Journal of Energy Markets

Derek W. Bunn
London Business School

This issue of The Journal of Energy Markets provides three research papers.

The first paper in this issue, “Financial performance in electricity and gas markets: some empirical evidence from a cluster analysis” by Felicetta Iovino, Dimitrious Koufopoulos, Guiliano Maielli and Richard Meredith, is a timely review of some of the financial consequences of the deregulation of European energy markets from the late 1990s onward. One of the most important direct effects was the entry of a number of new operators, which increased competition in the generation and supply of gas and electricity, apparently giving consumers greater choices. The innovative contribution of Iovino et al’s paper is a cluster trend analysis of the financial positions and performances of Italian and UK energy companies over the period 2008–17. The paper’s main findings are that the overall performance of energy companies in Italy was weak and that the incumbent successor to the state monopoly company retained a dominant position, while this was not the case in the United Kingdom. Generalizing from this comparison poses wider questions for state and regulatory bodies regarding the effectiveness of the liberalization and transformation processes for energy utilities.

In the issue’s second paper, “Sustainable power purchase contracts for local industries from floating-solar and pumped-hydro integration”, Hari Raghavendran, Derek Bunn and P. Srinivasan analyze the technical and business cases for a hybrid floatingsolar and pumped-hydro facility to provide secure, baseload power contracts to local industrial and commercial users. Based on a realistic hydrological setting with a range of assumptions for both the floating-solar and pumped-hydro installations, daily operations are optimized to provide different levels of secure baseload power purchase agreement contracts. This research shows how the premium for baseload contracts depends on the size of the contracts and the size of the solar installation. The premiums are the opportunity costs to the hydro operators from potential sales to the wholesale market. The authors find that the premiums are affordable to local users, and that the combination of solar and pumped storage thereby enables a hydro operator to offer higher levels of secure baseload power, throughout the year, to local industries where the national power resources are otherwise unreliable.

Moving on to look at market level behavior, our third paper, “Herding behavior in energy commodity futures markets amid turmoil and turmoil-free periods” by Mondher Bouattour, Amine Ben Amar, Mohammad Isleimeyyeh, Shawkat Hammoudeh and Amir Hasnaoui, focuses on herding behavior among five energy futures markets: light crude oil (West Texas Intermediate), Brent crude oil, heating oil, natural gas and Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline. Surprisingly, the authors’ analysis shows a lack of herding over the full sample period, which includes both bullish and bearish markets. However, herding behavior was detected during both the 2007–9 global financial crisis and the war in Ukraine. By contrast, no evidence of herding was found for those futures markets during the Covid-19 period. Bouattour et al’s cross-herding investigation shows some significant cross-markets herding effects. While the natural gas market evolved inversely to the other energy commodity markets during the financial crisis and the conflict in Ukraine, all markets moved together in the same direction during the Covid-19 pandemic.