Are We Still in Need of Energy Economists?

Sometimes you have to provoke to draw attention to a subject! Now I seem to be tackling an institution established for long in the energy markets! Why is that?

For decades, we have paid great attention to security and continuity of energy supply; they have been very important dimensions of energy policies. By using fossil fuels, a country’s energy supply depends on access to primary sources of energy: oil, gas, coal. Either the country is a producer and it is tempted to over-exploit its resources to maximize its energy independence, or it is not a producer and it is tempted to rely on other energies or to secure by all means its supply.

Until recently, two energy sources have improved the energy independence of a country, as far as its electricity production is concerned:

– Nuclear energy because, although dependent on a raw material, uranium, inventories made by many countries cover decades.

– Hydropower, with dams and run-on-river plants.

Thus, Norway, with over 90% of hydropower, Sweden and Switzerland with a large share held by nuclear power on the one hand and hydropower on the other hand, and France with a strong share of nuclear power, have achieved significant degrees of independence for their electricity production.

Transport, meanwhile, remained highly dependent on oil.

In such a context, the evolution of the energy markets depends on the capacity to supply the markets, the balance of power between producing and consuming countries. For a long time, geopoliticians and economists specializing in commodity markets have enlightened players on short, medium and long term trends.

Why, then, question their legitimacy today?

Because systems and energy markets are in complete revolution.

Solar, wind, marine, geothermal and biogas energies are not based on unfairly distributed and transportable raw materials. Security of supply will now depend more on new parameters such as climatic factors, often very local, and fewer imported primary resources.

Electricity prices will be more dependent on production levels, variable within a single day or week, more difficult to predict; they will be influenced by the intervention of new actors who will benefit from their ability to reconcile consumption profile and energy availability (demand response operators, storage operators)

The local parameters will be more influential, making progressively more difficult, in a country, an identical access of all to the energy. The national prospective approaches to which economists have become accustomed will gradually become less relevant.

In addition, the manufacture of photovoltaic panels, wind turbines and batteries creates an increasing dependence on new resources: rare earths. It is perhaps on their side that future supply tensions will be created.

The mutations of energy systems are slow. We will still need energy economists to enlighten us for a few decades. But it is time for them to master new parameters and logic of reasoning to enlighten to the new activity of energy companies. Otherwise, they will have to turn to new experts able to guide their way.

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