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NO. 2

Spring 2015

The Journal of Energy and Development
volume 40, number 2, spring 2015 (copyright 2015)

Martin Kment, “After the Turnaround in Energy Policy: Germany on the Road to a Planned
Economy?” The Journal of Energy and Development, volume 40, number 2 (spring 2015, copyright
2015), pp. 135-148.

The German legislature dictates that the expansion of energy networks must not only ensure security of
network and supply, but also be affordable, user-friendly, efficient, and environmentally sound. To make
this possible, the expansion begins with a requirements planning, the purpose of which is to determine the
probable demand on transmission capacities, defines expansion priorities, and determines the future ratio
of different forms of energy. The responsibility for the overall network development planning lies with
the private operators of the energy networks. The responsibility thereby corresponds with the network
operators’ own corporate responsibility for decision making with regard to infrastructure investment.
Parallel to the responsibility of the network operators is the responsibility of the state with regard to
infrastructure. The state is informed of the development and efficiency of the energy network
infrastructure and reviews the network planning envisaged. It also obliges the network operators to
operate a safe, reliable, and efficient energy supply network. The network operators’ requirements process
is therefore by no means conducted without legal constraints.
Under the provisions of the new Energy Act, the network operator has to lay down in a 10-year
network development plan the means by which it intends to comply with its legal obligations, with this
plan being subject to governmental control. It is only after the Federal Network Agency (FNA) has
carried out its regulatory review that the network development plan can lead to a federal-wide
requirements plan that is binding. If the creation of the federal requirements plan is still based quite
significantly on the estimates of the network operators, then they cannot deviate from this plan according
to its legislative enactment. What then occurs is that the state co-opts the private network operators to put
the network expansion into effect.
Once a requirements plan has been created, the FNA begins to look for route corridors for the
expansion projects envisaged and to make these corridors legally binding for future network expansion.
At the same time, the transmission system operators lose their freedom to decide autonomously on the
date that network expansion measures will be introduced. Since the coming into force of the Network
Expansion Acceleration Act in July 2011, they are required by the FNA to submit an application to obtain
regulatory approvals within a reasonable period of time, as long as they have not already submitted
beforehand the application required to begin the process on their own accord. The time limit can also be
given weight by a penalty payment.
These obligations of the state approval process are matched at the level of decision-making regarding
investment, since the largest obstacle to expansion is currently seen as lying in the network operators’
reluctance to invest. If the legal prerequisites for the energy network expansion have been created and the
network operator fails to make the necessary investments, then the FNA has to demand that the operator
make the necessary investment within a specific period of time. At the end of this period, the FNA may
instruct a third party to make the investment, with the network operator incurring the costs.
The fundamental principle of regulatory law, which lies in the essential freedom of private market
behavior, is lost sight of with these compulsory obligations to submit applications and to invest; we can
speak here in terms of a paradigm shift. Ultimately, the legal framework that regulatory law ideally
bestows upon the economic behavior of private actors is made considerably narrower by the Network
Expansion Acceleration Act. If the establishment of expansion requirements already is subject to control,
and if network operators are then obliged to initiate planning processes that are intended to implement the
requirements plan, and if this finally results in an obligation to invest, then the energy sector is turning,
slowly but surely, into a planned economic system. Regulatory law is thereby becoming alienated and its
performance noticeably impaired. The private network operator loses its authority to make a decision
regarding investment autonomously, even though it bears the economic risk of the investment. It must
make the necessary applications and invest later.
This entails disadvantages in practice: the displacement onto the energy network operators of the
investment risks and efforts triggered by the energy turnaround is certainly a clever move from a
governmental point of view, particularly from a financial perspective. The idea reaches its limits, though,
where the investment needs become excessive, and especially when they involve huge volumes of
investment that the private sector, in the form of a private investor, can no longer shoulder the financial
burden. The fate of the network operator Tennet TSO GmbH illustrates this quite clearly. Tennet has
stated that it has already invested six billion euros in network expansion (more than the gross national
product of Mauritania or Liechtenstein in 2010), but has been unable to muster the necessary 15 billion

Keywords: German energy policy; energy networks; German electricity supply networks; regulatory law;
Network Expansion Acceleration Act; energy turnaround

Ronald Huisman, David Michels, and Sjur Westgaard, “Hydro Reservoir Levels and Power Price
Dynamics: Empirical Insight on the Nonlinear Influence of Fuel and Emission Cost on Nord Pool
Day-Ahead Electricity Prices,” The Journal of Energy and Development, volume 40, number 2
(spring 2014, copyright 2015), pp. 149-187.

This paper examines the dependency of the hourly day-ahead electricity price on fundamentals in the
Nord Pool power market (Norway, Sweden, Finland, Denmark, and the Baltic States). We examine
whether power prices depend differently on supply and demand variables when hydro reservoir levels are
low than when they are high as we expect that the competitive environment changes as a consequence.
When reservoir levels are high, all hydropower producers want to sell to prevent invaluable spillovers,
which lead to competitive pressure. With lower reservoir levels, hydropower agents are more
conservation minded about their actions. We examine the change in dynamics using a supply and demand
model and split the sample in observations from periods with extreme low and high reservoir levels. We
show that the parameters of the supply curve model significantly differ over the two samples. In addition,
we show that the influence of the marginal costs on the price formation is significantly larger at lower
reservoir levels. The insights of this paper improve the understanding of power price dynamics in relation
with fundamentals.

Keywords: power prices, fundamentals, non-linear, hydropower, reservoir level, Nord Pool power market

Melike E. Bildirici, “Hydropower Energy Consumption, Environmental Pollution, and Economic

Growth,” The Journal of Energy and Development, volume 40, number 2 (spring 2014, copyright
2015), pp. 189–208.

The relationship among carbon dioxide emissions, economic growth, and hydropower energy
consumption was analyzed for Austria, Belgium, Denmark, Finland, France, Germany (1970–2011),
Iceland, Italy, Ireland, Portugal, Spain, Sweden, Switzerland (1981–2011), Turkey, and the United
Kingdom over the period from 1961–2011. For countries other than Austria and Germany, the
bidirectional causality hypothesis was confirmed. In these other countries, the feedback hypothesis
accepted the existence of a bidirectional causality between gross domestic product (GDP) and
hydropower consumption.

Keywords: economic growth, hydropower energy consumption, Kuznetz curve, ARDL, Toda and
Yamamoto, carbon dioxide (CO2 emissions)

Awatef Mejbri, Samira Haddou, and Jaleleddine Ben Rejeb, “Renewable Energy, Fossil Fuels, and
Economic Development: Evidence from Middle Eastern and North African Countries,” The
Journal of Energy and Development, volume 40, number 2 (spring 2015, copyright 2015), pp. 209–


In this paper, we analyze the causal relationship between economic growth and energy consumption,
renewable energy, and fossil fuels for eight countries (Algeria, Egypt, Iran, Israel, Jordan, Morocco,
Tunisia, and Turkey) in the Middle East and North Africa (MENA) within a multivariate panel
framework over the period 1980–2011. We apply the popular panel unit root tests—the Im-Pesaran-Shin
(IPS) test and the cross-sectional augmented Dickey-Fuller (CADF) test—and panel cointegration tests—
the Pedroni test and the Westerlund test—both of which account for possible cross-sectional
dependencies among the units included in the panel. To determine the causality relationship among
economic growth, fossil fuels, and renewable energy, we employ three panel causality estimators—the
generalized method of moments (GMM), the random coefficient model (RCM), and the dynamic ordinary
least squares (DOLS). The panel causality estimators reveal that renewable energy has a small positive
impact on gross domestic product (GDP). The limited positive impact implies that renewable energy use
is not yet fully exploited in this region. Conversely, fossil fuels are found to have the greatest positive
impact on GDP, implying that the MENA countries are highly dependent upon fossil fuels, such as those
fossil fuel-producing states of Algeria, Iran, and Egypt.

Keywords: renewable energy, fossil fuels, economic growth, Middle East, North Africa, MENA, panel
cointegration, cross section dependence, panel causality test, Algeria, Egypt, Iran, Israel, Jordan,
Morocco, Tunisia, Turkey

Linda Doman, “What Happens to the Long-Term Outlook for Liquids When Near-Term Prices
Collapse?” The Journal of Energy and Development, volume 40, number 2 (spring 2014, copyright
2015), pp. 229–245.

In September 2014, the U.S. Energy Information Administration (EIA) released its long-term
assessment of world petroleum and other liquid fuels in the International Energy Outlook 2014
(IEO2014). The projections that appear in this report were actually constructed in March 2014 and the
large downward movement in global crude oil prices that began in mid-2014 was not anticipated. Crude
oil prices are a major driver within EIA’s energy models, so it is appropriate to consider the uncertainties
associated with long-term projections, particularly in light of the recent price movements. This paper
begins with a look at the IEO2014 Reference case, EIA’s business-as-usual trend estimate that generally
assumes current laws and regulations are unchanged. The additional High and Low World Oil Price
scenarios are also discussed to demonstrate the differences in supply and demand outlooks in alternative
price scenarios. Next, short-term oil price forecasts—before and after the release of the IEO2014 report—
are reviewed to demonstrate how much changed in the year since IEO2014 projections were computed.
Finally, the potential impact of the short-term price changes on long-term projections is presented. (This
article is drawn from the author’s presentation to the 42nd annual international energy conference of the
International Research Center for Energy and Development, “Energy Prices Recovery—Why, How
Much, and Why?” Boulder, Colorado, April 13–15, 2015.)

Keywords: U.S. Energy Information Administration, International Energy Outlook 2014, oil price
scenarios, long-term outlook for petroleum and other liquids, energy market uncertainties

Frederic Teulon, “Economic Growth and Energy Transition: Overview and Review of the
Literature,” The Journal of Energy and Development, volume 40, number 1 (autumn 2014,
copyright 2015), pp. 247–262.

Climatic change is widely seen as the biggest environmental challenge of the 21st century. It is also an
economic challenge. The energy transition is placed here in a historic perspective, but we show that the
marginalization of fossil-based fuels leads to radically new stakes. The ongoing changes are stimulating
research by creating new subjects of study and eliciting new methodologies.

Keywords: energy transition, climate change policies, carbon tax, externalities, Kyoto protocol, EKC
hypothesis (environmental Kuznets curve)