Inter-Organizational Trust as a Shift Parameter in the Extended Transaction Cost Framework: A first Application to the LNG Industry.

This paper provides an empirical analysis examining the effect of both transaction characteristics and the institutional environment on governance choice. Using a dataset of 237 corporate-specific value chains in the global LNG industry, we introduce inter-organizational trust as a shift parameter. Following transaction cost economics, it is hypothesized that specific investments under uncertainty provide incentives to integrate vertically. Second, it is argued that inter-organizational trust changes the relative costs of vertical integration and non-integration and supports less hierarchical organizational structures. These economic relationships are tested based on probit and ordered probit models. Estimation results provide broad support for both propositions.Inter-organizational trust, liquefied natural gas, shift parameter, transaction cost economics, vertical integration

Changing Contract Structures in the International Liquefied Natural Gas Market : A First Empirical Analysis

Ce papier présente une analyse empirique des contrats de livraison de gaz naturel liquéfié (GNL) à long terme en vue de déterminer la durée des contrats optimale. Nous étudions le compromis entre des coûts du contrat à la suite des négociations bilatérales répétées et le risque d’être lié à un contrat inflexible dans un environnement incertain. En outre, nous ajoutons une analyse de différentes dimensions de la fréquence des transaction et leurs impact à la choix de la forme organisationnelle à la discussion théorétique. Les résultats de l’estimation d’un modèle à deux étages indiquent que la présence de la spécificité des actifs dédiée conduit à des contrats plus longs confirmant les propositions de la théorie des coûts de transactions. Au contraire, le besoin de flexibilité réduit la durée d’un contrat. Avec une ascension de l’expérience des relations bilatérales entre les mêmes partenaires commerciaux, la durée d’un contrat diminue. En plus, on observe que des pays étant fortement dépendants des imports de gaz naturel en forme du GNL sont disposés à céder d’une certaine flexibilité en faveur de la sécurité des approvisionnements. Des contrats dédiés aux marchés compétitifs sont plus courts comparé aux contrats dédiés aux marchés non-liberalisés.This paper provides an empirical assessment of long-term liquefied natural gas (LNG) supply contracts to determine optimal contract duration. We study the trade-off between contracting costs due to repeated bilateral bargaining and the risk of being bound in an inflexible agreement in uncertain environments. Furthermore, we add to the theoretical discussion an analysis of different dimensions of transaction frequency and their impact on governance choice. Estimation results of a two-stage model show that the presence of high dedicated asset specificity results in longer contracts thus confirming the predictions of transaction cost economics, whereas the need for flexibility reduces contract duration. With increasing bilateral trading experience between the same trading partners, contract duration decreases. We additionally observe that countries heavily reliant on natural gas imports via LNG are willing to forgo some flexibility in favor of supply security. Contracts dedicated to competitive downstream markets on average are shorter than those concluded with customers in non-liberalized import markets

Public Support for the Financing of RD&D Activities in New Clean Energy Technologies

Several market failures, as well as other technical, economic and regulatory barriers to the market penetration of clean energy technologies result in under-investment of private innovators in RD&D. Therefore, public support is needed in order to induce innovations. Policy tools creating market conditions that are attractive for the exploitation of clean technologies (market pull) must be combined with other tools directly supporting the development of these technologies through the provision of public funds (technology push). Thereby, financing policy instruments should be chosen so that their characteristics match with those of the specific innovation process being targeted at the same time that social welfare is maximized. We develop an analytical framework to define the form of public support and to provide recommendations on the optimal choice of both technology push and market pull instruments.clean energy technologies; innovation finance; public support; technology push; market pull

THINK Half-Way and Beyond

THINK is a Think Tank advising the European Commission on mid- and long-term energy policy. QM-32-12-022-EN-C (print) QM-32-12-022-EN-N (digital)Energy regulation and policy currently belong to the most important and developing areas in the European Union. THINK, the Florence School of Regulation’s (EUI) think tank advises the European Commission (DG Energy) on Energy Policy and presents policy options each semester. This booklet gives an overview of all the THINK results for the first 18 months of the project focusing on 6 topics: 1. Public Support for the Financing of RD&D Activities in New Clean Energy Technologies 2. Smart Cities Initiative: Fostering a Quick Transition Towards Local Sustainable Energy Systems 3. Transition Towards a Low Carbon Energy System by 2050: What Role for the EU? 4. The Impact of Climate and Energy Policies on the Public Budget of EU Member States 5. Off-Shore Grids: Towards a Least Regret EU Policy 6. EU Involvement in Electricity and Natural Gas Transmission Grid Tarification.The THINK project (2010-2013) is funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Dr. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute.Foreword 1 Preface 2 Introduction to the THINK Project 4 The Role of the Expert Hearings in the THINK Report Production Process 6 The Role of the Scientific Council in the THINK Report Production Process 8 THINK Report Policy briefs 11 a. Topic 1: Public Support for the Financing of RD&D Activities in New Clean Energy Technologies 13 b. Topic 2: Smart Cities Initiative: How to Foster a Quick Transition Towards Local Sustainable Energy Systems 21 c. Topic 3: Transition Towards a Low Carbon Energy System by 2050: What Role for the EU? 27 d. Topic 4: The Impact of Climate and Energy Policies on the Public Budget of EU Member States 35 e. Topic 5: Offshore Grids: Towards a Least Regret EU Policy 43 f . Topic 6: EU Involvement In Electricity and Natural Gas Transmission Grid Tarification 53 People 61 Scientific Council 63 Florence-based Research Team 7

The World Gas Market in 2030: Development Scenarios Using the World Gas Model

In this paper, we discuss potential developments of the world natural gas industry at the horizon of 2030. We use the World Gas Model (WGM), a dynamic, strategic representation of world natural gas production, trade, and consumption between 2005 and 2030. We specify a "base case" which defines the business-as-usual assumptions based on forecasts of the world energy markets. We then analyze the sensitivity of the world natural gas system with scenarios: i) the emergence of large volumes of unconventional North American natural gas reserves, such as shale gas; ii) on the contrary, tightly constrained reserves of conventional natural gas reserves in the world; and iii) the impact of CO2-constraints and the emergence of a competing environmental friendly "backstop technology". Regional scenarios that have a global impact are: iv) the full halt of Russian and Caspian natural gas exports to Western Europe; v) sharply constrained production and export activities in the Arab Gulf; vi) heavily increasing demand for natural gas in China and India; and finally vii) constraints on liquefied natural gas (LNG) infrastructure development on the US Pacific Coast. Our results show considerable changes in production, consumption, traded volumes, and prices between the scenarios. Investments in pipelines, LNG terminals and storage are also affected. However, overall the world natural gas industry is resilient to local disturbances and can compensate local supply disruptions with natural gas from other sources. Long-term supply security does not seem to be at risk.Natural gas, investments, reserves, climate policy

From distribution networks to smart distribution systems : rethinking the regulation of European electricity DSOs

Revised version of Florence School of Regulation; 2013/05; THINK Policy BriefsDistributed energy resources allow for new business models that have the potential to substantially change today's power system functioning paradigm. In particular, these changes pose challenges for distribution system operators (DSOs) and their regulation alike. This article sheds light on missing aspects in current regulation, recognizing DSOs as regulated monopolies, but also as key players along the supply chain. We provide insights on how regulation should be adjusted so that DSOs are incentivized to facilitate the market entry of welfare-enhancing technologies in a timely fashion, and to manage the distribution system efficiently in the presence of distributed energy resources

A post-2020 EU energy technology policy: Revisiting the Strategic Energy Technology Plan

With the European Strategic Energy Technology Plan (SET Plan) expiring in 2020, the EU needs to revisit its energy technology policy for the post-2020 horizon and to establish a policy framework that fosters the achievement of ambitious EU commitments for decarbonization by 2050. We discuss options for a post-2020 EU energy technology policy, taking account of uncertain technology developments and uncertain carbon prices. We propose a revised SET Plan that enables policy makers to be pro-active in pushing innovation in promising technologies, no matter what policy context will be realized in the future. In particular, we find that a revised SET Plan is needed to support EU market actors who face market failures with respect to financing innovation within a highly competitive global market for energy technologies. An extension of the current SET Plan and corresponding technology push policies is insufficient, as this does not allow policymakers to provide adequate support, especially in a policy context with low or zero carbon prices

A new EU energy technology policy towards 2050 : which way to go?

Each semester the THINK project publishes two research reports based on topics proposed by the European Commission.Topic 9QM-31-12-303-EN-CQM-31-12-303-EN-NChallenges for policy makers are huge if the EU climate policy goal of reducing greenhouse gas emissions to 80-95% below 1990 levels by 2050 shall be reached. There is no doubt that a new energy technology policy design for the post-2020 period is needed, not only because the current policy framework is running out in 2020, but also because of increasing global competitive pressure in the low-carbon technology sectors. Moreover, as market actors are calling for new, transparent and lasting policy commitments now, the policy will likely be negotiated in times of financial crisis and institutional frictions in the EU, of which no one can predict its duration. To contribute to this debate and assist DG ENER in preparing a new Communication on ‘Energy Technologies in a future European Energy Policy’, this THINK report develops and discusses possible paths for a renewed EU energy technology policy towards 2050. We give recommendations for a renewed post-2020 SET Plan and European technology push taking into account that the policy context is uncertain and that not all possible futures are recognized in the EU Energy Roadmap 2050 yet.The THINK project (2010-2013) is funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Dr. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute