Latest INNOPATHS publications

Impact assessment of climate policy on Poland’s power sector

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Abstract

This article addresses the impact of the European Union Emissions Trading System (EU ETS) on Poland’s conventional energy sector in 2008 – 2020 and further till 2050. Poland is a country with over 80% dependence on coal in the power sector being under political pressure of the European Union’s (EU) ambitious climate policy. The impact of the increase of the European Emission Allowance (EUA) price on fossil fuel power sector has been modelled for different scenarios. The innovation of this article consists in proposing a methodology of estimation actual costs and benefits of power stations in a country with a heavily coal-dependent power sector in the process of transition to a low-carbon economy. Strong political and economic interdependence of coal and power sector has been demonstrated as well as the impact caused by the EU ETS participation in different technology groups of power plants. It has been shown that gas-fuelled combined heat and power units are less vulnerable to the EU ETS-related costs, whereas the hard coal-fired plants may lose their profitability soon after 2020. Lignite power plants, despite their high emissivity, may longer remain in operation owing to low operational costs. Additionally, the results of long-term, up to 2050, modelling of Poland’s energy sector supported an unavoidable need of deep decarbonisation of the power sector to meet the post-Paris climate objectives. It has been concluded that investing in coal- based power capacity may lead to a carbon lock-in of the power sector. Finally, the overall  costs of such a transformation have been discussed and confronted with the financial support offered by the EU. The whole consideration has been made in a wide context of changes ongoing globally in energy markets and compared with some other countries seeking trans-formation paths from coal. Poland’s case can serve as a lesson for all countries trying to reducecoal dependence in power generation. Reforms in the energy sector shall from the very beginning be an essential part of a sustainable transition of the whole nation’s economy. They must scale the power capacity to the future demand avoiding stranded costs. The reforms must be wide-ranging, based on a wide political consensus and not biased against the coal sector. Future energy mix and corresponding technologies shall be carefully designed, matched and should remain stable in the long-term perspective. Coal-based power capacity being near the end of its lifetime provides an economically viable option to commence a fuel switch and the following technology replacement. Real benefits and costs of the energy transition shall be fairly allocated to all stakeholders and communicated to the society. The social costs and implications in coal-dependent regions may be high, especially in the short-term perspective, but then the transformation will bring profits to the whole society.

Written by Tadeusz Skoczkowski, Sławomir Bielecki, Arkadiusz Węglarz, Magdalena Włodarczak and Piotr Gutowski

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The importance of project finance for renewable energy projects

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Given the magnitude of investment needs into low-carbon power generation, the availability and cost of capital is crucial for successful energy transitions. Recently, a strong increase of non-recourse project finance (as compared to corporate finance on a project sponsor’s balance sheets) could be observed for power generation projects. Classical economic motivations for project finance are the prevention of contamination risk, and agency conflicts – however, these reasons do not apply for comparably small projects in low-risk environments, such as many renewable energy projects being realized today. This paper therefore assesses the importance of project finance for renewable energy projects in investment-grade countries, and the underlying drivers to use this kind of finance. Eight potential reasons for using project finance are distilled from economic and finance theory, and then empirically evaluated using a novel dataset for new power plant investments in Germany 2010–2015. Results show that in this extreme case with particularly low investment risks, project finance has much larger importance for renewables than for fossil fuel-based power plants. It is not used to reduce contamination risk or agency conflicts, but, instead driven by the “debt overhang” of non-utility sponsors such as independent project developers. We discuss implications for policy makers, the financial sector, as well as energy scholars concerned with power generation investment decisions.

Written by Bjarne Steffen

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Six principles for energy innovation

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Last month, the European Union marked the tenth year of its Strategic Energy Technology Plan. It is one of many policy initiatives worldwide to accelerate innovation in energy technologies to reduce greenhouse-gas emissions. As the window of opportunity to avert dangerous climate change closes, we urgently need to take stock of these initiatives — what works and why?

Written by Gabriel Chan, Anna P. Goldstein, Amitai Bin-Nun, Laura Diaz Anadon & Venkatesh Narayanamurti

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On order and complexity in innovations systems: conceptual frameworks for policy mixes in sustainability transitions

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The sheer complexity of sustainability transitions makes it vital to develop simplifying conceptual frameworks. Starting from the contrast between the mainstream innovation-economics and systems-innovation/evolutionary literatures, this paper begins by summarising the “Three Domains” framework, which relates technology innovation and adoption choices to different domains of socio-economic decision-making, at successively larger scales of time and social structures. We note the high-level implications for policy mixes and illustrate the main themes through three electricity technology examples (lighting, fossil fuel generation, and low carbon power systems), and use these also to show that the relative importance of different policy pillars may differ substantially according to the technology and context. We then relate this to the “innovation chain” (another simplifying framework) approach to vertical innovation and show how this can help to explain radical differences in innovation intensities between different sectors. We then expand the innovation chain framework from technology to the multiple journeys required for successful innovation, ordered according to levels of decision-making and hence domains. We conclude by indicating how this can help identify key blockages in energy transformations, and potentially help to reconcile the classical innovation-economics with systems innovation/evolutionary perspectives, and explain their currently divergent policy recommendations.

Written by Michael Grubb, Will McDowall and Paul Drummond

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Integrating techno-economic, socio-technical and political perspectives on national energy transitions: A meta-theoretical framework

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Economic development, technological innovation, and policy change are especially prominent factors shaping energy transitions. Therefore explaining energy transitions requires combining insights from disciplines investigating these factors. The existing literature is not consistent in identifying these disciplines nor proposing how they can be combined. We conceptualize national energy transitions as a co-evolution of three types of systems: energy flows and markets, energy technologies, and energy-related policies. The focus on the three types of systems gives rise to three perspectives on national energy transitions: techno-economic with its roots in energy systems analysis and various domains of economics; socio-technical with its roots in sociology of technology, STS, and evolutionary economics; and political with its roots in political science. We use the three perspectives as an organizing principle to propose a meta-theoretical framework for analyzing national energy transitions. Following Elinor Ostrom’s approach, the proposed framework explains national energy transitions through a nested conceptual map of variables and theories. In comparison with the existing meta-theoretical literature, the three perspectives framework elevates the role of political science since policies are likely to be increasingly prominent in shaping 21st century energy transitions.

Written by Aleh Cherp, Vadim Vinichenko, Jessica Jewell, Elina Bruschin and Benjamin Sovacool

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Rescue US energy innovation

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President Trump has proposed severe cuts to US government spending on energy research, development and demonstration, but Congress has the ‘power of the purse’ and can rescue US energy innovation. If serious cuts are enacted, the pace of innovation will slow, harming the economy, energy security and global environmental quality.

Written by Laura Diaz Anadon, Kelly Sims Gallagher & John P. Holdren

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Sociotechnical transition for deep decarbonization

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Rapid and deep reductions in greenhouse gas emission are needed to avoid dangerous climate change. This will necessitate low-carbon transitions across electricity, transport, heat, industrial, forestry, and agricultural systems. But despite recent rapid growth in renewable electricity generation, the rate of progress toward this wider goal of deep decarbonization remains slow. Moreover, many policy-oriented energy and climate researchers and models remain wedded to disciplinary approaches that focus on a single piece of the low-carbon transition puzzle, yet avoid many crucial real-world elements for accelerated transitions (1). We present a “sociotechnical” framework to address the multi-dimensionality of the deep decarbonization challenge and show how coevolutionary interactions between technologies and societal groups can accelerate low-carbon transitions.

Written by Frank W. Geels, Benjamin K. Sovacool, Tim Schwanen and Steve Sorrell 

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Vulnerability and resistance in the United Kingdom’s smart meter transition

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The Smart Meter Implementation Program (SMIP) lays the legal framework in the United Kingdom so that a smart gas and electricity meter, along with an in-home display, can be installed in every household by 2020. Intended to reduce household energy consumption by 5–15%, the SMIP represents the world’s largest and most expensive smart meter rollout. However, a series of obstacles and delays has restricted implementation. To explore why, this study investigates the socio-technical challenges facing the SMIP, with a strong emphasis on the “social” side of the equation. It explains its two primary sources of data, a systematic review of the academic literature coupled with observation of seven major SMIP events. It offers a history of the SMIP rollout, including a summary of 67 potential benefits as well as often-discussed technical challenges, before delving into pertinent non technical challenges, specifically vulnerability as well as consumer resistance and ambivalence. In doing so, the paper not only presents a critique of SMIP, it also offers a review of academic studies on consumer responses to smart meters, an analysis of the intersection between smart meters and other social concerns such as poverty or the marginalization of rural areas, and the generation of policy lessons.

Written by Benjamin K. Sovacool, Paula Kivimaa, Sabine Hielscher and Kirsten Jenkins

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Integrating uncertainty into public energy research and development decisions

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Public energy research and development (R&D) is recognized as a key policy tool for transforming the world’s energy system in a cost-effective way. However, managing the uncertainty surrounding technological change is a critical challenge for designing robust and cost-effective energy policies. The design of such policies is particularly important if countries are going to both meet the ambitious greenhouse-gas emissions reductions goals set by the Paris Agreement and achieve the required harmonization with the broader set of objectives dictated by the Sustainable Development Goals. The complexity of informing energy technology policy requires, and is producing, a growing collaboration between different academic disciplines and practitioners. Three analytical components have emerged to support the integration of technological uncertainty into energy policy: expert elicitations, integrated assessment models, and decision frameworks. Here we review efforts to incorporate all three approaches to facilitate public energy R&D decision-making under uncertainty. We highlight emerging insights that are robust across elicitations, models, and frameworks, relating to the allocation of public R&D investments, and identify gaps and challenges that remain.

Written by Laura Díaz Anadón, Erin Baker and Valentina Bosetti

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