Modelling energy security? A framework Francesco Gracceva Anna Krook Riekkola

1. Modelling energy security? A framework Francesco Gracceva Anna Krook Riekkola European Commission JRC-Institute for Energy Energy Security Unit, Energy System Evaluation Unit

2. A framework adopting a rigorous, transparent and quantitative approach to energy security within a satisfactory theoretical definition of energy security To inform strategic decisions of EU Institutions, by selecting economically rational strategies on energy security Taking into account synergies and trade-offs between energy security and other goals through a multidimensional approach Aims ?

3. “While EU has been successful in institutionalizing a climate policy, it has not been able to formulate a successful energy security policy” (Mitchell 2009) “In contrast to other energy policy objectives, there is no obvious or universally accepted measure of supply security” (UK-DBERR, 2007) “the concept of energy security is frequently used to justify various policies or actions at the same time” (Loschel et al. 2009) “in numerous countries far reaching interventions in the market have been established in order to secure energy supplies, often without any economically rational justification” (Schmitt 2009) Background

4. A conceptualisation (i) – Finding the adequate’ level of security • All energy systems deliver some level of security for consumers: the question is the ‘adequate’ level of security, based on balance between costs and benefits of reducing insecurity(DBERR 2007, NERA 2002) Source: NERA (2002). Security in gas and electricity markets

5. A conceptualisation (ii) – Energy security is a property of dynamic energy systems shock / stress interdipendency / substitution • ii) energy security is a property of dynamic energy systems (Barret et al. 2010, Tosato 2008, Helm 2003), which implies that the concept of energy supply security is restrictive, and that the concept of “energy system security” should be adopted instead (Jansen 2009, DBERR 2007): • energy systems are complex systems, i.e. sets of interacting/interdependent components forming an integrated whole, so their behaviour cannot be explained in terms of the behaviour of the parts: the adequate level of energy system security depends on system capacity “to tolerate disturbance and to continue to deliver affordable energy services to consumers” (Chaudry et al. 2010) • they are dynamic, i.e. constantly changing: the evolution of energy sources, technologies, (internal and international) markets, institutions, energy policies, agents’ behaviour is constantly reshaping the structural characteristics of the system

6. A conceptualisation (ii) – Energy security is a property of dynamic energy systems Security of (electricity) supply is not a simple issue but a complex interaction of several independent and semi-independent factors (…) It is vitally important that the complexity of the relationships between fundamental factors be carefully considered Source: EURELECTRIC, Security of Electricity Supply - Roles, responsibilities and experiences within the EU

7. A conceptualisation (i) and (ii) – Identification of requirements • and ii) = a “secure” energy system is a system evolving over time with a adequate capacity to absorb adverse events and keep satisfying energy service needs of society • Need to consider all the relations and interactions between the elements of the system, all the synergies and the integral nature of the system  people and their institutions as well as technologies and energy sources (Barret et al. 2010) • Need to identify and “model” all the elements of the system that contribute to explain the way the system behaves after an adverse event • Need to consider the constantly evolving structural properties of the system, by keeping together sub-sectoral detail with whole system, short-term with medium-term: • properties of any sub-sector depend on the dynamics of the whole system • effectiveness/efficiency of policies directed to change systems characteristics

8. Literature Review on Quantitative Approches • Energy Security – Outcome-based assessments: • “the actual outcome of energy insecurity. In an ideal world an outcome-based indicator would measure the actual welfare impact of energy insecurity (UK-DBERR)” • minimum loss-of-supply • (economically) efficient level of ES • indicators • model based scenario analysis • costs/benefits of policies • ex-post estimations (of shocks) Energy Security – Diversity-based assessments: measuring inputs that can be considered a proxy for the potential (ex-ante) risk and/or magnitude of an energy security impact, should it actually occur • indicators • model based scenario analysis  Most of quantitative approaches implicitly adopt a simplified theoretical definition of energy security

9. Energy security in a risk management framework • “there is an increasingly urgent need for a framework within which to analyse: the impact of specific security events, the level of risk attached to such events, and the cost of measures which would provide insurance against them”. (…) “In the absence of such a framework, any statement about energy security is meaningless.” (Stern 2004) • EC Regulation concerning measures to safeguard security of gas supply (EC/994/2010) requires MS to make a full assessment of the risks affecting the security of gas supply (but a physical and a economic approach to security at same time) • Risk identification: identifying/characterising the sources of risks for the energy system (and the level of probability attached to such events) • Risk analysis: assessing how adverse events can affect the energy system, by considering the ability of the system to cope with it • Risk evaluation: comparing the level of risk found with a risk criteria, i.e. assessing the “appropriate” level of security for the energy system under study (if based on economic criteria, it implies to accept the costs of insuring against adverse events)

10. Energy models for energy security assessments

11. Three steps to select the model(s) • Here, “inverse decision-based” approach (to identify methodological requirements for energy security assessments). Identification/characterisation of: • sources of risks for the energy system • key elements of the system explaining the way the system behaves after any adverse event materializes • model requirements to address these issues ( models fulfilling the requirements for each assessment)

12. Sources of risk – a map Source: Checchi et al. 2010, Secure EU FP7 project

13. Sources of risk – a classification

14. Elements to be modelled – a classification of energy models Source: Hourcade et al., Energy Journal, 2006

15. Modelling energy security – Identification of key elements to be modelled Source: Hourcade et al., Energy Journal, 2006

16. Lessons from the past: California electricity crisis (a) Shortage of generating capacity: dry winter in the northwestern United States, reducing the hydroelectric power available for export to California, increases in populations and power consumption in neighboring states, leaving less power for export to California, many unscheduled and concurrent shut downs of power plants Bottlenecks in related markets: Constraints on related infrastructure and markets, e.g. natural gas pipelines, market for pollution permits, electricity transmission system Wholesale generator market power (capacity withholding by suppliers) Regulatory missteps: excessive exposure to spot markets (utilities forced to bid on the spot market for electricity), inaction in impeding crisis (lack of price signals to consumers) Faulty market design: lacking of sufficient pricing zones to track network congestion, lack of price signals for efficient dispatch and investments in transmission “An important lesson from the crisis is thatelectricity systems are complex, interdependent systems. Decisions concerning generation, transmission, distribution, the delivery of energy sources such as gas, and consumption, must be coordinated in real time at all times under tight constraints of reliability. The state of competition, market rules, and regulatory oversight interact in multiple and complex ways to coordinate actors, control market power, elicit investments, and send signals to consumers. Changes in certain elements of the system can have profound effects on other elements.” Source: Weare, 2003

17. Lessons from the past: California electricity crisis (b)

18. An integrated approach to security of electricity supply

19. Lessons from the past – January 2009 gas supply disruption to EU (a) There are no common scenarios for dealing with emergency situations, involving regional/EU risk assessments and detailed assessments of the market situation, i.e.: demand patterns main suppliers alternative sources storage possibilities, etc. Scenarios could be usefully coordinated with infrastructure planning procedures Insufficient physical network integration, inadequate transparency in network utilisation, as well as inflexibility in capacity reallocation and congestion management, inadequate price response mechanisms and lack of coordination are all factors which undermine the market’s response to a gas supply disruption It was mainly the inadequacies in gas transport which constrained flows (capacities, reverse flow capabilities, unusual routes, insufficient integration of gas networks in Central and South Eastern Europe), not an aggregate shortage of gas.  How lack of interconnections and diversification options (route and fuel source) can exacerbate a supply crisis. Source: (SEC(2009) 977)

20. Lessons from the past – January 2009 gas supply disruption to EU (b)

21. An integrated approach to security of gas supply

22. Conclusions - Energy security through models integration • A framework adopting a rigorous, transparent and quantitative approach to energy security within a satisfactory theoretical definition of energy security • Different events  different tools. Through models integration: • technology (and spatial) detailed characterisation of different energy system evolutions • optimal development (timing, location and type) of “adequate” generation and transmission (LOLE, energy unserved, …) • combined operation and expansion of gas networks whilst meeting (average and peak) demand requirements • Robustness of different energy system development  interaction of different policy goals • Costs and benefits of alternative strategies  optimisation of costs of alternative system expansion policies