Optimal level of secure energy supply

1
Optimal level of secure energy supply

• Remigijus imaius,
• Lithuanian Free Market Institute
• 2003 12 05

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What does energy mean?

• End products
• electricity
• natural and liquid gas
• oil products
• heating etc.
• Intermediate products
• gas
• oil
• coal
• electricity etc (including modern alternatives).

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What does security mean?

• There is no such thing as absolute security.
  Security is always partial.
• The more you have the more you can loose.
• The market (and life) is always uncertain (and
  there are no means to escape that).
• Security implies an ability to adapt, but not
  elimination of threats!

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Solutions to ensure energy security

• Government
• Planning
• Subsidies
• Centralization.
• Government is focused on the energy sector.

• Market
• Use of alternatives (technological alternatives,
  alternative energy resources).
• The market is focused on consumer.

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Aspects of secure energy supply

• Availability of energy recourses (incl. imports).
• Technical aspects (incl. black-outs).
• Economic aspects (incl. economic sustainability
  of energy sector).
• Legal aspects (incl. legal possibilities to
  enter the market).

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Availability of energy recourses in Lithuania

• Lithuania itself is not rich with energy
  resources and Lithuanian consumers use imported
  resources.
• Imports come almost exclusively from Russia
• This is not an economic problem, but a problem of
  political pressure (political monopoly).
• Political pressure is also hard to implement
  having in mind exporters dependence on exports.
• Threats can be neutralized by market forces
  (potential competition).

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Technical aspects of energy security in Lithuania

• Infrastructure is integrated with Eastern
  neighbors.
• Attempts to integrate electricity with Western
  neighbors.
• Infrastructure overinvested? / misinvested? /
  worn out?
• Centralization of infrastructure (especially in
  heating).
• The market should be allowed to detect and solve
  technical problems.

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Economic aspects of energy security in Lithuania

• Generally, consumers and producers are able to
  pay for energy and this is a basis for economic
  sustainability of the sector.
• Certain elements of the energy sector are not
  economically sustainable at the moment. This
  means that essential changes may occur (changes
  deepen uncertainty).
• There is a need to open market in energy sector
  as fast as possible to smoothen those changes.

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Legal aspects of energy security in Lithuania

• Complete licensing of all activities.
• Price regulation.
• Monopolistic privileges.
• General conclusion regulation is used to change
  the internal energy market with central planning
  (to preserve central planning).
• Legal regulation of the energy market is
  liberalized to the extent it is required by
  Acquis.
• The legal environment requires radical changes.

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How to strengthen energy security?

• First of all, the question has to be paraphrased
  how to enable consumers to choose the amount of
  energy security they prefer taking into account
  the price?
• Practical observation consumers very often
  prefer lower price to better security.

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Towards optimal energy security (conclusions)

• Only the market can offer a solution.
• This implies market orientated policies
• - eliminating barriers to foreign trade
• - eliminating barriers to enter the market
• - deregulating prices
• - abolishing monopolistic privileges
• - reducing other regulation.