Scenario analysis of accelerated coal phase-out by 2030: A study on the European power system based on the EUCO27 scenario using the METIS model

The present report is a hands-on exercise by the European Commission's Joint Research Centre (JRC) using the METIS model (Artelys, 2017). The area covered by the analysis extends to the 28 EU member states plus Norway, Switzerland and the Western Balkans. The model is used on two variations of the European Commission EUCO27 scenario built to simulate the impacts of an accelerated coal phase-out policy unfolding during the next decade. One of the first results is that the simulated coal-fired capacity retirement will lead to conditions of lacking adequacy in certain areas. The two new scenarios restore adequacy by expanding the European power system in two opposing directions. The first is an expansion-as-usual scenario, based on new thermal peaking capacity. The second represents a scenario, where additional optimally placed renewable capacity, coupled with interconnection upgrades and limited storage, appear equally effective in restoring adequacy to the affected regions.JRC.C.7-Knowledge for the Energy Unio

A density version of the Carlson--Simpson theorem

We prove a density version of the Carlson--Simpson Theorem. Specifically we show the following. For every integer $k\geq 2$ and every set $A$ of words over $k$ satisfying $$\limsup_{n\to\infty} \frac{|A\cap [k]^n|}{k^n}>0$$ there exist a word $c$ over $k$ and a sequence $(w_n)$ of left variable words over $k$ such that the set $$\{c\}\cup \big\{c^{\smallfrown}w_0(a_0)^{\smallfrown}...^{\smallfrown}w_n(a_n) : n\in\mathbb{N} \ \text{ and } \ a_0,...,a_n\in [k]\big\}$$ is contained in $A$. While the result is infinite-dimensional its proof is based on an appropriate finite and quantitative version, also obtained in the paper.Comment: 73 pages, no figure

Measurable events indexed by trees

A tree $T$ is said to be homogeneous if it is uniquely rooted and there exists an integer $b\geq 2$, called the branching number of $T$, such that every $t\in T$ has exactly $b$ immediate successors. We study the behavior of measurable events in probability spaces indexed by homogeneous trees. Precisely, we show that for every integer $b\geq 2$ and every integer $n\geq 1$ there exists an integer $q(b,n)$ with the following property. If $T$ is a homogeneous tree with branching number $b$ and $\{A_t:t\in T\}$ is a family of measurable events in a probability space $(\Omega,\Sigma,\mu)$ satisfying $\mu(A_t)\geq\epsilon>0$ for every $t\in T$, then for every $0<\theta<\epsilon$ there exists a strong subtree $S$ of $T$ of infinite height such that for every non-empty finite subset $F$ of $S$ of cardinality $n$ we have \mu\Big(\bigcap_{t\in F} A_t\Big) \meg \theta^{q(b,n)}. In fact, we can take $q(b,n)= \big((2^b-1)^{2n-1}-1\big)\cdot(2^b-2)^{-1}$. A finite version of this result is also obtained.Comment: 37 page

Analysis and forecasting of asset quality, risk management and financial stability for the Greek banking system

The increase in non-performing loans (NPLs) during the financial crisis of 2008, which has been converted into a fiscal crisis, as well as the risk of a medium-term increase due to the COVID-19 pandemic has put into question the robustness of many banks and the financial stability of the whole sector. As far as the banking sector is concerned, the management of non-performing loans represents the most significant challenge as their stock reached unprecedented levels, with the deterioration in asset quality being widespread. Addressing the problem of non-performing loans with the assistance of credit risk modeling is important from both a micro and a macro-prudential perspective, since it would not only improve the financial soundness and the capital adequacy of the banking sector, but also free-up funds to be directed to other more productive sectors of the economy. This Thesis extends earlier research by employing a short-term monitoring system with the aim to forecast “failures” i.e. NPL creation. The creation of such a monitoring system allows the risk of a “failure” to change over time, measuring the likelihood of “failure” given the survival time and a set of explanatory variables. The application of Cox proportional hazards models and survival trees to forecast NPLs can be usefully employed in the Greek corporate sectors. The research aim of this thesis consists of two domains: The first aim is the investigation of the determinants that contribute to the NPLs formation. Two GAMLSS models are being tested, a linear GAMLSS model and a nonlinear semi-parametric GAMLSS model which includes smoothing functions that capture potential nonlinear relationships between the explanatory variables to model the parameters favorably. The explanatory variables of the models consist of credit risk variables, macroeconomic variables, bank-specific variables and supervisory and market variables, while the response variable is the non-performing loans. The second aim is to provide answers on whether proportional hazards Cox models and survival tree models can forecast NPLs of loans that are provided in specific corporate sectors in Greece by the use of the most granular data set of corporate borrowers. By evaluating a series of Cox models, a short-term monitoring system has been created with the aim to forecast “failures” i.e. NPL creation. The Cox proportional hazards regression models are incorporating time-to-event, involving a timeline, described by the survival function, indicating the probability that a loan becomes an NPL until time t. The time period counts from the origination of the loan until the “death” of the loan, i.e. its termination, incorporating an “in between” observation point. The event is when the loan is initially being “infected”, i.e. has become NPL. Regarding survival trees, the data set was divided into more subsets, which are easier to model separately and hence yield an improved overall performance. Such models are then beneficial to implement with different machine learning techniques. Predictors (or covariates) are defined as the sectors of the Greek economy and the model is fitted both for the whole sample and for the sample of early terminated loans. The Thesis is organized as follows: Chapter 1 - Introduction addresses the role of banks in financial intermediation, the evolution of credit risk and some issues regarding the Greek banking sector. Chapter 2 constitutes a literature review on research focused on improving the predictive performance of different credit risk assessment methods. Chapter 3 outlines the competitive conditions in the banking sector to demonstrate whether the increase in concentration had affected the competitive conditions in the Greek banking system. In Chapter 4, the funding and the liquidity conditions in the Greek banking sector are being addressed. Chapter 5 contains the selection of aggregate sample, results and analysis of GAMLSS models that have been used for determining NPLs. Chapter 6 provides an introduction to the granular database on Large Exposures, which is used for deriving the panel sample of corporate borrowers whereby models of forecasting and prediction are being employed. Chapter 7 contains the application of Cox models and decision trees, the estimation procedure, parameters, model fit, estimation results and empirical findings. Chapter 8 provides an evaluation and applicability of models as well as the implications for further research. Finally, a conclusion is provided by summarizing my contribution to the research community and my recommendations to the banking industr

A concentration inequality for product spaces

We prove a concentration inequality which asserts that, under some mild regularity conditions, every random variable defined on the product of sufficiently many probability spaces exhibits pseudorandom behavior

Power system flexibility in a variable climate

Our report “Power system flexibility in a variable climate” assesses the impact of the annual variation of meteorological factors – the climate variability – on the operations of the power systems in 34 European countries that jointly constitute the interconnected European electricity systems. It covers important aspects such as CO2 emissions and use of freshwater for cooling of power plants, and estimates their sensitivity to the changing climatic conditions. Changing weather conditions affect the operation of the European power systems. The output of renewable energy sources fluctuates depending on the availability of wind, cloud cover, or water levels in reservoirs, while the output of dispatchable generators, such as gas turbines, must be adapted accordingly to ensure that supply and demand are balanced at all times. The link between meteorology and power systems also manifests itself through other aspects such as the demand for electricity, affecting the operation of power markets, and thus power prices, emissions, and use of resources (fuels, fresh water etc). Today more than 40% of the European electricity generation capacity is heavily dependent on climatic factors. This dependence is expected to increase in the future as Europe is transitioning to a carbon-neutral economy by mid-century.JRC.C.7-Knowledge for the Energy Unio

Wind and other CO2-free assets replacing coal in 2030: A scenario analysis based on the EUCO3232.5 scenario with the METIS model

An up-to-date partial coal phase out scenario based on the power system and prices defined in the EUCO3232.5 scenario for 2030 is analysed with the METIS power system model. Following the removal of coal and lignite fleets in excess of half the capacity present in the EUCO scenario, the power system experiences more often power scarcity, primarily in the Central-West region of Europe. The study explores the potential of new wind capacity to fill the vacuum created by the coal fleet retirements both in energy and capacity terms. The conclusion of the previous similar study of 2018, that new wind capacity predominantly placed in peripheral regions of Europe (South-east, South-west and the North), has the potential to balance the system was tested for multiple climatic years. The modelling analysis showed that new capacity consisting of 85 GW of additional wind power (compared to the EUCO3232.5) supported by additional infrastructure would be sufficient to restore adequacy. The additional infrastructure identified in this study consists of approximately 8.2 GW of batteries, very limited new peaking generation (up to 0.5 GW) and 53 GW of interconnection upgrades. The interconnector’s role as a definitive enabler, not only of market integration but also of a path towards a renewables-based power system is strongly supported by the results. The identified transmission upgrades alone have the potential to reduce the carbon footprint of the European power system by more than a quarter, compared to the EUCO3232.5, with minimal additions of peaking capacity. In a scenario variant where no additional wind is added to the system, the modelling results indicate that only an additional 4.2 GW of peaking capacity (OCGTs) and 14.8 GW of battery storage on top of the EUCO3232.5 capacities, would be sufficient to restore adequacy to the power system, following the assumed coal fleet decommissioning. In a second scenario used to benchmark the results, with no interconnection upgrades we find that the flexible resource requirements rise sharply to 21 GW of battery storage and 22.3 GW of thermal peaking capacity. The cost of the additional infrastructure was estimated for all scenarios and benchmarked against the potential CO2 savings. Under the EUCO3232.5 fuel price assumptions replacing coal with wind power would lead to an annual additional cost ranging between 1.9 and 4.5 € Billion which would correspond to an incremental abatement cost between 7.4 and 18.2 €/tonne CO2 in 2030.JRC.C.7-Knowledge for the Energy Unio

The potential role of H2 production in a sustainable future power system

The operation of a future highly decarbonised (95% CO2 emissions reduction vs 1990) power system, as defined with JRC-EU-TIMES in 2050, is analysed with METIS. The power system is dimensioned in order to provide adequate electricity to a fleet of electrolysers, whose purpose is to produce hydrogen at quantities adequate to supply industrial processes and transport. The analysed power system deviates from current practices in that demand takes over the role of power generation in balancing the system and setting the wholesale market price. The segment of the market where competitive forces set the price shifts from production to demand. Under the assumption of adequate competition between the electrolyser operators the resulting prices could, in most EU member states, arrive at a sustainable equilibrium. This equilibrium – not present in all member states – depends on the ratio between flexible load (electrolyser capacity) and variable renewable generation.JRC.C.7-Knowledge for the Energy Unio