidad de abordar los rezagos históricos del desarrollo.

Este espacio servió como plataforma para la presentación oficial de la nueva edición del RED, y reunió un grupo de expertos de alto nivel para dialogar en torno a propuestas concretas que viabilicen una transición energética justa y sostenible en América Latina y el Caribe.

Consulte la agenda del evento (aquí) y el Resumen Ejecutivo del Reporte (aquí)

Interview with Natalia Fabra (Carlos III University and guest speaker of the XII International Academic Symposium: Accelerating the Net-Zero Economy Transformation) on February 6th, 2023.

See the interview here.

El 27 de noviembre de 2023, Natalia Fabra respondió a unas preguntas para #twecos. En este enlace puedes leer la entrevista.

¿La transición energética en España es también una apuesta por el crecimiento económico del país?

La transición energética es un imperativo medioambiental. El futuro de nuestras sociedades no es compatible con el ritmo actual de emisiones contaminantes a la atmósfera, y es también un imperativo económico, porque sin ecología no hay economía… No olvidemos el daño que generan los riesgos climáticos, como inundaciones, incendios, elevación de nivel del mar, olas de calor…, sobre nuestras economías, y los costes de la adaptación al cambio climático. Tampoco olvidemos que, mientras que invertimos en mitigación para cambiar nuestro sistema energético, como inversiones en renovables, redes energéticas, almacenamiento, infraestructuras para la producción y la recarga de los vehículos eléctricos, para la producción del hidrógeno verde, etcétera, estamos también impulsando la economía a través de la generación empleo y de tejido industrial y empresarial. No estamos por tanto ante una disyuntiva entre economía y medio ambiente, sino ante una relación de complementariedad.

¿Cómo podría afectar al suministro energético la prolongación de la guerra en Ucrania?

El suministro energético en Europa no está en juego. Lo hemos visto durante las peores fases de la crisis. Europa ha sido capaz de sustituir la mayor parte de las importaciones de gas ruso con importaciones de gas natural licuado procedente de diversos países. A ello también ha contribuido la reducción del consumo energético y el aumento de la producción de energías renovables, que han permitido desplazar parte de la generación eléctrica con gas. No obstante, esto no quiere decir que los mercados energéticos en Europa sean inmunes a la guerra en Ucrania y a una no deseable prolongación del conflicto. Aún cuando el suministro energético no esté en peligro, las tensiones se traducen en aumentos de precios del gas, que se acaban traspasando a los mercados eléctricos porque, bajo su diseño todavía vigente, en un buen número de horas se paga toda la electricidad a precio de gas. Antes del conflicto, el gas rondaba los 18-20 €/MWh y la electricidad los 40-45€/MWh. Todavía hoy los precios del gas y la electricidad duplican esos valores. En 2022, el gas llegó a superar los 200€/MWh y el precio de la electricidad también se hubiera multiplicado por diez si el gobierno no hubiera puesto en marcha la solución ibérica. Si no queremos que se vuelvan a repetir estos periodos de elevados precios energéticos, que alimentan la inflación y la pobreza energética, y merman la competitividad de las empresas, tenemos que apostar con mayor ambición por las energías renovables, cuyos costes no están sometidos a las fluctuaciones de los precios de los combustibles fósiles, y por nuevos mecanismos regulatorios y de mercado que permitan a los consumidores beneficiarse de los menores costes de las renovables. Hasta que esto no ocurra, nuestras economías seguirán siendo vulnerables, a través de sus efectos sobre los mercados energéticos, a shocks de diversa índole. Ahora son conflictos bélicos, pero en el futuro pueden ser otros cisnes negros.

¿Qué elementos son imprescindibles en la defensa de la competencia?

Es imprescindible contar con una autoridad de competencia independiente, cuyos consejeros sean expertos en economía y derecho de la competencia, y que no tengan que dedicar su tiempo y recursos limitados a tomar decisiones que pertenecen a otros ámbitos, como energía, telecomunicaciones, transporte… La especialización aporta criterio, y el criterio, independencia. También es imprescindible que la autoridad de competencia disponga de recursos suficientes para contratar a personal cualificado, capaz de estudiar las decisiones con el rigor que aporta la economía y el análisis estadístico, con el fin de analizar de oficio sectores susceptibles de presentar problemas de competencia y poner en marcha campañas de promoción de la competencia, con capacidad para sancionar debidamente las infracciones sin que sus sanciones se pongan repetidamente en cuestión. Para ello, también es necesario disponer de tribunales especializados.

¿Qué importancia tiene la investigación en el mundo económico?

Parece un lugar común decir que la investigación debe jugar un papel fundamental, aunque a veces se olvide a la hora de priorizar los recursos que se dedican a ella. En el campo de la economía, la investigación nos permite comprender y cuantificar. Comprender por qué se producen ciertos fenómenos de diversa índole, como el encarecimiento de los precios, la persistencia de la pobreza, el deterioro del medio ambiente… Comprender qué políticas públicas deben ponerse en marcha para paliar los efectos negativos y potenciar los positivos, como diseñar la política de defensa de la competencia para evitar aumentos injustificados en los márgenes empresariales, diseñar un sistema fiscal más equitativo que reduzca las desigualdades, fomentar las inversiones en energías renovables y movilidad sostenible… Y guiar ese proceso de aprendizaje e identificación de los mecanismos que operan en cada caso con la cuantificación, para que la evidencia empírica ayude, lo cual no quiere decir que monopolice, a la toma de decisiones. Para que la investigación sea útil, es imprescindible que se haga desde la independencia. Y para ello, la financiación pública es indispensable. Esto también conviene no olvidarlo.

¿En qué áreas de investigación se ha especializado usted y con qué retos se ha enfrentado a la hora de desarrollar su trabajo?

Mi investigación pertenece al campo de la Economía Industrial, un campo muy amplio que estudia el funcionamiento de los mercados y el diseño de las políticas regulatorias, teniendo en cuenta que los agentes económicos –las empresas, los hogares- en muchas ocasiones se comportan de forma estratégica, esto es, teniendo en cuenta el efecto de las decisiones propias sobre las de los demás. A este campo pertenecen mis dos áreas de especialización, la Economía de la Regulación y la Competencia, y la Economía de la Energía y el Medio Ambiente, que a menudo combino para comprender, por ejemplo, cómo diseñar la regulación de los mercados eléctricos para potenciar la competencia, entre otros objetivos. Haber trabajado en este campo durante los últimos 25 años ha sido apasionante, porque me ha permitido presenciar y analizar los profundos cambios que han vivido los mercados energéticos y su regulación en este tiempo. La transición energética introduce nuevos retos para la regulación de estos sectores y para el diseño de las políticas públicas que permitan acelerar el cambio en la matriz energética de forma justa. Me siento afortunada por haber podido contribuir con mi investigación al debate y a la toma de decisiones en este ámbito tan relevante. 

El pasado 24 de mayo, Natalia Fabra fue entrevistada por Patricia Fernández de Lis y Carles Mesa en Las Tardes de RNE.

El tema de la entrevista versó en torno a la generación y consumo de energía verde, entre otros asuntos relacionados.

Puedes ver la entrevista completa, a partir del minuto 11:24, en este link.

David Andrés-Cerezo wrote this post on uc3nomics Blog, based on research by David Andrés-Cerezo and Natalia Fabra.

Renewable energy sources, such as solar and wind, are becoming increasingly popular to reduce our dependence on fossil fuels. However, these sources are also highly volatile, as their output fluctuates significantly across time and weather conditions: a solar farm cannot generate electricity after the sun sets, and a windmill does not run on calm days. Grid reliability requires that supply always meets demand, but the volatility of renewable energies makes it challenging. For this reason, energy systems worldwide seek solutions to shift supply from periods with abundant renewable energy to those when it is relatively scarce. This is where energy storage technologies come in. These technologies, including batteries, pumped hydro, and compressed air, are a remedy to counteract the variability of renewable energy sources. Moreover, their investment costs have sharply declined, making storage a potentially attractive option for promoting a quick and cost-effective energy transition.

Policy options and regulatory debate

How can renewable energies and storage technologies be encouraged? Is it enough to rely on market incentives, or are other support measures needed? The dramatic decline in the cost of renewable energy investments has promoted a rapid deployment of these technologies. In turn, the volatility of renewable energies will likely enlarge price arbitrage opportunities for firms looking to invest in storage. Finally, the availability of grid-scale storage will boost the value of renewable assets by reducing curtailment in periods when renewable production is large relative to demand. So, is that it?

This logic suggests that renewable energy and storage are complementary technologies, which reduces the need for further support. Still, regulators worldwide are implementing various policies to encourage investments in renewables and storage. For instance, the California Public Utility Commission has implemented a mandate requiring utilities to procure energy storage. Similarly, several European countries, such as Spain, are mandating battery investment as an eligibility requirement for renewable energy subsidies. Beyond the standard goal of correcting environmental externalities, these policy interventions may be motivated by coordination failures that prevent a quick transition to carbon-free power markets. But, are these policies equally effective at every stage of the energy transition? Should they be tailored to the characteristics of each market, such as their solar potential? How do policies to support one technology affect investment incentives for the other?

Modeling electricity markets with energy storage

In a recent article with Natalia Fabra, we seek to answer these questions by modeling investment and operation decisions in wholesale electricity markets. We then quantify the theoretical predictions with simulations of the Spanish electricity market under two scenarios with low and high renewables penetration and different levels of storage capacity.

In our theoretical model, competitive storage and generation firms first decide whether to enter the market and then choose how much to produce and store/release in each hour of each day. Storage operators benefit from arbitraging price differences over time: they buy (charge their batteries) when prices are low and sell (discharge their batteries) when prices are high. The availability of renewable energy affects their profitability as renewables generation might depress prices when the storage facilities charge (in this case, the profitability of storage goes up) or when they discharge (its profitability goes down). Likewise, storage affects the profitability of renewables positively or negatively depending on whether storage operators charge their batteries (which increases prices) or discharge them (which reduces prices) when more renewables are available.

How do we know whether renewables make energy storage operators better or worse off, and vice-versa? Our model predicts that the correlation between renewable availability and market prices is key to explaining their relationship. A negative (positive) correlation means that renewables tend to be available when prices are low (high), which is when storage charges (discharges), thus pushing up (down) the prices at which renewables sell their output, increasing (decreasing) their profitability. Similarly, if this correlation is negative (positive), deploying renewable capacity depresses prices when storage charges (discharges), thus increasing (decreasing) the profitability of storage.

When should we then expect this key correlation to be positive or negative? Electricity prices depend on consumption patterns and solar and wind availability patterns, which vary across markets. Hence, the sign of the correlation between prices and renewables is an empirical question. For this reason, we explore the interaction between renewables and storage in a given context: the Spanish electricity market.

Simulating the Spanish wholesale electricity market

We consider two scenarios: the Spanish electricity market as of 2019, when renewable penetration was relatively low (8.7 GW of solar and 25.6 GW of wind), and the market as it is expected by 2030, when solar and wind capacities are planned to reach 38.4 GW and 48.5 GW, respectively. For each scenario, we consider various levels of storage capacity from 4 GWh to 40 GWh. Figure 1 shows wind and solar production and electricity prices over an average day in 2019 (left panel) and 2030 (right panel). Figure 2 displays (average) hourly storage and release decisions in these two scenarios.

Figure 1: Prices and renewable generation over the day

Figure 2: Charging and discharging decisions over the day

Let us focus on solar production. Figure 1 shows that solar production is concentrated in the intermediate hours of the day. This implies that solar is positively correlated with prices when there are few solar farms (left panel), as solar peaks at noon when consumers’ demand is high. When solar production becomes abundant (right panel), the correlation between prices and solar production becomes strongly negative, as solar generation depresses market prices when available. As a result of this price impact, storage firms shift from charging during nighttime when solar penetration is low (left panel) to charging in the midday hours when solar generation is abundant (right panel).

What does this behavior imply for the profitability of solar plants and storage firms in the Spanish electricity market? At the early stages of the renewable deployment (left panel), entry by an additional solar farm has a negligible impact on storage profits, as the price at which storage charges during the night remains unchanged and solar production does not affect the prices at which storage firms sell their output. Similarly, adding storage capacity has no price impacts at times of solar availability. Hence, the profitability of solar and storage investments remains independent despite the positive correlation between prices and renewables.

However, a big expansion in solar capacity has two effects: it enlarges price differences across the day and makes the correlation between prices and solar production turn negative. As a result, battery utilization increases, and storage profits climb sharply. Similarly, increasing storage capacity from 4 GWh to 40 GWh substantially increases prices in midday hours when storage firms are filling their batteries. Since this coincides with the periods in which solar farms produce energy, their profits go up. This is further compounded by storage allowing more efficient use of solar assets since it reduces energy spills in periods of abundant solar production.

Policy implications

In sum, whether renewables and storage complement or substitute each other might vary from one market to another and differ across time. Policies to promote these technologies should evolve accordingly. In the early stages of solar capacity adoption, prices are typically positively correlated with solar production. Since solar generation is not abundant, it has no price impacts, and the profitability of storage remains independent of how much solar capacity there is. At later stages of the Energy Transition, solar generation depresses prices, turning the correlation between solar generation and prices negative. This implies that increasing storage makes solar firms better off, and increasing solar capacity makes storage firms better off, i.e., they become complements once the correlation is reversed.

Therefore, our findings suggest that a big initial push for renewable investment is necessary to trigger the complementarity between renewable energy and storage. Once the negative correlation kicks in, policies aimed at promoting one technology would come with the additional benefit of promoting the other, shifting the market to a more decarbonized long-run equilibrium.

But this does not set the question once and for all! Future electricity markets may have very different demand and supply patterns from those of today. Therefore, policy design should pay close attention to the specific characteristics of each market at different stages of the energy transition and evolve with it.

Further Reading:

Andrés-Cerezo, and D. Fabra, N. (2023) “Storage and Renewable Energy: Complements or Substitutes?”, Working paper.

About the authors:

David Andrés-Cerezo is Visiting Professor Carlos III University and EnergyEcoLab.  He is interested in Energy and Environmental Economics, and Political Economy.

https://sites.google.com/view/davidandrescerezo/main

Natalia Fabra is an industrial economist working in the field of Energy and Environmental Economics. She is Professor of Economics at Carlos III University.

https://nfabra.uc3m.es/

Last April 17, Mateus Souza wrote this post on uc3nomics Blog, based on research with Peter Christensen, Paul Francisco, Erica Myers, and Hansen Shao.

Improving the energy efficiency of buildings is often viewed as one of the most promising strategies for climate policy. Retrofit and renovation programs have great potential to abate carbon emissions by lowering households’ energy consumption, which also translates into lower energy bills. These programs can also improve air quality within homes (Tonn, Rose, and Hawkins, 2018) and may even help create jobs (ORNL, 2014). Given all these potential benefits, renovation projects are taking a central role in economic stimulus packets for decarbonization, and for recovering from the recent energy and COVID-19 crises. For example, through the EU’s Recovery and Resilience Facility (EC, 2022), Spain intends to “(support) the green transition through investments of over €7.8 billion in the energy efficiency of public and private buildings.” Similarly, the U.S. Inflation Reduction Act (White House, 2023) projects investments of “$9 billion for states and Tribes for consumer home energy rebate programs, enabling communities to make homes more energy efficient, upgrade to electric appliances, and cut energy costs.”

However, economic evaluations have found that the energy savings from these programs often do not meet expectations. In some cases, the average savings may be as low as 30% of the expected savings (Fowlie, Greenstone, and Wolfram, 2018). This substantially lowers the cost-effectiveness of these programs and puts into question their role in climate policy. Mateus Souza and co-authors dig into this issue with two recent articles. The first helps to identify economic and behavioral explanations of why a “performance wedge” exists between the projected versus the realized energy savings of efficiency programs (Christensen et al., 2021). The second asks whether it is possible to use machine learning tools to improve projections of energy savings, with the objective of better targeting funds to homes that are more likely to benefit from the programs (Christensen et al., 2022).

Decomposing the wedge

To better understand the “performance wedge” in energy savings, we studied the Illinois Home Weatherization Assistance Program (IHWAP). The program provides fully subsidized improvements to the heating, ventilation, and air conditioning (HVAC) systems of low-income family homes in the state of Illinois. We analyzed detailed program information, including data on housing structure, demographics, and energy consumption for more than 9,800 homes. Using a novel machine learning-based approach (Souza, 2019), we investigate the importance of three channels that may explain the wedge: 1) systematic bias in engineering measurement and modeling of savings, 2) work quality during installation of the upgrades (workmanship), and 3) the rebound effect (savings may be offset in case households systematically increase their thermostats once the system becomes more energy efficient).

Results suggest that bias in model projections is one of the primary contributors to the wedge. Up to 41% of the wedge can be explained by discrepancies between projected and realized savings in five major retrofit categories: air sealing, furnace replacement, wall insulation, attic insulation, and windows.  Results are particularly striking for wall insulation, as shown in Figure 1. The red squares are point estimates of how the performance wedge increases depending on expenditures in that measure, compared to homes that received zero wall insulation spending. The whiskers represent 95% confidence intervals. The figure shows, for example, that the wedge is approximately 20 percentage points higher for homes with wall insulation expenditures between $1,501 and $1,800.

Figure 1: Increased Performance Wedge by Spending on Wall Insulation

Heterogeneity in workmanship is also an important factor in explaining the wedge.  Results suggest that the wedge could be reduced by up to 43% if all workers performed at top levels. This implies that there exist potential gains from changing worker incentives, investing in contractor training, etc.  On the other hand, only a modest portion of the wedge may be explained by behavioral factors such as the rebound effect. Using data on the realized relationship between outdoor air temperature and energy consumption, we find that households modestly increased their thermostats after weatherization, accounting for only up to 6% of the wedge.

We also analyze the program’s cost-effectiveness by comparing the energy and carbon abatement benefits versus the costs of the retrofits. We find that, on average, each home the program serves is associated with net benefits of -$325. Although average net benefits are close to zero, disaggregated estimates reveal substantial heterogeneity, such that approximately 42% of homes generate positive net benefits, as shown in Figure 2. Therefore, certain types of projects are highly cost-effective, suggesting a potential role for targeting in this context.

Figure 2: Net Present Benefits of Retrofitted Homes

Potential gains from targeting

Within this context of substantial heterogeneity in net benefits, a natural follow-up question is whether it is possible to identify the high-return projects before they are actually implemented. We conducted another analysis with data from the same program but now using information available only before the homes were retrofitted. The idea is to mimic the role of a program implementer who is trying to predict the magnitude of net benefits prior to performing the retrofits. To maximize the total predicted net benefits from the program, the implementer would then choose to treat only homes with positive expected returns. This consists of an ex-ante prediction/targeting exercise, which differs substantially from an ex-post evaluation performed with information available many months after the renovations.

As a first step, we show that it is possible to accurately predict home-specific energy savings from the program by using machine learning techniques. In fact, we find that our predictions are accurate even when using a subset of publicly available variables (such as the size and the age of the home, the number of rooms, and the presence of an attic). We then rank homes from highest to lowest net present benefits and calculate the cumulative monetary benefits from retrofitting homes in that order. These results are presented in Figure 3. We compare our machine learning rankings (in orange) to an engineering ranking (in green) that currently guides funding allocation decisions within the program. These are also compared to a ranking with perfect foresight (in blue). Results show that the machine learning strategy outperforms the engineering model and could drastically improve program cost-effectiveness.  Within this sample, targeting high-return interventions based on machine learning predictions can dramatically increase net benefits from $0.93 to $1.23 per dollar invested.

Figure 3: Potential Gains from Targeting

Conclusions

Thanks to recent advances in information and data technologies, retrofit programs can readily incorporate machine learning-based strategies to help select among candidate projects. Energy efficiency programs are often sponsored by utilities that have recently developed the data infrastructure to store, query, and serve household billing data. Integrating predictions from machine learning models into those infrastructures would be straightforward. Although these models may be computationally demanding, they only need occasional updates. Once the results are obtained, they can be fed into the backend of existing software that already help with funding allocation decisions.

The importance of considering and implementing these types of tools continues to grow as energy efficiency remains central to climate policy discussions. Optimal allocation of these funds may be crucial to achieve ambitious climate goals. Future work within this context has yet to explore, for example, the distributional implications of targeting investments based solely on energy or climate-related benefits. Analyses of the health and potential job creation impacts of these programs also seem mostly missing from the economic literature.

Further Reading:

Peter Christensen, Paul Francisco, Erica Myers, and Mateus Souza (2021). “Decomposing the Wedge between Projected and Realized Returns in Energy Efficiency Programs.” The Review of Economics and Statistics (Forthcoming); https://doi.org/10.1162/rest_a_01087

Peter Christensen, Paul Francisco, Erica Myers, Hansen Shao, and Mateus Souza (2022). “Energy Efficiency Can Deliver for Climate Policy: Evidence from Machine Learning-Based Targeting.” NBER Working Paper 30467; https://www.nber.org/papers/w30467

Mateus Souza (2019). “Predictive Counterfactuals for Treatment Effect Heterogeneity in Event Studies with Staggered Adoption.” SSRN Working Paper 3484635; EEL Discussion Paper 107; https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3484635

About the authors:

Mateus Souza is a Postdoctoral Researcher at EnergyEcoLab, Department of Economics, Universidad Carlos III de Madrid.

https://sites.google.com/view/mateussouza/home

Peter Christensen is an Associate Professor of Economics at the University of Illinois at Urbana-Champaign.

https://www.uiuc-bdeep.org/christensen

Paul Francisco is the Associate Director for Building Science at the ICRT Applied Research Institute, University of Illinois at Urbana-Champaign.

https://appliedresearch.illinois.edu/directory/profile/pwf

Erica Myers is an Associate Professor of Economics at the University of Calgary.

https://sites.google.com/site/ericacatherinemyers/home

Hansen Shao completed his PhD in Economics in 2021 at the University of Illinois at Urbana-Champaign, and is currently an economic consultant based in China.

References:

European Commission (2022). “Recovery and Resilience Facility: The key instrument at the heart of NextGenerationEU to help the EU emerge stronger and more resilient from the current crisis”. Available online: https://commission.europa.eu/business-economy-euro/economic-recovery/recovery-and-resilience-facility_en

Fowlie, Meredith, Michael Greenstone, and Catherine Wolfram (2018). “Do Energy Efficiency Investments Deliver? Evidence from the Weatherization Assistance Program”. The Quarterly Journal of Economics 133, 1597-1644; https://academic.oup.com/qje/article/133/3/1597/4828342

Tonn, B., E. Rose, and B. Hawkins (2018). “Evaluation of the U.S. Department of Energy’s Weatherization Assistance Program: Impact results”. Energy Policy 118, 279-290; https://www.sciencedirect.com/science/article/abs/pii/S0301421518301836

Oak Ridge National Laboratory (2014). “Weatherization Works – Summary of Findings from the Retrospective Evaluation of the U.S. Department of Energy’s Weatherization Assistance Program”. ORNL Technical Report 2014/338; https://nascsp.org/wp-content/uploads/2017/09/ORNL_TM-2014_338.pdf

U.S. White House (2023). “Building a Clean Energy Economy: A guidebook to the Inflation Reduction Act’s investments in clean energy and climate action.” Available online: https://www.whitehouse.gov/wp-content/uploads/2022/12/Inflation-Reduction-Act-Guidebook.pdf

Renewable energies can be a powerful source of growth and prosperity. But it must be accompanied by a regulation allowing all consumers to benefit.

Two years of an unprecedented energy crisis have not been enough. It has not been enough that inflation in Europe has exceeded double digits, driven, among others, by the escalation of electricity prices and their translation to the prices of so many other goods and services. It has not been enough that this has contributed to the rise in interest rates by the European Central Bank (ECB), exacerbating the loss of households’ disposable income, making corporate investments more expensive, and devaluing the financial assets on bank balance sheets. It has not been enough that the increase in energy costs has jeopardized the competitiveness of European industry and, with it, the survival of some companies and jobs.

None of this has been enough for the European Commission to react with what would have been the most effective anti-inflationary measure: a pro-competitive reform of electricity markets. Its proposal does not bring anything new to prevent the episodes we have experienced during these years from repeating themselves. Nor does it provide the necessary instruments to address the energy transition in an efficient and equitable manner, allowing consumers to benefit from the lower costs of renewable energies and encouraging electrification as the main way to decarbonize the economy.

To prevent gas prices from contaminating electricity markets during crises, the Commission empowers Member States to regulate electricity prices for households. However, it does not specify how the difference between the price in the wholesale electricity markets – which will continue to be affected by gas prices – and the regulated retail price will be paid. Past and recent experience does not bode well. Minister Rodrigo Rato adopted a similar measure in Spain that resulted in the Electricity Tariff Deficit, almost 30 billion euros that all electricity consumers continue to pay. Similarly, during these two years, Member States, depending on their asymmetrical fiscal capacities, have cushioned the impact of energy costs through public aid. But in both cases, it is the electricity consumers and taxpayers who have ultimately ended up paying.

Regulating final prices does not avoid the problem because it does not tackle its root cause: the over-remuneration of some power generation plants (nuclear, hydroelectric, and renewables) when their production – with low costs, unrelated to gas fluctuations – is remunerated at prices that exceed three to ten times their own costs. Ursula von der Leyen had diagnosed this well in her State of the Union speech (“Low-carbon energy sources are earning enormous revenues they never dreamed of… [and which] do not reflect their production costs“) and so it is disappointing that the Commission’s proposal has ignored this indisputable reality. On the contrary, Member States should have been empowered to limit the remuneration of these plants, especially in cases where – as in Spain – these plants were installed before the implementation of the current electricity market, and for which the regulation always guaranteed the recovery of their costs, as has been indeed the case.

The Commission leaves industrial consumers unprotected, and recommends that they contract electricity at fixed prices to avoid volatility in their energy costs. But it forgets that the main problem is not volatility, but the price level. As it also forgets that it is not that the industry does not want to contract its electricity at stable and competitive prices, but that it is that it does not have the possibility to do so. There are not enough contracts with a long enough duration to cover the industry’s needs, and their prices are not competitive because they continue to reflect the prices of the short-term markets that inevitably are, under current regulation, their underlying reference.

The survival of the European industry depends on its energy costs being competitive. The best way to achieve this is not through subsidies but through an electricity market design that enhances competition. The current proposal offers little hope of mitigating the deindustrialization of Europe.

The Commission is right to preserve short-term markets to promote efficiency in electricity production. It is also right to denounce the lack of long-term contracting that should serve to encourage investment in renewables and the decoupling of electricity prices from gas prices. But it fails in the chosen mechanism: long-term bilateral private contracting between generators and large buyers (industrials or retailers). The Commission wants to encourage this type of contracting in three ways. On the one hand, it requires that Member States ensure the existence of sufficient contractual guarantees, which will require public aid. In addition to being costly for the public budgets, it could give rise to moral hazard problems. It also obliges electricity retailers to forward contract part of their sales, favoring integrated operators over independent operators, ultimately making the price of electricity more expensive for the end consumer. Finally, it proposes that the auctions held by the regulator should favor generators with these contracts, which would distort the efficient choice of renewable investments.

In any case, bilateral private forward contracting is not the solution. Besides being discriminatory against consumers with limited bargaining power -the vast majority-this type of contract does not solve customers’ coverage needs, and its opacity results in less competitive pressure and higher prices.

On the contrary, auctions of long-term contracts with the electricity system as counterparty -such as those held in Spain for investments in renewables- have proven to be effective in providing competitive and stable prices for the benefit of all consumers. Moreover, they give predictability to investments, a key issue for the industry to develop around the deployment of renewables. The Commission’s proposal should have required Member States to hold these auctions to cover a significant fraction of their investments committed through their national energy and climate plans. Not only has it failed to do so, but it recommends that these auctions be used as a last resort when the private bilateral contract market fails.

The electricity sector, hand in hand with the lower costs of renewable energies, can be a powerful source of economic growth and welfare. But it must be accompanied by an electricity regulation that ensures all consumers benefit from it. The choice of inappropriate regulatory instruments, such as those proposed by the Commission, could frustrate this. Just as it could frustrate the flourishing of a European industry around these investments or the avoidance of industry leakage. Finally, it is unacceptable for the Commission to allow electricity companies to benefit from “enormous revenues they never dreamed of” at the expense of European citizens and industry.

Now it is the turn of the European Parliament and the Council. It is their responsibility to redirect a disappointing proposal towards an electricity regulation that is up to the challenges.

Natalia Fabra

Professor of Economics, Carlos III University

This is a translated version of the Tribune published at EL PAIS on March 23, 2023

https://elpais.com/opinion/2023-03-23/europa-decepciona-en-la-cuestion-electrica.html

Europa decepciona en la cuestión eléctrica

De la mano de las energías renovables, el sector puede ser una fuente potente de crecimiento y bienestar. Pero tiene que ir acompañado por una regulación que asegure que todos los consumidores se beneficien de ello

Dos años de crisis energética sin precedentes no han sido suficientes. No ha sido suficiente que la inflación en Europa haya superado los dos dígitos, aupada, entre otros, por la escalada de los precios de la electricidad y su traslación a los precios de tantos otros bienes y servicios. No ha sido suficiente que ello haya contribuido a la subida de tipos de interés por parte del Banco Central Europeo (BCE), agudizando la pérdida de renta disponible de los hogares hipotecados, encareciendo las inversiones de las empresas y devaluando los activos financieros en los balances de la banca. No ha sido suficiente que el aumento de los costes energéticos haya puesto en riesgo la competitividad de la industria europea y, con ello, la supervivencia de algunas empresas y puestos de trabajo.

Nada de esto ha sido suficiente para que la Comisión Europea haya reaccionado con la que hubiera sido la medida antiinflacionista más eficaz: una reforma pro-competitiva de los mercados eléctricos. Su propuesta no aporta nada nuevo para evitar que los episodios que hemos vivido durante estos años se repitan. Como tampoco aporta los instrumentos necesarios para abordar la transición energética de forma eficiente y equitativa, permitiendo que los consumidores se beneficien de los menores costes de las energías renovables e incentivando la electrificación como vía principal para descarbonizar la economía.

Para evitar que en situaciones de crisis los precios del gas contaminen los mercados eléctricos, la Comisión habilita a los Estados miembro a regular los precios de la electricidad para los hogares. Sin embargo, no especifica cómo se va a pagar la diferencia entre el precio de los mercados eléctricos —que seguirá afectado por los precios del gas— y el precio regulado. La experiencia pasada y reciente no aporta buenos augurios. En España, el ministro Rodrigo Rato adoptó una medida similar que dio lugar al déficit tarifario, casi 30.000 millones de euros que todos los consumidores eléctricos seguimos pagando. De forma similar, durante estos dos años, los Estados miembro, en función de sus capacidades fiscales asimétricas, han amortiguado el impacto de los costes energéticos a través de ayudas públicas. Pero, en ambos casos, son los consumidores eléctricos y los contribuyentes los que, en última instancia, han acabado pagando.

Regular los precios finales no evita el problema porque no ataja su raíz: la sobrerretribución de algunas centrales de generación eléctrica (nuclear, hidroeléctrica y renovables) cuando su producción —de costes bajos, ajenos a las fluctuaciones del gas— es retribuida a precios que superan de tres a diez veces sus propios costes. Lo había diagnosticado bien Ursula von der Leyen en su discurso del Estado de la Unión (“Las fuentes de energía bajas en carbono están obteniendo ingresos con los que nunca soñaron… [y que] no reflejan sus costes de producción”) y por eso decepciona que la propuesta de la Comisión haya ignorado esa realidad incontestable. Por el contrario, se debía haber habilitado a los Estados miembro a limitar la retribución de estas centrales, máxime cuando en algunos casos —como en España— se trata de centrales previas a la implantación del mercado eléctrico vigente, y a las que la regulación siempre garantizó la recuperación de sus costes, como así ha sido.

La Comisión deja desprotegidos a los consumidores industriales, a quienes recomienda que contraten la electricidad a precios fijos para evitar la volatilidad en sus costes energéticos. Pero olvida que el principal problema no es la volatilidad, sino el nivel de precios. Como olvida también que no es que la industria no quiera contratar su electricidad a precios estables y competitivos, es que no tiene la posibilidad de hacerlo. No hay suficientes contratos a un plazo suficiente para cubrir las necesidades de la industria, y sus precios no son competitivos porque siguen reflejando los precios de los mercados de corto plazo que inevitablemente son, bajo la actual regulación, su referencia subyacente.

La supervivencia de la industria europea depende de que sus costes energéticos sean competitivos. La mejor manera de conseguirlo no es a través de subvenciones, sino a través de un diseño del mercado eléctrico que potencie la competencia. Bajo la propuesta actual, difícilmente se evitará la desindustrialización de Europa.

La Comisión acierta al preservar los mercados a corto plazo para promover la eficiencia en la producción eléctrica. También acierta al denunciar la falta de contratación a largo plazo que debería servir para fomentar las inversiones en renovables y el desacople de los precios de la electricidad de los del gas. Pero falla en el mecanismo elegido: la contratación bilateral privada a largo plazo entre generadores y grandes compradores (industriales o comercializadores). La Comisión quiere favorecer este tipo de contratos por tres vías. Por una parte, pide que existan garantías contractuales suficientes, lo que exigirá ayudas públicas que además de ser onerosas para las arcas públicas, podrían dar lugar a problemas de riesgo moral. También obliga a las comercializadoras de electricidad a contratar a plazo parte de sus ventas, favoreciendo a los operadores integrados frente a los comercializadores independientes, y encareciendo el precio de la electricidad para el consumidor final. Y, por último, propone que en las subastas que realice el regulador se favorezca a los generadores con energía contratada a plazo, lo que distorsionaría la elección eficiente de las inversiones en renovables.

En cualquier caso, la contratación bilateral privada a plazo no es la solución. Este tipo de mercados, además de ser discriminatorios con los consumidores sin capacidad de negociación —la inmensa mayoría—, no solucionan las necesidades de cobertura de los clientes, y su opacidad se traduce en una menor presión competitiva y mayores precios.

Por el contrario, las subastas de contratos a largo plazo con el sistema eléctrico como contraparte —como las celebradas en España para las inversiones en renovables— han demostrado ser eficaces para aportar precios competitivos y estables en beneficio de todos los consumidores. Además, dan predictibilidad a las inversiones, cuestión fundamental para que se desarrolle la industria en torno al despliegue de las renovables. La propuesta de la Comisión debía haber exigido a los Estados miembro celebrar estas subastas para cubrir una fracción significativa sus inversiones comprometidas en sus planes nacionales de energía y clima. Y no sólo no lo ha hecho, sino que recomienda que estas subastas se utilicen como un último recurso cuando el mercado de contratos bilaterales privados falle.

El sector eléctrico, de la mano de las energías renovables y de sus menores costes, puede ser una fuente potente de crecimiento económico y bienestar. Pero tiene que ir acompañado por una regulación eléctrica que asegure que todos los consumidores se beneficien de ello. La elección de instrumentos regulatorios inadecuados, como los que propone la Comisión, podría frustrarlo. Como también podría frustrar el que florezca una industria europea en torno a estas inversiones, o el que se evite la fuga de la industria. Por último, no es admisible que la Comisión consienta que la regulación eléctrica ampare rentabilidades con las que las empresas eléctricas “nunca soñaron”, a expensas de los ciudadanos y de la industria europea.

Ahora es el turno del Parlamento Europeo y del Consejo. Reconducir una propuesta decepcionante hacia una regulación eléctrica a la altura de los retos es su responsabilidad.

The conference Antitrust, Regulation & Political Economy took place in Brussels last March 2, 2023. Chaired by Cristina Caffara, the conference joined leaders from academia, government, and antitrust agencies to discuss the challenges facing policymaking and antitrust enforcement today.

Natalia Fabra participated in the session “Market Power in a Post-Neoliberal World”, together with Dani Rodrik (Harvard), Luigi Zingales (Chicago), Silvana Tenreyro (LSE), Thomas Philippon (NYU), John van den Reenen (LSE), Jan Eeckhout (UPF).

The video of this session is available here.

The program and more information about the conference is available here.