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Ph.D, M.A., B.A.
Accounting, Finance and Economics
Oxford Brookes Business School
Clerici Bldg 2.29
Financial Markets & Institutions
The application of Financial Economics to policy issues in the commodity and energy area.
The design and implementation of financial regulation.
Risk Measurement and Management.
Involvement by government in the energy sector has historically been extensive. Generally, however, regulation and direct ownership have involved secondary sectors such as electricity generation and transport on the grounds that these are natural monopolies exhibiting increasing returns to scale. With some exceptions, primary energy production has been left in private hands. But security of energy supply, particularly of petroleum, has been held to justify investment by governments in maintaining strategic reserves and other initiatives. This article argues, however, that petroleum markets are resilient and that the probability of disruptions is slight. Markets can be trusted to satisfy demand without shortages, at affordable prices. In light of structural changes and innovations in petroleum markets, unless the large strategic reserves held by almost all developed countries are actively used to reduce market volatility as a form of public good, maintaining them is difficult to justify.
On the whole, research into energy security falls into one of three perspectives: The political perspective, the engineering and geologic perspective, or the economic perspective emphasising market resilience. Common to these perspectives is the emphasis upon examining exposure to supply disruption, but not its probability of occurrence. As petroleum markets have shown themselves generally resilient to secular events and actual disruptions rare, despite perennial concerns, we ask if our understanding of security cannot be improved? We apply financial option theory to three eventful periods to learn the expectations of market participants on the probability of disruptions. We find the forward-looking views of petroleum market participants to be accurate with regard to both price persistence and the resilience of markets in absorbing shocks. Our results cast doubt upon the need for emergency inventories unless justified to dampen market volatility on public good grounds.
The article examines the use of discretionary production by key OPEC members to protect the long-term value of their reserves. Although interpretations vary on its behaviour and market power, the organisation sees its role as promoting the security of supply through stabilising markets while protecting market share and ensuring a fair return to capital. Given the new and perennial challenges facing its members, there are diverse views on how these policy objectives may be promoted. Using option theory, we argue that the market stabilisation policy of OPEC in effect, provides free risk management to the global market and conflicts fundamentally with its long-term objective of protecting market share through discouraging high-cost marginal producers. Abandoning this policy, the returns to marginal producers, adjusted for risk, would be reduced. As implications of our research, rather than creating a social good through mitigating price risk, OPEC should allow markets to be volatile and even consider using its discretionary buffer in a pro-cyclic manner, to protect the long-term value of its reserves.
We examine the economic efficiency of incentive mechanisms used to promote Renewable Energy (RE) across the European Union (EU) by looking at returns to investors along with any negative externalities or social costs. Using electricity price data from 2009 to 2013, we evaluate the RE support mechanisms adopted by some of the largest EU economies. We explain the limitations of various metrics used to inform incentives for RE and propose an alternative metric reflecting investor requirements. Our results show that while the EU schemes were effective in delivering RE capacity, the incentives provided were overly generous and economically inefficient. To assess the indirect costs of RE in liberalized electricity markets we employ real option theory to quantify the costs of hedging and pricing the exposure faced by conventional fossil fuel generators required to accept RE under dispatch priority. We find that the cost of hedging against random RE output under dispatch priority is expensive while increasing RE in liberalized markets, by depressing prices and increasing price volatility, may place greater burden on conventional, dispatchable generators. As support for RE is presented as a public good, we argue that economically efficient RE support mechanisms require recognizing both their direct and indirect costs.
Electricity pricing has always been slightly regressive, since fossil and nuclear-based electricity providers impose fixed charges to cover the costs of their generators and transmission systems, plus charges per kilowatt-hour of electricity consumed to cover the cost of fuel. But the recent, rapid growth in renewable electricity generation using wind turbines and photovoltaic panels has exacerbated this regressive pricing structure considerably. This is partly because governments support renewables development by adding the costs of subsidies and support directly to consumers' electricity bills—an issue that is already well-researched. But the problem goes much deeper. Almost all the costs of wind and photovoltaic power lie with the fixed costs of generators and networks, while each extra kilowatt-hour costs virtually nothing to produce. To recoup their investments, producers increase their fixed charges and reduce the charge per kilowatt-hour. Ironically, therefore, the less a household consumes, the more it effectively pays per kilowatt-hour, thus penalizing poorer, low-consuming households—and even more so for those using electricity for heating. In this chapter I analyze electricity pricing structures across the EU. I show how this regressiveness of pricing structure is evident in almost all EU countries and has deepened over time. Although as a society we benefit from reducing dependence upon fossil fuels, the burden of this transition falls disproportionately upon lower income population cohorts, raising questions of fairness and equity.
[Award for Best Paper] We examine the economic efficiency of incentive mechanisms used to promote renewable energy as a
policy in the European Union (EU). We evaluate the financial performance of renewable investments
and employ real option theory to model and analyze their impact in the EU’s liberalized electricity
markets. Our analysis covers key European countries and uses five years of the most recent historic
electricity price data from 2009 to consider sensitivities in key parameters. As renewable energy policies
are presented as public goods to address environmental concerns, we explain how the financial
performance of these policies can strike a balance between social costs and private benefits. We consider
how markets may incorporate renewable energy without major adjustments. For other regions, our
research offers lessons on effectiveness and cost-efficiency in designing renewables incentive schemes.
Kapsarc Research Paper
Reducing reliance on fossil fuels in the generation of electricity through supporting wind turbines, solar cells and other renewable technologies has been a key objective of the European Union (EU) for more than a decade. Between 2004 and 2013, the largest 19 European countries more than doubled their renewable output but concerns have been raised about its affordability. In seeking to promote renewable energy, EU countries faced the following challenges from which some lessons can be learned: Renewable energy costs are spread over fewer operating hours than conventional generation and, as such, expenditure per unit of output remains high, making financial support in the form of subsidies necessary in liberalized power markets. Designing an economically efficient form of financial support for renewable energy proved elusive, resulting in exceptionally generous returns to investors. In implementing incentive schemes across the EU, the large indirect costs imposed on dispatchable generators, who were forced to reduce capacity and accommodate electricity from wind turbines and solar PV, was not considered. Only recently have regulators considered paying for spare capacity or alternative market designs. The piecemeal promotion and support given to renewable energy at country and even locality level, encouraged sub-optimal investment patterns and technical inefficiency while the complexity and opacity of these programs raised costs and contributed to abuse.
"Energy Security and Strategic Storage from a Financial Option Perspective"
Conference Paper – International Association of Energy Economists, June, 2018.
Groningen, The Netherlands
“Understanding the Indirect Costs of Renewable Energy using Real Option Theory”
Conference Paper - Sustainable Energy Conference Paper, The Global Energy Forum, March, 2018.
“Cost Internalisation is not a new concept”
Financial Times, Dec 2017.
“An Option Analysis of the European Union Renewable Energy Support Mechanisms”
Refereed journal article in Energy Economics of Energy and Environmental Policy - Journal of the International Assoc. of Energy Economists, March, 2017.
“Valuation and analysis of the European Union's renewable energy support mechanisms using option theory”
Energy and the Environment Conference, British University in Dubai Conference Paper "Best Paper Award" February, 2016
"Renewable Energy: Lessons from the European Union Experience", Kapsarc Research Paper. Copyright 2016 King Abdullah Petroleum Studies Research Centre
"A breath of realism for any over-marking"
Financial Times, 15-1-2015
Commentary Magazine, January, 2010.
“EDF and British Energy: Generating Real Options”
Journal of Nuclear Engineering International, February, 2009.
“Fallacies in the Stakeholding Debate”
Refereed Journal Article in Economic Affairs of the Institute of Economic Affairs, October, 2008.
“Policy-making under uncertainty: Commentary upon the European Union Emissions Trading Scheme”
Refereed Journal Article in Energy Policy, November, 2006.
"Changes in Control", Monograph-Textbook for the ACCA Programme
“Private Ownership versus Institutional Ownership: Exclusion Pricing of Initial Public Offerings”
Refereed Journal Article in International Journal of Value-Based Management, January 2003.
Comment upon "Public goods and private interests: Understanding non-residential demand for green power"
Refereed Journal Article in Energy Policy February, February, 2002.
“Size Matters: Index composition and the accuracy of theoretical option pricing”
Refereed Journal Article in Derivatives Use Trading & Regulation, April, 2000.
“Comment on "Announced lay-offs: Their effect on corporate financial performance"
Refereed Journal Article in Human Resource Management, September, 1999.
"Comment upon 'A marketing management perspective on the consequence of introducing options on futures",
Refereed Journal Article in Journal of Financial Services Marketing, December, 1998.
“The use of financial instruments for hedging purposes: reconciling theory with evidence”
Refereed Journal Article in Journal of Financial Services Marketing, June, 1998.
“Financial Derivatives and the Insurance Industry”
Refereed article in the The Cato Journal, January, 1993.
I am a Financial Risk Professional with international experience at Director and MD level managing market and credit risk for commodities and FX at major financial institutions, such as Credit Suisse and UniCredit. I have been a Director in Audit Assurance for Deloitte and the Head of Valuation for RWE - UK. I am a subject matter expert in the valuation and modelling of complex assets/liabilities (IFRS 9). I have worked for the UK Financial Authorities, as a Senior Risk Specialist covering commodities. PhD (2000) Financial Economics. Publications in academic journals and the financial press.
NYSE Series 7 License Securities Broker
NASD Series 63 License as a Financial Advisor
Commodity Risk Management for Commerz Bank September 2018. Frankfurt, Germany
Valuation and Risk Assessment in the Petroleum Industry for ARAMCO September, 2015 Damahm, Saudi Arabia
Project Finance for Indepedent Power Projects The Development Bank of Southern Africa October, 2014 Johannesburg, South Africa