Wednesday, January 25, 2017

The economics of renewable energy storage

Since the Industrial Revolution, the energy needs for human activities have increased exponentially, and power sources evolved accordingly, with “photosynthesis-dependant” energy sources like wood being replaced by coal and later by oil and gas (Wrigley 2013). However, for a long time storing and transporting energy has never been the object of any major technological revolution. Fossil fuels are easily transported for long distances and store a large amount of energy in relatively little space (high energy density). For more than a century, there were no incentives to look for alternative techniques to store energy, because fossil fuels were just so practical. 

The growing concern for climate change in the last decades, however, has emphasized that fossil fuels cannot be the final solution for the world’s energy needs. Renewable energy sources, however, pose new technological challenges, not only for the production of cheap energy, but also for the difficulty in guaranteeing a stable supply. Solar, wind and tidal energy are intermittent sources, introducing a problem that was never significant with fossil fuels: energy storage. To a large extent, technical progress will attenuate this issue over time, and many solutions are currently being developed – from classic pumped hydrostorage and thermal, to cleaner and more efficient batteries, to more articulate solutions such as flywheels, compressed air, gravitational, superconductive magnetic. However the process of storage faces physical limitations and so far these solutions are quite costly. 

Ultimately, energy storage is not only an engineering issue, but also a socio-economic one, which requires coordination across regions, energy markets and consumers. Yet the economic profession has only recently started approaching this topic. Lazkano et al. (2016) argue that innovation in electricity storage will increase the substitutability of fossil fuels for renewables, but may also encourage more research in non-renewable energy-saving technologies. A recent paper by Geoffrey Heal (2016) proposes a broad overview of the potential solutions for the challenges of energy storage. This article examines not only the development of storage technology, but also the use of multiple complementary renewables (geothermal, hydropower), increases in energy production even with excess capacity, creating a geographically diversified portfolio, and finally demand side management to reduce consumption at critical times.

All of these options can have important costs and drawbacks, and open new interesting areas for economic research. Many questions remain to be answered: what is the optimal combination of storage technologies? Should government support innovation or encourage socio-economic adaptation, like energy-saving behaviours? What types of markets would best cater for an intermittent energy market which does not use fossil fuels as a back-up? Can countries coordinate their storage sites across different geographical regions? Certainly in the future environmental economics will speak more to this type of issues.

Sunday, October 9, 2016

Sovereign wealth funds pull $90bn from asset managers

Article in the FT:

State-backed investment vehicles grapple with low commodity prices and disappointing returns.

Read on here.

Tuesday, October 4, 2016

New OxCarre research: Saving Alberta's Resource Revenues: Role of intergenerational and liquidity funds

New OxCarre research from:

Ton van der Bremer (University of Edinburgh) and Rick van der Ploeg (OxCarre)

Saving Alberta's Resource Revenues: Role of intergenerational and liquidity funds


We use a welfare-based intertemporal stochastic optimization model and historical data to estimate the size of the optimal intergenerational and liquidity funds and the corresponding resource dividend available to the government of the Canadian province Alberta. To first-order of approximation, this dividend should be a constant fraction of total above- and below-ground wealth, complemented by additional precautionary savings at initial times to build up a small liquidity fund to cope with oil price volatility. The ongoing dividend equals approximately 30 per cent of government revenue and requires building assets of approximately 40 per cent of GDP in 2030, 100 per cent of GDP in 2050 and 165 per cent in 2100. Finally, the effect of the recent plunge in oil prices on our estimates is examined. Our recommendations are in stark contrast with historical and current government policy.

Sunday, September 25, 2016

Mining matters: Natural resource extraction and local business constraints

Research on VOXEU from

Ralph de Haas (EBRD) and Steven Poelhekke (VU Amsterdam):

The extraordinary expansion in global mining activity over the last two decades, and its increasing concentration in emerging markets, has reignited the debate over the impact of mining on local economic activity. This column analyses how the presence of nearby mines influences firms in eight countries with large manufacturing and mining sectors. Mines are found to out-compete local manufacturing firms for inputs, labour, and infrastructure. However, mining activity is found to improve the business environment on a wider geographic scale.

Tuesday, September 20, 2016

New OxCarre research: Resource discoveries and FDI bonanzas

New OxCarre research from:

Gerhard Toews (OxCarre) and Pierre-Louis Vezina (King's College London)

This paper examines the effect of giant oil and gas discoveries on foreign direct
investment in developing economies using a new project-level dataset. We document
a large increase in non-extraction FDI in the 2 years following a giant discovery, an
event which is unpredictable due to the uncertain nature of exploration. We find
that FDI inows increase by 73% and that this wave is driven by a 37% increase
in the number of FDI projects as well as a 22% increases in source countries and
a 17% increase in target sectors. We interpret this FDI response as evidence for the
news-driven business-cycle hypothesis within a developing country setting and highlight
FDI bonanzas as an important development channel for resource rich economies.

Tuesday, September 13, 2016

Mongolia: Living from loan to loan

Article in the FT:

Since the commodities boom turned to bust, the country has traded self-sufficiency for indebtedness.

Read on here.

Wednesday, July 27, 2016

Poverty Maps and Darkness

From the updated OxCARRE paper [pdf,], Left in the Dark of Brock Smith [] and Sam Wills [] come these interesting maps on rural poverty.

Read on at Sam's website []