Tag Archives: regulatory regime

Fishing for boots: My lens of change on the energy sector

The interest in the current gas market in Central Eastern Europe demonstrates the increasing knowledge about our energy sources. Over the past few weeks I have answered a lot of questions from students and journalists about the gas pipeline projects and energy security in the region. I’ve never considered myself an expert on these topics, more a student myself. The energy sector is so multidisciplinary it takes knowing (and even mastering) several topics to begin to be a true expert on the overall subject. It is important though to have a base, or a prism, that the wider changes or processes involved in the energy sector can be seen through. For me, it comes from researching and analyzing change in the policy and regulatory environment in the energy sector and how this is connected to the local. This is the basis of my approach to analysis how markets and regulations interact to diversify energy supplies by fostering investment, or more broadly improving security of supply.

The solitude of thought

The history of energy is filled with transition periods, and if you take the long view, constant change and technological evolution becomes the norm rather than the exception. But all this change occurs within systemic parameters. Due to the significant capital investments and tight legislative and regulatory conditions that are infused into every activity of the energy sector, change is gradual. Transition from one technology to another is gradual, and altering habits, industrial processes and financial regimes all takes a very long time. This is why, as described elsewhere, the transition to a low carbon economy will take a long time unless, these systemic parameters can be altered and streamlined (here is the long journal article version of this argument).

Gas and electricity diversification, or energy security, therefore does not emerge from the sudden need to alter long established trade patterns. Crises no doubt can and does play a part in this, but the constant transition that occurs is partly the result of purposeful actions by stakeholders and broader inertia of regime change. Regulatory regimes, provide the context to frame the need to create specific change, whether for market liberalization or carbon reduction. Within this regime are broader societal, governmental and scientific thoughts that make an immediate impact and hold the potential for long term impact on the energy system. An example is the reduction in car use during high gasoline prices while long term is the increase of alternative energy inputs or alternative modes of transport.

Appreciation of the political-historical context also allows a framing of today’s energy battles. A recent conversation with a reporter, had him fishing for a quote that would describe a new period of relations with the Austrians and Russians. This stemmed from the establishment of a joint company to build 50 km of South Stream in Austria by OMV and Gazprom. Do I perceive a new era in the strong historical relationship between Austria and Russia? No, not really. My Hungarian history book has a few examples of cooperation between the Austrian and Russian monarchies and the squeeze that they put on the Magyars. Should we be surprised when two state owned oil and gas companies seek to pressure the main Hungarian oil and gas company. It was only the failure of OMV and Surgetneftegaz executives to understand historical context that led to their failed attempts to storm the battlements of MOL.

Hungarian Husars - just add a suit and tie for our modern day politicans and company executives protecting energy supplies

My main contextualization of the current transition efforts to reduce carbon stem from the study of the deregulation efforts in the US and the creation of regional markets. What I discovered was the actual deregulation had nothing to do with the perceived political actions for deregulation. In two case studies, of Michigan and Wisconsin – the first deregulated and the second didn’t – it was clear that the public understanding and the technical conditions for public choice of suppliers didn’t exist. Michigan while offering choice of suppliers for consumers, did not lay an effective foundation for competitors to compete with Michigan’s existing utilities. While Wisconsin politicians made it clear there would be no deregulation. However they took strong steps to separate the Transmission System Operator from the vertically integrated utilities, and began integration into a regional market. Essentially laying the basis for competing generation companies to enter the market. This is similar to the current EU attempt in market liberalization.

Underlining these two examples is the role of the local. Local control and local attempts to position their own energy companies to remain strong in the face of competition and possible take over. The laws and new rules instituted to keep MOL Hungarian correspond with the steps in Michigan and Wisconsin. Underlining the restructuring that occurred in Michigan and Wisconsin was fueled with the idea that local manufacturing needed to have competitive electricity rates, but the electricity companies needed to be pushed into offering lower priced electricity, while also protecting them from out of state corporate take overs. It is strongly felt, and the history of electricity in the US reflects this, it is through local control or local/state ownership of electricity companies that results in the ‘best interests’ of the community being fulfilled. Companies will have vested interests in the communities and therefore will act on behalf of the local.

The lens that can be used to analyze energy policy and markets needs to account for the local. It is the local leaders and their local energy companies that will work together to ensure a locality has sufficient levels of security of supply. Within this local formula of measuring security of supply is price, local control and technologies that are used. Crises, or external knowledge, along with new regulatory regimes (i.e. thoughts on how markets and society should be organized) all influence the pace of change. Stagnation of technology or the regulatory structure will impact the ability of the system in the medium and long term to adapt to external ‘threats’. This may be shown in a single large or a series of events. It is through this prism of the historical local political-corporate interests and the role of  technology that my analysis is based. Fishing for the ‘new’ in energy will only land you with an old boot.