Presentation for Decision Making Energy in the EU

Antonio Merola Khaldon Evans Christopher Lipp

Specialist inEnergy trends & policyin the EU

Specialist inRenewable energy in the EU

Specialist inNuclear power in France & Germany

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1. Introduction Kahneman & Heuristics European energy policy Electricity subsector

2. Nuclear power: the case of France & Germany Overview: Nuclear power in the EU Rise of nuclear power in France Germany’s nuclear power U-turn Influences in decision making

3. Renewable energy: Wind & Solar Power EU Investments in alternative energy A paradigm shift in Wind & Solar Power Factors influencing micro-level decisions

Overview

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IntroductionHeuristics & Energy in the EU

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• Kahneman demonstrates how easily statistics can be misinterpreted and explains the risk of using statistics as an attempt to assign greater meaning to something that occurred due to chance.

• Kahneman uses heuristics to assert that System 1 thinking involves associating new information with existing patterns, or thoughts, rather than creating new patterns for each new experience. In addition to offering an explanation for the statistical problem, the theory also offers an explanation for human biases

Overview

• Anchoring effect names our tendency to be influenced by irrelevant numbers.

• Availability Heuristic – we intuitively think the things we remember are more likely to happen again and that they are more important

• Representativeness Heuristic – we intuitively think that different events that seem similar to us have a similar likelihood of occurrence when often they do not

• Commitment Heuristic – we intuitively think that if we’ve already invested in a decision, we should continue to do so

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European Energy policies

The EU Treaty of Lisbon of 2007 legally includes solidarity in matters of energy supply and changes to the energy policy within the EU

The Energy Union Strategy is a project of the European Commission to coordinate the transformation of European energy supply. - It was launched in February 2015, with the aim of providing secure, sustainable, competitive, affordable energy

Strategic Energy Technology Plan

In 2003, the EU energy sector generated a turnover of about €535 billion. Moreover, it was the main activity of 16,000 enterprises, which employed slightly over a total of 1.1 million people.

Slovakia is by far the most specialised energy producer since the energy sector represents 14.8% of the added value and 3.4% of the employment of the country’s non-financial business economy.

Main contributors to the EU energy sector are France and Germany, respectively contributing 16% and 23% of the total added value, and together employing more than 30% of the sector’s total workforce in Europe

European Energy policies

Sector People employed No. of companies Value added (% of energy sector total)

Electricity 867,000 11,000 77

Gas 152,000 1,300 18

Steam and hot water

165,000 3,800 5

Table: Size of EU energy subsectors

Source: Eurostat, 2006 - 2007

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Electricity subsector

• The electricity subsector is the largest of the three subsectors within the EU energy sector.

• It is comprised of almost 11,000 companies, employs more than 867,000 people and accounts for 77% of the energy sector’s total added value (Eurostat 2012).

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Nuclear Power The case of France & Germany

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Overview: Nuclear Power in the EU

France is the 2nd biggest producer of nuclear power in the world after the United States (100 reactors) and before Russia (34 reactors)

China has 26 reactors in operation but 23 are under construction While Germany has planned a phase out by 2022, the UK signed

deals with China for a nuclear power cooperation (October 2015)

44%

12%8%

7%

5%

5%

5%

14%

Nuclear Power Plants in the EU

FranceUnited KingdomSweden Germany SpainBelgiumCzech RepublicOthers

10Overview: Nuclear Power – pros and

cons

Arguments against nuclear power

• High construction costs• High-known risks of accidents, &

unknown risks • Uranium just as finite as other

sources• Nuclear waste lasts 200-500 years

Nuclear power is highly controversial and there is no unified European policy (Euratom Treaty of 1957 has limited power, mainly regulates the market)

The case of France & Germany shows how the two main actors of the EU follow two entirely opposite strategies

Arguments for nuclear power

• Lower greenhouse gas emissions

• Relatively low operating costs• Large power-generating

capacity• Progress in recycling of nuclear

waste

11Rise of nuclear power in France

1973Oil prices quadrupled due to first majoroil crisis, when most of France’s electricity came from oil burning plants

France decides to become energyindependent

“No coal, no oil, no gas, no choice”

58 active nuclear power plants in France produce 75% of all electricity

Cultural, political & economic factorsinfluenced this decision

Two thirds of the French are highly in favor of this energy source Nuclear power as a solution to these problem ‘feels right’ to the French Currently there are 2 nuclear reactors under construction in France,

the expansion does not seem to be slowing down

Source: Eurostat. Table: Wikipedia

12Germany’s nuclear power U-turn

First nuclear power plant built in 1962

1970s Demonstration near Hamburg to stop construction of nuclear plant

Green party “Die Grünen” gets seats inBundestag, advocates against nuclear power

2011 Fukushima accident Germany closes eight nuclear reactors

Acceleration of phase-out: deadline 2022 instead of 2036

Studies by German insurance companies show that the cost of a potential nuclearaccident is impossible for them to bear

Phase-out is poised to push Germany to develop renewable energy sources

Short term effect: strong increase in coal and oil burning since 2011

Source: IAEA

13Influences in decision-making

Availabilty Heuristics

Law of Small numbers

Conjunction

fallacy

Intuitive Prediction Anchoring effect

Sunk cost fallacy

Despite the high risks and the problems of radioactive waste, France continues to expand and develop its nuclear power

France’s reaction after the accident of Three Mile Island

Occurrence of Fukushima made Germany accelerate its way out of nuclear power, as if the likeliness of such an accident had increased by the occurrence of the event itself

Germany may be mistaking plausible and probable. The conditions that lead to major nuclear accidents likeFukushima and Chernobylare unlikely to happen in Germany

The arguments that lead tothe beginning of the nuclear program in France made people feel right about it. It is now part of theday-to-day life on French. However conditions have changed, and it might be a mistake to invest more in this energy source.

France has not experienced any major nuclear accident, which may be comforting the French population in believing that it is a known and safe power source.

Arguments based on the statistics of the number of accidents are often raised, though the statistical significance can be seen as marginal, considering the small sample (amount of plants and duration)

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Renewable energyWind & Solar Power

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Use of renewable energy (EU28 vs. 2020 target)

EU investments in renewable energy

• Increase renewable energy use 20% by 2020

• Creating more jobs• Having a carbon free economy• Cleaner energy

2011 – 2013 renewable energy use increased 2.1%. A 1% increase per year 2013 renewable energy was accounted for 1.2million jobs

EU unemployment crisis Carbon free economy - Global warming (climate change) effects

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Energy sources in the EU

EU investments in renewable energy

• Increase renewable energy use 20% by 2020

• Creating more jobs• Having a carbon free economy• Cleaner energy

2011 – 2013 renewable energy use increased 2.1%. A 1% increase per year 2013 renewable energy was accounted for 1.2million jobs

EU unemployment crisis Carbon free economy - Global warming (climate change) effects

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Greenhouse gas emissions 1990 vs. 2012 in the EU

Greenhouse gas emissions

Reduce greenhouse gas 20% by 2020 compared to 1990 hence a 15.8% reduction from 2012 to 2020

A more realistic goal would be an increase would be approximately 3% reduction between 2012 & 2020

Raw statistics rather than past efforts should influence decision making

• Only reduced by 4.2 points from 1990 to 2012

• Increase in emissions from transportation 6.9 points

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Capacity factors of various energy sources

A paradigm shift in wind & solar power

Wind is the cheapest energy produced in UK & Germany

More solar and wind plants are being installed because of the capacity factor

• More wind & solar power installed leads to…

• Coal & gas plants sitting idle longer, leads to…

• Coal & gas power costs going up

H2 2014

H1 2015

H2 2015

Coal 86% 85% 85%

Natural Gas

70% 70% 62%

Wind 32% 35% 37%

Solar 16% 17% 20%

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Solar Panel Purchase vs. Price in the UK

Factors influencing micro-level decisions

People buy solar panels because of the price seem more reasonable to them and they will get a return on investment much quicker

Positive factors

• The decrease in cost of solar panel

• Increase in home purchase of solar panel

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Example of Online Advertising for Solar Panels

Factors influencing micro-level decisions

People will buy only if the price is right not because they will save on the bill The negative effect of not using renewable energy is difficult to quantify Advertise more about environmental issues, people may react better and buy

Negative effects

• Advertisement telling you to buy solar panel because you will save money today

• People do not see the environmental need to buy it

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We are ready to answer your questions.

Thank you for your attention

22Sources

• Braun, Jan Frederik (24 February 2012). "EU Energy Policy under the Treaty of Lisbon Rules: Between a new policy and business as usual". Politics and Institutions, EPIN Working Papers. p. 14. Retrieved 21 August 2012

• S. Andoura, L. Hancher, M. van der Woude: Towards a European energy community: a policy proposal by Jacques Delors Notre Europe – 2010

• Kahneman, D (2012). Thinking, Fast and Slow. Penguin. Part II.

• World Nuclear Association: Nuclear Power in the European Union (http://www.world-nuclear.org/info/Country-Profiles/Others/European-Union/) October 2015

• The Guardian: The UK’s deals worth billions with China: what do they really mean? October 24th, 2015

• PBS.org, Jon Palfreman. Why the French Like Nuclear Energy. http://www.pbs.org/wgbh/pages/frontline/shows/reaction/readings/french.html

• Triplepundit.com. Nuclear energy: Pros and Cons. http://www.triplepundit.com/special/energy-options-pros-and-cons/nuclear-energy-pros-and-cons/

• DW.com. The future of nuclear power in Europe. http://www.dw.com/en/the-future-of-nuclear-power-in-europe/a-16772616

• Europa.eu, Renewable Energy (https://ec.europa.eu/energy/en/topics/renewable-energy)

• Europa.eu, Energy Strategy (https://ec.europa.eu/energy/en/topics/energy-strategy)

• EPA, Overview of Greenhouse Gases (http://www3.epa.gov/climatechange/ghgemissions/gases/co2.html)

• Natural Resources Defense Council, Global Warming (http://www.nrdc.org/globalwarming/)

• Europa.eu, Greenhouse gas emissions by sector (http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Greenhouse_gas_emissions,_by_source_sector,_EU-28,_1990_and_2012.png)

• The Eco Experts, How much do solar panels cost (http://www.theecoexperts.co.uk/how-much-do-solar-panels-cost-uk)

• Bloomberg.com, Solar and Wind Just Passed Another Big Turning Point (http://www.bloomberg.com/news/articles/2015-10-06/solar-wind-reach-a-big-renewables-turning-point-bnef)

• RenewableEnergyWorld.com, Fact Sheet: Renewable Energy Job Numbers (http://www.renewableenergyworld.com/articles/2015/01/fact-sheet-renewable-energy-job-numbers.html)