Regulations in the Energy Industry

The characteristics of the energy industry lead to natural monopoly. The technological and economic features of the industry are such that a single provider is often able to serve the overall demand at a lower total cost than any combination of smaller entities could. Competition cannot thrive under these conditions. For this reason, the regulations on this industry are not only targeted at fair pricing but also ensuring reliability and safety. Regulations on energy industry also target at their environmental impact as well. This book provides cross country studies on the financial, economic, and legal aspects of the regulations of energy firms.

Although the EU-ETS is implemented in all member states as the cornerstone of Europe’s climate policy, there is still significant cross-country variation in the stringency of its implementation. In this chapter, we explore how these differences between home and host countries of international business groups explain carbon emissions at the affiliate level. Using an extensive dataset of business groups with facilities covered by the EU-ETS, we find evidence of intragroup regulatory arbitrage (RA) in that affiliates with foreign parent companies show significantly higher carbon emissions compared to domestically owned affiliates. Moreover, stringency of the host country’s implementation of EU-ETS only reduces affiliates’ emissions for domestically owned affiliates while stringent implementation at parent level seems to exacerbate carbon emissions at affiliate level. However, this RA-behavior is strongly influenced by the affiliate’s carbon allowances. In line with recent results on the effectiveness of the EU-ETS, affiliates with carbon allowance shortages (under-allocated) provide fewer opportunities for intragroup regulatory arbitrage. Our results therefore not only stress the importance of cross-country uniformity of EU-ETS implementation but also the allocation mechanism at firm level for the proper functioning of the cap-and-trade system.

This chapter aims to provide insight on the energy efficiency concept, which is getting progressively important with increased awareness on environmental issues and rising demand and costs of energy. Within the scope of energy efficiency, a contemporary approach is the energy management system (EnMS) that represents continuous and systematic efforts for energy improvements. After discussing the basics of both concepts, we conduct an empirical analysis in Turkish manufacturing industry firms that applied EnMS principles and carried out energy efficiency increasing activities between 2015 and 2017. In the empirical analysis, we make use of data collected in the scope of a recent project implemented by the Ministry of Energy and Natural Resources in cooperation with the United Nations Development Programme (UNDP) and United Nations Industrial Development Organization (UNIDO), with funding from the Global Environment Facility (GEF). The data includes information about several small-/medium-/large-scale manufacturing firms that have been carrying out energy efficiency activities at different sizes. We approach to the data from two perspectives and provide firm-based evaluations and activity-based evaluations. Our modeling scheme includes both energy-related (capacity, energy savings, emission savings) and financial indicators (cost, financial savings) to observe the performance of applied projects and applying firms. The aim of the empirical part includes providing evidence from a microlevel analysis of how EnMS policies can be efficient in line with identifying the prominent energy efficiency activities and determining the most efficient sub-sectors. We employ a well-known relative efficiency measurement methodology, data envelopment analysis, and present results at sub-sectoral level and identify the efficient sectors. The efficient projects are identified and discussed relying on their size. The evaluations on projects are also supported with a simulation model to observe the level of robustness in efficiency scores. All evaluations also consider two different subsets of the firms as ISO certification holders and small- and medium-sized enterprises (SMEs). We derive conclusions on EnMS applications at firm, sub-sectoral, and activity level.

As the underlying technology behind Bitcoins, blockchains have attracted the attention of entrepreneurs, policymakers, and academics alike. Its potential to facilitate transactions, coordination without a central authority, and its capacity to support smart contracts are likely to open the door for its application to numerous settings. One of the more prominent applications is the clean energy sector. This chapter provides insights on how this novel technology that offers disintermediation, transparency, and flexibility is providing new ways of interaction to tackle challenges of communication, coordination, and efficiency in the clean energy sector. Along with providing a brief overview of the blockchain technology, we discuss some of the prominent clean energy applications of the technology, such as micro energy exchange grids, cap and trade, and electrical vehicle charging networks. Furthermore, the chapter includes empirical evidence on initial coin offerings (ICOs) launched by projects focusing on various aspects of development of renewable energy sector. We identify six prominent themes of services, namely, clean cryptocurrency mining, energy exchange, project financing, investment intermediation, network building, and hosting incentive programs. Furthermore, we find that clean energy ICOs tend to be more successful than other similar ICO projects.

Hydrocarbons are valuable only if they can be transited from where they are produced to where they are consumed. Despite the enduring importance of transit to the global energy system, the topic did not begin to be extensively analyzed until contentious relations between Russia and Ukraine disrupted natural gas flows to Europe in 2006. This chapter examines the geopolitics and security of transiting gas through pipelines by exploring the connection between geography, global energy strategies, and natural gas markets. Gas has grown in recent years as a percentage of global energy consumption and is helping the world transition to a cleaner energy regime. At the same time, it is intensifying the contest for and control of gas-transit routes. Russia, the world’s second-largest producer, has built new pipelines to Europe since 2006 in order to diversify its flow from relying on Ukraine, while the USA, the world’s largest gas producer, is increasingly exporting liquefied natural gas (LNG) through sea routes mostly controlled by the US navy. We argue that geostrategic calculations will more profoundly affect gas transit in the future and that countries that rely solely on market or commercial factors for their gas-transit security will become increasingly vulnerable to geopolitical volatility.

One of the biggest challenges facing the modern world is competition and conflict over the sharing of energy resources within the international system. Energy security challenges among the nations have emerged as a result of the unequally distributed fossil fuel resources around the world. Tapping the Renewable Energy Source (RES) potential is becoming critically significant in the face of depletion of conventional energy sources and their negative impact on the environment. Therefore, as a geopolitically important actor, Turkey has set some RES targets for 2023 and tries to achieve these targets with supportive regulations and legislation to raise its standards to European Union levels. Firstly, this chapter presents the RES potential and the current level of RES development in Turkey. Furthermore, it also discusses various impediments against the rapid progress of RES investments and reaching the RES targets in Turkey. Overall, we conclude that Turkey has a remarkable economic RES potential, which is largely untapped both in Turkey but also elsewhere around the world. This is mainly due to various barriers, such as lengthy administrative procedures, stop on license provision observed in various instances and economic issues. Therefore, in the current situation, it seems that the 2023 targets can be reached only if hard and consistent work and policies are continued in Turkey.

This chapter investigates the financing decisions of oil and gas companies in various countries for the period from 2001 to 2015. We focus on the determinants of proportions of both internal (cash flows) and external (debt and equity) funds used in the financing of capital expenditures and aim to understand which theories explain the financing decisions of oil and gas companies. The results provide strong support to the dynamic trade-off theory and partial support to the pecking order and market timing theories. The choice of financing source depends on the shareholder protection at the country level. Companies in countries with a high level of shareholder protection are willing to issue more equity than companies in countries with a low level of shareholder protection.

Eco-efficiency is achieved by creating more value with less environmental impact. Since small- and medium-sized enterprises (SMEs) are responsible for most of the production in the industrial output, their adoption of and awareness about elements of eco-efficiency is crucial for green growth. In this study, we investigate the attitudes of Turkish SMEs over three items concerning eco-efficiency: (1) increasing resource efficiency investments, (2) producing more environmentally compatible “green” products or services, and (3) the consumption of energy from renewable resources. To this end, we utilize data on Turkish SMEs from the 2017 wave of the Flash Eurobarometer, Small- and Medium-Sized Enterprises, Resource Efficiency and Green Markets (GESIS) dataset and conduct descriptive analyses. Our investigation of 299 SMEs from Turkey reveals that there is a distance between Turkish SMEs and the elements of eco-efficiency. Many firms criticize the administrative and legal barriers to resource efficiency investments and acknowledge the need for external support to improve resource efficiency. The results also indicate that most of Turkish SMEs are unwilling to produce green products or services. Furthermore, only a small fraction of the SMEs relies on renewable sources for self-generation. As SMEs construct a sizeable portion of the output in the economy, these results show that the contribution of SMEs to green growth will be lacking in the coming years, unless further action is taken, and supported by the Turkish government.

The oil prices declined from a peak of $115 per barrel to under $35 between June 2014 and February 2016. This decline was due to the decision of the Organization of Petroleum Exporting Countries (OPEC) to maintain an oversupply in November 2014, despite declining demand for crude oil and the United States’ growing shale capacity. We examine whether the decline in oil prices can be attributed to the impact of OPEC oversupply on stock market volatility in the G7 countries. We apply a vector autoregressive model in a multivariate generalized autoregressive setting with the dynamic conditional correlation. The results indicate bilateral volatility spillovers since the beginning of the 2014 oversupply period. Dynamic correlations between oil and stock prices started to increase but, in the middle of 2016, started to decrease again after rebalancing. Oil price decreases seemed to increase the conditional correlations between oil and the stock market in the USA, Europe, Japan, and Canada as investors responded positively to oil price declines. Analyzing hedge ratios calculated from the conditional correlations and portfolios we establish, we find that optimal oil-stock portfolios outperforms index investment.

With the implementation of energy directives and increasing competition among the market players, energy firms face more uncertainty than past. As being one of the most prominent factors for energy firms, industry-specific regulations and directives related to the energy security and climate change have a considerable impact not only on their performances but also on their corporate strategies. In this chapter, we investigate the impact of the energy directives on the corporate cash holding decisions of the energy firms in Europe. Using a large number of firms and a variety of econometric approaches, our findings suggest that there are significant differences among countries in terms of cash holding decisions and the impact of energy directives. We find that the energy firms in the Northern and Western Europe increase their cash holdings as a buffer against the unexpected cash shortages with the implementation of the Second and Third Energy Directives. However, directives do not have any impact on the cash accumulation of the energy companies in the UK and Eastern Europe. Our results also suggest that speed of adjustment toward the target cash position for the energy firms in Eastern Europe (Northern Europe) decreases (increases) with the implementation of the Second and the Third Energy Directives. Overall, the results suggest that energy directives have a strong influence on the energy firms in Northern, Western, and Eastern Europe, but firms in the UK are less sensitive to the changes in the industry dynamics in terms of cash accumulation and the speed of adjustment toward the target cash position. The findings of this study shed important lights on how industry-specific regulations affect the cash holding decision of energy firms, which is often a neglected issue in the energy economics.

Conventional asset pricing theory predicts that expected stock returns are driven by systematic risk. In this context, we investigate the determinants of systematic risk of renewable energy firms. To do so, we estimate a dynamic beta model using a cross-country panel data set of 578 renewable energy firms from 52 countries for the period 2005–2016. We employ both global and country-specific factors to explain both variation over time and variation between firms in their systematic risk. The results show that systematic risk of renewable energy firms is negatively influenced by oil returns and that country-level net-imports, environmental policy stringency, and environmental policy stability explain differences in risk at the country level.

The increasing popularity of electric vehicles (EVs) is known to amplify the already present peaks in electricity demand. The possibility to remotely control and influence the charging of many EVs using the Internet of Things (IoT) via an aggregator has been proposed to optimize resource usage, to alleviate peak problems, and to exploit revenues that may be harnessed from fluctuating electricity prices. However, so far, the potential hinged on the acceptance of users, particularly the willingness to change their charging behavior. In this study, we develop an unobtrusive and easily implementable optimization method. Its effectiveness is tested on 360,000 charging sessions at public charging points in Amsterdam during the year 2015, providing a realistic assessment of the effects of optimization in terms of reduced costs, change in peak demand, and long occupancy of charging points. Based on the model, an average reduction of electricity costs between 20% and 30% can be achieved, depending on the day of the week. We also show that changing EV owner’s charging preferences such as starting earlier or later can benefit certain groups of EV drivers substantially and reduce electricity charging costs up to 35%.